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Article for Licensing Today Germany, Issue 2001
Author: Andreas Fügner

One does, what one does best!

Germany - a licensing market with good perspective

To establish a new brand today is almost impossible to finance. According to experts, one has to invest 150 million Deutsch Mark alone over the first three years in order to reach brand awareness at 20% of the population.

At the same time the importance of branding is increasing rather than shrinking. Without a well-known name it is difficult to penetrate new product ideas. In addition the process of concentration at retail leads to shrinking margins. The growing number of retail brands pushes aside ?no name?-products and weak suppliers. ?No name?-manufacturers become service companies for the retailer and are increasingly easier to replace. Thus, more and more manufacturers tae on licenses, if they want to introduce new product, increase sales and improve their position as a supplier to retail.

The situation for licensors is similar. Facing high costs of the introduction of a new brand they concentrate on their established brands as a potential for growth: They diversify or develop line extensions under the umbrella of their well-established brands.

But marketing and sales management gets insecure, if the relevant distribution channels are unknown. Do they know enough about those channels? Are those channels worth to set up a new sales team? Very often the answer to those questions is no. Then it is less risky to enter the channels with a partner who knows the distribution channels and has the relevant knowledge about the product group. On top with a license time to market is usually shorter and both licensor and licensee gain from faster return of investment.

So it is no wonder, that facing the decision between make or buy, the alternative of licensing grows in importance in Germany from year to year.

Differentiation: It looks like a brand license, but it might not be one

Be careful! Not all licenses are brand licenses. The different kinds of licensing open a broad spectrum of cooperation. And some ways of cooperation have little to do with licensing, like the common Co-Branding. In co-branding two or more brands appear together on the same product. Well known examples include Schoeller Möwenpick Ice cream, Lufthansa luggage by Rimowa and Porsche Design Watches by IWC. The combined brand images are supposed to create an added value for the customer.

In general: A license is the transfer of a right of usage. This cooperation between licensor and licensee has many ways:

The so-called Character-License and Merchandising are two of the most established ways of licensing. Today those transfers of rights are a common part of revenue streams within the entertainment and sport industries. The main goal of the licensing partners is to take advantage of relatively short attractiveness of movies, books, music products, events, comic characters, sport teams, video- and computer games to sell standard products: the souvenir-t-Shirt from a rock concert, the coffee mug with logo, the movie star poster, the book along with the movie, the fan magazine accompanying the soap opera, the jersey from a soccer club, the card collection of characters from a computer game. This list could be endless.
In contrast to brand licensing no new product is created in merchandising or character licensing. Mostly standard products are just branded with a new logo or print. These articles then have a higher value, or are valuable only through the logo ? like the card collection of soccer stars. Those licensed products usually have a short lifetime. With shrinking consumer interest in the licensed property sales of licensed products declines. There is always a new movie following last seasons hit, a loosing soccer team sells less fan merchandising.

Käpt′n Blaubär and TÜV-Seal

Another kind of licensing is Promotion-Licenses: Products or services become temporarily more attractive on an emotional basis. This is done through add-ons, in advertising or an packaging: The Telekom advertises with the Pink Panther, McDonalds throws a toy into the junior bag, TUI advertises its youngster club using the well known TV puppet Käpt′n Blaubär. Here too, two or more brands are used together. The licensor gains through royalty income and publicity for its property, the licensee and his product ideally experience an increase in awareness and positive image.

Similar to co-branding and promotion licenses quality seals and seals of origin are used along with a product brand in advertising and on packaging. The owner of the right to the seal gives approval for the usage of the seal. Examples are ISO-Certificates for quality management, TÜV-seals, Ökotex, DIN and others: A well known brand or quality mark is used for existing products or services to improve consumer confidence and increase their value.

With testimonials or spokespeople personal rights are transferred. Another party is allowed to use a person?s name, signature, the picture or a combination of those for advertising. Her too, no new product is created: existing products are recommended or offered by a celebrity. The offer or the cause gains trust at consumer level. Here the border to brand licensing is fluid: Celebrities from sport and entertainment like Madonna, Boris Becker, Michael Jordan, Pele, Beckenbauer or Tiger Woods are certainly close to brand status.

And, last but not least, whole industries depend upon know-how-licenses and patents, like the software branch. IBM licensed its PCs and beat Apple. Telcos buy licenses to offer cellular services and the pharmaceutical industry is heavily trading patent licenses. The electronic industry is licensing technology and breweries are licensing mixtures.

The Major League: Brand Licenses

An established procedure in the USA, in Germany relatively new way of licensing is the brand license. Here the right to use a brand is transferred: the brand owner allows another party to use the brand to produce and market products or services. Licensee and licensor in synergy develop, produce and market new products or services in line with the brand image.

Products from well-known brands enjoy higher acceptance with retailers than products from no name companies. The brand gives the licensee the benefit of consumer trust and is often the door opener to new target groups and markets. Last but not least branded goods usually have higher markups and thus deliver higher gross profit and profit for the licensee.

The licensor on the other hand reaches a higher return on past advertising investment, enjoys an increase of the brand value and thus his company, he ties the consumer closer to the brand and gains new points of sale for his brand. Brand licensing is a classic " win-win-situation ".

Consistent Quality and Communication in line with brand image

All brand licenses share one important detail: The licensee, usually a manufacturer, who stays behind the scene or is mentioned only in the small print, uses a brand for his product.

A distribution license gives the licensee the right to sell and distribute certain products or services. Production stays under control of the licensor. Those licenses are very common. Most independent sales representatives have the right to use the brand and so do most importers of foreign goods. Mostly distribution licenses are limited by geographic regions.

When giving out a production license the brand owner allows a party to produce and sometimes develop products. Sometimes even services are licensed. For example Mercedes Benz in some areas licenses the performance of repair and maintenance. So does ADAC, the German equivalent of AAA. The main detail here: The brand owner charges the customer for product or service. The licensee charges the licensor for production or services rendered under the umbrella of the brand.

When giving out a full-fletched license the rights are transferred to another party for development, production and sale of products under a brand. But the licensor should keep in his hands brand communication and - most importantly - he should permanently check the quality. Because a brand is defined by consistent quality and communication in accordance to the brand image.

Most brand licenses stay hidden from consumers. Who knows, that Davidoff is neither producing nor selling its perfume, coffee and its accessories. That Camel has licensed shoes, apparel and accessories. Möwenpick coming from restaurants licensed coffee, ice cream and jam. Granini, marketing juices itself, licensed fruit drops.

The trend towards licensing is very obvious within the fashion industry: Calvin Klein is completely licensed and so is Joop. Pierre Cardin at one point in time had given out over 800 licenses. Jil Sander licensed perfume, cosmetics, and accessories. Ralph Lauren for casual wear, accessories, perfume, wall paint, home textiles. Christian Dior, Yves Saint Laurent, Chanel, Fendi, Escada, Chloe, Strenesse, van Laack, Bernd Berger, Bogner, Bruno Banani, Tommy Hilfiger - all those brands are licensed.

Germany: A licensing market with a positive outlook

Brands continue to attract consumers enormously. Today consumers are forced to make more buying decisions than ever. That is a given in established markets like household appliances, cars and food, as well as in new areas like cellular services, utility, internet services or private pension. In markets with too many choices to know them all, with hardly differentiated offers and with the repetitive need to choose, brands offer orientation and security to the consumer and the retailer.

At the same time brands can be gatekeepers to or creators of large communities. ADAC, Der Deutsche Fußballbund ( the German Soccer Association) or the Harley Owners Group combine more -brand loyal- members than some political parties of today. Here are huge chances and opportunities for licensing.

There are thousands active licenses in place in Germany. The famous children TV program Die Sendung mit der Maus alone has licensed well over 1,500 products. Naturally different licensing markets are at different stages of a life circle - mostly in line with the life circle of the branch. For example the food and beverage industry, Germanys single biggest consumer market, has plenty of licenses in place already. Never the less, there is a lot of space for more to come. As long as still over 90 % of all product launches fail, brand licenses are promising better results.

The pros for brand licensing are clear. Companies like Coca Cola, Calvin Klein and Microsoft are proof, that one can become a worldwide brand solely based on licenses. This is where a lot of potential for profit gain is still uncovered by German brand owners.

Compared to self-production licensing is faster, less risky and binds less capital. Instead of buying know-how or go through a long learning process, a licensor takes advantage of second party recourses. He saves time and money and is insured against the usual mistakes of start-ups. One does, what one does best.

The author: Andreas Fuegner, LicenzCo