As an importer or retailer, you frequently consider creating your own brand to target higher selling prices and grow your business. How about if you developed licensed products from existing brands to help you achieve these goals?
After a couple of researches and brainstorms with your team you quickly realise that this very attractive idea of creating your own brand also comes with a lot of questions that you hadn’t really anticipated at first. What is going to be my brand position? Who are really going to be my customers? How am I going to communicate around my brand? How am I going to protect my brand?
At Willtech Gift, we have created our own brand of Novelty Stationery objects called Colormotion over 25 years ago. In 2017, we have decided to expand our product ranges and have opened our brand to a whole new universe of Decorated Objects for Gift and Premiums. Based on 30 years of experience in designing and manufacturing Decorated Objects for the Pylones group, we have released over 200 references under our new brand called Colormotion Household on this first year of diversification. Nevertheless, we also consider licenses as a key to help us grow and everything that follows is what we have learnt from our own experience.
Licensed products will help you start selling products that people already know
You have a great deal of creativity, have managed to create your first collection of products and are ready to hit the market and rock the world! Well, the story is just starting for you. Sorry for the spoiler, but we now live in a world where thousands of new brands are going to hit the market the exact same day as yours. Good luck to find a way to stand out!
How about if you came to a market where people already new your brand? This is basically what licenses offer you. Concept of licensing is clear: a business arrangement in which one company gives another company permission to manufacture its product for a specified payment ( https://goo.gl/d3QDjh ). In other words: use a company’s brand awareness to develop your own products.
If your choice of license is relevant, your go-to-market time should be much shorter considering that you are using a brand that is already popular (or you consider that will be in a reasonable period of time).
Licenses have marketing plans to promote their latest news and you benefit from it
Considering that brand awareness is one the key elements of the success of a licensed product. We recommend you consider both immediate brand awareness and also the marketing plan that your potential licenser is planning to develop in the years to come. It’s sometimes difficult to have a precise idea or relevant information of the investments of a brand in the years ahead. We advise you to look for a general overview on what the licenser is planning to release in the upcoming years. Considering the usual plan of actions that this licenser has put together for previous releases, you will be able to estimate if you are dealing with a license that is in growth or slowdown phase.
An illustrated example of this advice based on an entertainment license like Disney would be to consider what are the latest releases scheduled in the next 2 years. Each movie release usually comes with a powerful marketing plan designed to generate as many movie tickets as possible. Good news is that a license like Disney will be able to create an incredible brand awareness for its characters that will generate millions of USD of turnover in tie-in products. Your question as a potential new Disney licensee won’t be “do you consider their marketing plan to be powerful?” but “do I have the rights over the relevant characters for the upcoming releases and marketing plans in my distribution agreement?”
Licenses help you design new products and new collections
After brand awareness, the second most important key to a successful collaboration with a license is their capacity to give you the tools to create your products based on the brands success. Usually, licensers will give you access to data bases of graphic designs and will explain to you the “does and don’t do” in a document called style guide.
In order to evaluate the business opportunities that the license you are considering will give you in terms of product development it is important to have a preview on the style guides and estimate what will be the timing for new style guide releases in the upcoming years.
Flexibility is the key for a long-term Licenser / Licensee relationship
An other key of long-term collaboration comes from the capacity to allow the licensee to make a maximum turnover while respecting terms of contract and the brand image of the licenser. It is understandable and necessary for a licenser to fix limits in terms of business contract, graphic identity and quality of products manufactured under the name of the brand. These obligations aim to maintain a good brand image and therefore maintain the long-term viability of the brand. Nevertheless, the investment in time and money for the licensee will also imply a will of return on investment that requires good communication and a certain amount of “laisser faire” on the licenser’s side in order to allow both parts to meet their goals.
A very common example would be a business opportunity outside of the market territory agreed in the general license agreement could be granted as a special distribution permission in order to let the licensee know that the licenser will be flexible in case of opportunity that will benefit both parts.
Licenses process’ help you to reach higher standards
Nowadays most of the major licenses require that their licensees meet a certain level of requirements in terms of social, technical and quality control standards in order to make sure that their brand image will stay as high as possible. The most organised and powerful licenses require their manufacturers to pass internal audits while other will make a check based on existing third-party audits (like BSCI for social or ISO 9001 for Quality Management, etc.).
At Willtech Gift we consider our licensers requirements as way to improve our technical, social and quality level. Rather than looking for arrangements with third-party auditors (as most of players do in China) we have decided to put in place a continuous improvement system in order to use the evolution of licenses requirements to improve our organisation and standards.
Licenses can help you expand your network and business opportunities
A very important aspect when selecting your first / next license is to consider its capacity to help you develop your business. This development obviously, should be based on the new opportunities created by this license but also on potential impact on your current ranges of products. In other words, will this new license help you meet new clients that will also be interested in your other ranges of products?
Generally speaking, when you decide to sign a new license, you will become part of a retail system that already existed before your company joined. By signing your distribution agreement, you expect to benefit from this initial system in order to acquire new customers that are interested by this license. Your goal will be to serve them the best you can with the licensed products but also after a while to test and see if your new clients are interested in some of your existing ranges and products.
But licenses also have a price
In general, license distribution agreements come with a royalty rate (between 8% and 25% of FOB price for export companies). In addition to the royalty rate, some licenses’ distribution agreements establish a minimum guaranty or advance of royalties. Both royalty rate and minimum guarantee should be taken in to account while making the business plan as they will affect your gross margin and profitability on each product that you will sell.
This is why licenses need to be strong
The other important aspect of the cost of a license is to be taken into account regarding the price strategy of your item. The added value of the license on your product should help you sell your product at a higher unit price.
For example, if you consider a licensed pencil case for a back to school program, there is a high chance that the final retail price will be higher if this product is branded with the latest license of children’s favourite character of the moment. Nevertheless, the product you are selling is a pencil case and its price should fit in the general market price range of pencil cases. This is where the profitability of your product needs to be studied precisely as the price elasticity of first necessity products like pencil cases is low. You need to make sure that you will maintain a reasonable level of profitability, even if you consider your licensed product to be a lost leader product.
This extra cost that needs to be paid by the final consumer in order to acquire a licensed product should always be considered as an opportunity for business development. Therefore if the license is not popular enough in certain geographical areas, our recommendation would be not to push the sales on this market as the benefits of the brand awareness will not allow to sell at a higher price. Pushing a sale could seem like a good idea on a short-term base but will very likely backfire at you when you BtoB client doesn’t meet its expectations in terms of sales and will jeopardise your long-term business relationship with him.
Licenses can create competition
Finally, as we have just discussed that the pricing of a licensed products is important and will surely impact the sales for your BtoB clients. It is extremely important to check before you sign how many players have already signed the same distribution agreement for the same product category as you are about to sign. Keep in mind that if you are ready to invest in tooling and design in order to develop your range you will need to reach breakeven as fast as possible and then start making benefits. If there are too many players on the same license, competition will make it very difficult for you to adjust your selling price and therefore make it harder for you to be profitable.
At Willtech Gift, we currently work with 3 licenses (The Little Prince, The Rabbids / Les Lapins Crétins and Disney) and this choice has helped us to grow and experience all the above situations. Over the past 10 years, we have had to adjust and reorganise our way of handling some partners but can definitely say that this strategy has helped our company develop over time.
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