Three ways to expand the licensing value of your brand

To best help you understand how to expand the licensing value of your brand, let's take a step back and reflect on why companies choose to brand their products in the first place.

Companies brand their products to differentiate them from their competitors'. For example, most consumers have no problem differentiating a Coke from a Pepsi. By giving their products a brand, companies can begin a dialogue with their consumers about their products attributes. Over time, a consumer learns he/she can rely on the brand to deliver a consistent and expected value. One of the best examples of this is the Tiffany brand. Whether or not you have every bought from Tiffany, you know the brand is synonymous with the highest level of quality, service and reliability in jewelry. In fact, Tiffany has consistently delivered on this promise for almost two hundred years. For this reason, a Tiffany consumer will not buy from any other jeweler. Moreover, if ever asked where her jewelry was purchased, most women enthusiastically proclaim the Tiffany name.

When consumers are delighted by a particular brand experience, they begin to bond emotionally with the brand. They become brand loyalists and advocates – buying the brand more often and recommending it to others. This behavior serves to build the brand's reputation. In fact, consumers will often purchase a brand for the first time because of its reputation. The brand, therefore, adds value and certainty to an otherwise unknown product. The stronger a brand's reputation, the higher the value of the brand and the greater revenue it will drive for its owner. Prospective licensees want to license brands with the strongest reputation as these are the brands consumers demand and retailers prefer most. The stronger the brand, the higher likelihood that the licensed products will sell in and sell through.

Brand loyalists and advocates look to their preferred brands to deliver more and better products year after year. When this occurs, the brand gains “permission” to extend into categories that compliment its original offering. For example, the Mr. Clean brand, owned by P&G, was launched in 1963 as the first household liquid cleaner. Over time, the brand gained a strong reputation for its ability to clean effectively on a variety of surfaces. By delighting its consumers, Mr. Clean built significant brand loyalty and allegiance. When asked, consumers told the Mr. Clean brand team that they expected the Mr. Clean brand to offer additional products that simplified and enhanced the household cleaning experience. To satisfy these consumers, Mr. Clean developed a line of branded mops, brooms, and brushes. These products were met with enthusiasm and over time, consumers demanded even simpler and more effective ways to clean their homes. Today, the Mr. Clean brand can be found on an expansive list of products including scrubbing tub and shower pads, Magic Eraser cleaning pads, autodry car wash systems, multi-surface disinfecting wipes, rubber gloves and many other products. In fact, many of these Mr. Clean products are licensed. By owning a brand that can be extended into numerous categories, companies are able to attract and retain multiple prospective licensees. Using licensing to compliment internal resources actually accelerates a company's overall time to market.

The licensing industry exists today because brands cannot be created over night. In fact, it takes years and millions of dollars to create brands that are trusted and valued. Companies which own these brands are therefore naturally protective of them, and rightfully so. A brand's reputation can be easily tarnished when it fails to deliver on its brand promise. When this happens, consumer loyalty can erode quickly resulting in lost sales. As such, many brand owners would rather choose not to enter a category through licensing than risk damaging their brand. However, successful companies know that a well run licensing program can strengthen their brands and provide a substantial increase in profitability. Companies with successful licensing programs select best in class companies to license their brands.

Consider the Walt Disney Company. They furnish their licensees with clear guidelines on how the brand's standards are to implemented and provide a straight forward approvals process that enables the licensee to get their licensed products into market quickly and at a fair profit. These licensees, in turn, deliver world class innovative products that over deliver on the Disney brand promise thereby strengthening its brands. With a well run licensing program not only is the brand well protected, but licensees can quickly commercialize best in class branded products.

This not only strengthens the brand's overall reputation, but increases the licensing program's overall value.

In summary, three ways to expand the licensing value of your brand include:

• Strengthening your brand's reputation

• Increasing your brand's extendability

• Delivering a best-in-class licensing program

Pete Canalichio

Consumers Cut Back Further on Credit

Despite a rise in the Consumer Confidence index over the last several months, consumer borrowing in the United States fell a record $21.6 billion in July from the previous month (NY Times, September 8, 2009). This was the largest decrease in borrowing since 1943 despite the oversold and highly popular Cash-for-Clunkers program which began in July. The cutbacks which affected all areas of consumer borrowing – revolving and non-revolving (not including mortgages) – significantly exceeded analysts predictions of $4 billion. With this drop, the annual pace of change has gone from -4.2% in May to -7.4% in June to -10.4% in July.

Like businesses, families across America are continuing to get their personal balance sheets in order. Less and smarter debt means more security and personal freedom. Families want to feel confident that they can continue to stay in their homes and put food on the table. For the majority, this requires they spend within their means, reduce debt and finally begin to save. Wherever and whenever possible, families are making do with what they have. Credit cards and bank lines of credit which in the past were rationalized to take that family vacation or buy a new car because “we deserve it” are now seen as emergency funds for when things get worse.

For businesses which thrive on consumer spending this suggests a much slower albeit more sustainable recovery. As a result unemployment in the US will likely continue to drift higher over the next six months before it peaks suggesting a slow and perhaps erratic rate of decline over the next several years. In this environment, consumers will only buy when they feel they have to or when they see tremendous value. Businesses which desire to succeed in this market must determine:

• Where globally there exists demand which they can satisfy
• Which businesses and brands are thriving in this economy and more importantly why
• How they can deliver more value to consumers at a better price

Conventional methods and sacred cows must give way to new thinking. Companies must begin asking themselves provoking questions such as:

• Are there competitors who should also be our partners?
• Can we source or license our products instead of manufacturing them?
• Should we reinvent ourselves?

It is clear that consumers' buying habits have changed and their appetite for debt has decreased
dramatically, permanently changing the economic landscape. With it, businesses which desire to thrive must also make dramatic and permanent changes in the way they operate.

Pete Canalichio

President Sarkozy

French Bankers Accept Restrictions on Bonuses

In a ploy to strengthen his political capital, President Nicolas Sarkosy this past week convinced leaders of his country's major banks to cut proposed bonuses by 50% and to tie the payout of those bonuses to long-term performance. Sarkosy knows that the French proletariat have become angered at what they have deemed excessive compensation paid for on the backs of the working class. If this narrative sounds familiar, it should. Recall last year's bonus payouts and lavish outings made by Merrill Lynch (now owned by Bank of America), AIG and others which received billions of dollars in TARP funding. Now Mr. Sarkosy hopes to make hay on the world stage at the G-20 Summit scheduled next month in Pittsburgh.

At the heart of this debate are the issues that separate capitalism from socialism. Capitalists believe that private ownership and free enterprise provide the most efficient economic structure; socialism advocates ownership belongs to the community as a whole. With so many suffering at the demise of the financial system, it has become easy to lay blame on banks and bankers who have notoriously been the most highly compensated. Virtually no blame has been placed on the government whose policies set guidelines for reserve requirements or encouraged relaxed standards in lending. In this have versus have not scenario, world leaders with socialist tendencies have an audience of tens of millions eagerly waiting to hear their message.

The likelihood is that Sarkosy will be warmly received by the Obama administration during his visit in September and that the two will tag-team on ways to influence the amounts and methods to which banks compensate their employees. As changes in compensation policies begin to take effect bankers directly impacted will look for opportunities to regain their “lost” income resulting in a flight of talent from the US and France to countries where the laws are less imposing. The US, which has been a magnet for the world's most gifted and talented, will weaken over time if policy changes are allowed to reverse this polarity. To maintain its status as the world's financial epicenter, the US must ensure the virtues of capitalism go unimpeded. Instead of directing banker compensation, the government should concentrate on revising banking policy that reinforces a strong and sustainable banking structure.

Pete Canalichio
August 29, 2009

Fed extends consumer lending program through March

The Fed sent a strong signal on August 17th when they extended the Term-Asset-Backed-Loan-Facility (TALF) that the financial markets continue to be hampered by investors unwillingness to buy loans backed by student loans, auto loans and credit cards. Traditionally these type of loans were some of the safest and most liquid. With the fallout in the economy last September and the corresponding jump in defaults on credit cards and other asset backed loans, investors have shied away from these types of loans labeling them just too risky. Without a liquid market for asset back loans, consumers and small businesses cannot borrow the money they need. To offset the risk and spur investment, the Fed instituted TALF last December. The program which was intended to go from March through December 2009 has grown to over $36 billion and is now been extended through March 2010.

Until investors feel confident that market dynamics have been righted to the point that they can begin to accurately price debt instruments including asset backed loans, the financial crisis will persist. In the meantime, programs like TARP and TALF are artificially propping up the financial markets, but at what price? The Fed now holds $2 trillion dollars of debt in its efforts to drive the economy out of recession. This balance has more than doubled since last year causing some to question the Obama administration's economic policies and whether the United States might lose its AAA rating. A drop in rating would severely weaken the dollar and put a strain on the US government's ability to borrow money, especially if foreign governments lose their faith in America.

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For me personally, I am glad the US government has instituted TARP and TALF. For without these programs, hundreds of banks which are borrowing billions from the government every day would have failed bringing the financial markets to their knees. Instead of talking about “green shoots” we would be talking about the Great Depression of 2009. While we are far from out of the woods, we must begin to consider the consequence of the debt the government has accumulated and the inflation that will come when the economy finally rebounds. I hope Bernanke and his team stand ready again to take action.

Pete Canalichio
August 24, 2009

Retail sales fall 5.1% in July

More than a temporary setback

Andrea Chang's article in the LA Times last week entitled “Retail sales fall 5.1% in July despite back-to-school lures” exemplifies the mindset of today's US consumer. There is a “batten down the hatches” approach to this economic storm that has left most purchasing decisions being made on a case by case basis. Consumers are continuing to ask themselves “Do I really need this?” and then choosing not to buy. Most consumers have experienced a paradigm shift in the way they see the world. Precepts such as “my home will continue to increase in value” are no longer valid leaving the consumer wondering if any economic principles will stand the test of time. As a result, consumers are learning to live with less; some, in fact, have chosen to permanently simplify their lives as they prefer the reduced stress that comes with it.
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It's going to take a lot more than seasonal markdowns to entice today's consumer to start shopping again on a regular basis. Despite a 40% drop in the price of gasoline from its $4 per gallon peak in July 2008, consumers continue to purchase hybrid and other high mileage cards, if they choose to buy at all. There is an unspoken but pervasive fear amongst consumers that things may not improve for a while. “I may have a job today, but will I tomorrow?” or, “Will the housing market ever recover?” With unemployment approaching 10% and millions of homes going into foreclosure, retail sales will continue to languish. Consumers who make up two-thirds of the economy are not going to put their families' savings at risk unless they believe there is a fundamental change in our economic structure.

To get consumers shopping again, Americans are going to have to be convinced that the US economy has a long-term positive outlook. To get there, America needs to get through the financial and real estate crises that are paralyzing the nation. This will begin to eliminate the fear of deflation and entice consumers to hold onto their homes instead of leaving them in droves as they did this past year. Furthermore, unemployment rates need to stabilize and begin to decline. When America gets back to work it will also get back to buying more than the bare essentials. Finally, the US must embark on a well articulated energy policy that makes America less dependent on foreign energy and more independent from using its own plentiful energy resources. When these things are in place, not only will consumers feel better about shopping, they will have the resources to do so.

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Pete Canalichio

August 17, 2009