Does Brand Licensing Make Sense?

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 Strategy

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.

Top 10 Things for Early Stage Companies to Consider in Rolling Out a CE Product

Over the years, Channel Pacific has been involved with many early stage bootstrapped, angel funded or private placement funded technology companies looking to bring their consumer product or service to the retail market. I am often asked by early stage companies about the things that I believe are most important to being successful in bringing technology products to the retail channel. Here is my top 10 list:

1. Brand – have a brand story. Believe it. Be focused, not too general. Nobody believes that your early stage company will kill Logitech with its overly broad line of accessories products.

2. Elevator pitch – be able to communicate your company value in an effective and compelling way to anyone, anywhere through any medium including short conversation (the “elevator pitch”), presentation, email, or voicemail. In venture capital circles, you will be told that early stage companies will not be funded if the elements of a sizable available market, strong executive team, competitive advantage and/or defendable intellectual property, ability to scale your business and customer traction are not in place. Use this information and build a better pitch. Your ability to tell a compelling company story, not your 100 slide presentation, will get people behind you. Ask any seasoned CEO.

3. Marketing Strategy – The 4P’s of marketing. It has never been more important to get the product design (including packaging), pricing, positioning and promotion plans optimized before launch. Find an angle. Do some market research. Leverage PR as the best low cost way to get the word out about your products. Make sure to have a product roadmap and a channel strategy. Selling to any retailer who will take your product is not a channel strategy.

4. Strategic Selling – Use industry veterans like Channel Pacific to help you move quickly. Industry experience and networks can help you get from 0 to 60 mph in no time. Get in front of targeted retailers after high fidelity functional prototype and retail packaging concepts are complete. (BTW, no retailer wants to waste their time looking at your popsicle stick model). Get feedback on features, price point, margin requirements, competitors and logistics requirements from each retailer and leverage feedback before releasing final product. Collaborate with key retailers to make them part of the process.

5. Channel Rollout – Be smart about timing, retail partners and limit channel conflict. You and I like to feel special, so do retail buyers. No real partner should be the last one to know about your launch. Be mindful as to how to engage distribution and consider things such as promotions and/or minimum advertised price requirements (MAP).

6. Inventory and Cash flow – all early stage companies must deal with the issue that cash is king. Plan for your cash to be tied up as product inventory is shipped from overseas,  routed through distribution and ground shipped to retail hubs and on to stores. Next, expect net 60 terms and like any other industry, payment is not always prompt. Chances are that if your inventory does not sell through in retail, you will get the product back. There are lots of terms and conditions to consider. All of these factors should impact how you go about item 5 above.

7. Logistics and support – You cannot support a major retailer logistically if you have a small team. Outsource key functions such as warehousing, reverse logistics and customer support. In fact, outsource as many non-core tasks as possible so you can focus on brand and product.

8. Build a community – Use social media to help build a supportive community around your brand and products. Cultivate the early adopters and create evangelists that are worth their weight in gold. Use community feedback to make your products better.

9. Always look forward – The life of a CE product is very short – let’s say 9-18 months. Ongoing product refreshes are a necessary part of the business. Have a product lifecycle plan. Manage it well. This process is much like running on a hamster wheel but a necessary part of what we do. Enjoy it.

10. Reevaluate steps 1-9 on an ongoing basis – As you are successful, all the above will need to be reviewed again and again. Scaling a business means adding resources, re-looking at partners and redefining products and channels. What worked this year will break next year. Pat yourself on the back, getting here means that you have now achieved some level of success…

Your thoughts? How does your top 10 compare?

The Impact of Retail “Showrooming” on Vendors

For those of you that have not heard the term “showrooming”, it is a term that has been coined to describe the practice of consumers heading to a store to see a product in person and then proceeding to buy it from an online retailer, generally at a lower price. Mobile applications such as Amazon mobile for iPhone even simplify the showrooming process by allowing a consumer at a retail location to take an image of a product barcode with their mobile phone and immediately “price check” the product at Amazon.com.

Last week, the Wall Street Journal reported that Target’s CEO has penned a letter to vendors asking for their help in combatting this practice in their stores. Even Target, with all its clout as the second largest discount store chain in the US, is frustrated and feeling the impacts of this phenomenon. I am sure we are all very aware that Best Buy has also been having difficulty with the impact of online competitors such as Amazon.com.

TechCrunch has most recently reported on a PEW Research Center Study that suggests over the holidays, 38% of cell owners used their phone to call a friend while they were in a store for advice about a purchase they were considering making, 24% of cell owners used their phone to look up reviews of a product online while they were in a store, and 25% of adult cell owners used their phones to look up the price of a product online while they were in a store, to see if they could get a better price somewhere else.

Clearly, using one’s handset for purchase decisions is now going mainstream. In my mind, these events beg the question, “What fundamental changes will brick and mortar retailers need to implement to stay relevant as ecommerce pressures grow?” and “How will future retailer requests impact the branded vendors that supply the products to their retail stores moving forward?”. In considering the impact of such questions from a consumer electronics vendor perspective, I would expect increased short term opportunity for brands to partner with key retailers on exclusive skus, supply retailers with private labeled products (like Best Buy’s Rocketfish) or differentiate skus around value added bundles (Costco has demanded such support for years). But with these opportunities come the struggles associated with the increased costs and supply chain demands of  managing many special skus for a variety of retailers. These pressures are especially relevant for many of our clients, early stage technology companies entering the channel, possibly for the first time.

In light of the above trends, I would recommend that vendors find ways to design flexible product platforms that allow for simple product customization. By using colors, materials and finishes with flexible tooling configurations, vendors can create value and differentiation while keeping supply chain costs minimized. One great example of a vendor that understands this approach is Sol Republic with their line of Tracks headphones. Their modular design approach, use of colors and inter-changeable components allows for an almost unlimited assortment of products based on a few tooled parts and allows them to support retailers with “exclusive” skus as required.

Vendors that build this design flexibility into their product development process will position themselves to be more successful across the retail channel as brick and mortar retailers continue to evolve or fade away.

Why CES Matters – The Human Element and the Pictures that Say it All

I just returned from my annual trek to CES and like any other year I am exhausted from the logistics (getting from point A to point B is not trivial in Vegas during CES), the parties and most importantly from the nearly 30+ meetings I was able to schedule and pull off in less than 96 hours. I am also energized for the year ahead because I saw the hope in the eyes of the many vendors that I met that this will be the year that their new product hits a home run in the channel and a healthy CES is just the beginning to this annual dream.

There has been a lot of discussion this week by blogs, analysts and friends about the validity of CES in the internet era and if it is truly important now that a continuous flow of technical and product information is found daily on tech sites such as Gizmodo and Engadget. My belief is that there is significant risk of CES going away over time, the way of other industry shows, but there is part of me that believes that this would be a shame.

I still think there is great value in getting 140K people together from 35+ countries that care about the same thing – the ability to make human connections with many folks in the same industry ecosystem that may have an impact on your business success this year. The need for a human element in business is as strong as ever and is one of the reasons that the face to face meeting has not been taken over by the promise of video-conferencing – you get a better feel about a person when you are in the same room and that is important when your business is on the line. For the amount I pay for my short flight to CES, for the meal, hotel and party expenses and my CES badge (free if I get it early), I estimate that I save myself over 25 annual air flights to varying parts of the world by being able to have lots of meetings in one place. I am also a hardware guy, so seeing, touching and feeling products is meaningful and if I pay attention, it is possible to weed through the overly general trends broadcast by the media and focus in on those that will be impactful to my specific business segment. Case in point, nowhere did I see anyone in the media discussing that there were greater than one thousand self-proclaimed audio companies at the show this year – a significant change from last year. An important thing to know for my business.

I, for one, hope that CES manages to stay significant for some time to come. How else could I see all the latest gadgets, close business deals, throw a party overlooking the Las Vegas strip, ride in an elevator with Robert Horry (7 NBA Championship rings), lose $100 in a Ghostbusters slot machine and hang with 50 Cent? Viva, Las Vegas and Viva CES!

Let me finish this blog with a bit of the human element at CES – the sights and experiences at this year’s CES that made the annual pilgrimage a significantly interesting experience.

Our Product Launches at CES

OK – crunch time as we are flying to CES tomorrow for a week in gadget wonderland. Channel Pacific will of course, have some client products launching next week at the show and here is a preview of what you will see.

SMS by 50 headphones

50 Cent’s company SMS Audio is doing a hard launch at the CES show for his new premium headphone line up. SMS Audio will have a large booth in the south hall of the convention center so please stop by if you will be at CES. The SMS Audio team has done an incredible job in getting awareness around this product launch and through independent web analysis (thanks SocialRep!) we have verified that SMS Audio already has a huge share of voice through social media even before the official launch of their products.

Check out the Mashable coverage with some great images:

http://mashable.com/2012/01/07/top-10-tech-this-week-11/

Pear Sports
Welcome to the next generation of fitness products. The Pear Sports Square One product will be launching this month and they have done a fantastic job of building not only a superior fitness hardware product but also the ecosystem that makes it truly valuable to the user. I could talk all day about this product but their well produced videos say it all. Well done!
Exciting stuff. As always, please let me know what you think. Ok, off to CES.

Everyone has a New Year’s Prediction

I have seen my share of New Year’s predictions this year with most being overly general and not very insightful. How can you not be right saying that social media will continue to change the world? Now, I am no industry analyst but I would like to throw my hat into the ring, and share the items that I think will be impactful to the consumer electronics (CE) space in 2012:

1. New user interfaces (UI’s) will start changing the way we interact with CE products. Apple has shown us a cloud based voice interface named Siri and Microsoft has enabled gesture based input via the Xbox Kinect. These technologies have been around for some time but Apple and Microsoft have taken them mainstream. I don’t expect that we will be talking to our toasters this year, but I do expect these improved UI technologies to be leveraged for the best possible TV user experience later in 2012.(I am truly salivating over this one as my wife always messes up my remotes).

2. Social Media Analytics is Social Media 2.o. Everyone has seen that Social media platforms like Twitter and Facebook have had significant impacts in liberating countries and we all should continue to expect to see these social media tools continue to improve the free movement of information everywhere. (I also believe that personal VPNs like Anchorfree (www.anchorfree.com) will significantly increase the free movement of information). The next step in social media engagement is to integrate tools like SocialRep (www.socialrep.com) into the marketing process to leverage the vast pool of knowledge on the web to set brand and product strategies for companies moving forward. Consumer Electronics companies that engage in social media in this way will win.

3. Audio is more important than ever. Beats by Dr. Dre transformed the headphone industry by showing that lifestyle and the promise of improved audio for mobile devices is important to the general consumer. We should all expect further growth in this segment as new celebrities enter the frey (SMS Audio by 50 Cent is our client) but also because the ever increasing number of smartphones and tablets require a better headset experience to show off their true multimedia capabilities in delivering music and video. I would expect that all smartphones moving forward will improve the quality of their in-box headsets much like HTC and Beats are doing today.

4. The CE fitness market will get traction. Everything is finally coming together, Bluetooth low power capability for all types of sensors, low cost MP3 functionality, well designed, ruggedized, waterproof / sweat proof industrial designs and intelligent cloud based systems that coach, track and record everything you do. And this is not just for better workouts, this technology will allow us to monitor our vital functions all the time for better health.

5. Brick and Mortar CE retailers will continue to struggle to add consumer value. Walmart has huge scale and touts the lowest price. Amazon and their 3rd party ecosystem has cataloged a huge inventory of CE products, has over 100M customers in the US and enables mobile apps for you to price shop while standing in a brick and mortar store. Apple retail has incredible products and an in-store experience making it not just a store, it’s a destination. Outside of these extremely well positioned retailers / etailers, there will be significant instability. We have already seen industry giants like Circuit City and regionals like Ultimate Electronics fail due to lack of in-store consumer value, and Best Buy now struggles. If you cannot find a way to add significant value in store, the price leaders will kill you. Expect more fallout in 2012.

Look forward to seeing you at CES in one week to get a better picture of what to expect this year. What CE trends do you believe we will see in 2012?