Consumer Electronics and Fashion Worlds Collide
As the consumer electronics industry has evolved, we have seen the worlds of fashion and consumer electronics collide in way that has created many licensing business relationships between established lifestyle brands looking to expand their brand awareness into new categories and consumer technology companies looking to build their business by leveraging existing brands. Almost everyone is aware of the Beats by Dr. Dre and Monster license agreement that changed the landscape of the headphone market space but there are countless other fashion or lifestyle brands with licensing programs including Michael Kors, Paul Frank, and Disney. This begs the question: When does it make sense for a consumer electronics company to license a brand? Let’s take a closer look.
Licensing deals need to fit in well with your overall company goals and strategy for the term of the license agreement and hopefully provide a springboard to continued company success after the license term. The licensee should be able to utilize existing company resources and infrastructure so that with reasonably small incremental effort during the license term, the licensee can significantly increase its current business and prepare to enhance its future business by building off the licensed brand engagement. It is very important for a consumer electronics company to recognize that once the license term is up, a majority of the effort that was put into building the awareness, products and the channel for the licensed brand is ultimately lost. So then why would anyone license a brand? Here are some of the possible benefits:
1. Increased revenue and profit – By licensing a strong relevant brand, a company can accelerate growth by developing a range of products under that license that drive increased sales and profit for the company. Any increase in the bottom line can help the licensee fund other core company goals. We were able to help one of our clients close a fashion license that increased sales by over $5M is less than 12 months, not an insignificant percentage of the overall company’s revenue. This allowed out client to finance other key parts of their business.
2. Product and Market Knowledge – Every licensee is ultimately responsible for creating products under the licensed brand name but many licensors have experts supporting their licensing team that they will leverage to oversee the quality of the licensee’s products. This expert knowledge base often has critical information in developing products for a specific market segment that the licensee may not have developed in house. There are almost always things that a licensee can learn during a license relationship that can accelerate its understanding of market requirements, product development or even supply chain process. I once was involved in a Disney license where our company learned all the critical requirements in how to bring kids products to market, knowledge our small company was able to use to drive our own kids product lines after the license contract was complete. This example is a case where the licensor makes the licensee better, faster.
3. Breadth of Channel – An additional portfolio of license brand products can help a company penetrate channels that may not have been previously accessible. This can help a company broaden its reach in the channel and leverage the relationships made in these new channels to roll out future products under its own brand. During the term of an IBM license agreement, I was once able to increase my company’s revenue and profit, penetrate key retail channels like Walmart and Best Buy leveraging the licensed brand products and use this acquired channel knowledge to assort my company’s next generation products on the same retail shelves.
There may be many additional benefits resulting from a positive relationship with a licensor so be sure to spend time strategically analyzing what you want out of the deal before engaging. Every relationship has its strengths and weaknesses so it is important to make sure that a licensor meets the key criteria of a good partner that aligns with your company’s goals. If one chooses the licensor wisely, negotiates a reasonable license term and works hard to maximize the license deal for the licensor (and therefore the licensee), the overall experience can certainly help accelerate a company forward.