This is one of our favorite topics with board members, specifically when it comes to licensing the corporate brand—or not. Ultimately, it doesn’t truly matter whether a brand considers licensing; simply assessing your options gets you into a thorough discussion of the true value of branding and brand management. At the end of the day, your brand is your organization’s most important intellectual asset, and it deserves to be treated as such.
Too often, we notice that many marketing, brand, or communication directors don’t fully understand the relationship between the value of the brand as an asset and the investment level it requires. CFOs do grasp the concept, and this is the time to initiate a discussion with their directors. CFOs should emphasize that the brand needs to be treated as a strategic investment like any other asset, and that investments need to be maintained over time, at a cost.
Exploring The Concept
Before we go into more detail on the subject of brand licensing, let’s explore the concept further. The idea of licensing is that you give someone else (the licensee) the right to use your brand (you’re the licensor) for a certain value, expressed as a percentage of turnover or revenue (the royalty). The simplest example is that you can buy a black cap without a logo for $1.95. Whereas the same cap with a Nike swoosh stitched on it sells for $14.95. Hence, you can imagine that having the intellectual property rights to apply this swoosh has a value of somewhere between $0 and $13.95.
So, How Does it Work?
The licensee would never want to pay the whole difference, as he then wouldn’t be able to generate any margin. Hence the exercise would be pointless. In the business world, this implies that there’s a market for how much royalty one would pay for brands. Obviously, the royalty will vary mostly based on two parameters:
- The sector: luxury goods will command a higher royalty than commodity goods
- The strength of a brand in a sector: strong brands—stronger then their peers—will command a higher royalty range
We will not elaborate further on exactly what it is that gets licensed in legal terms. For now we’ll assume it’s the trademark and associated rights that go with it.
The Relevance Of Licensing For Corporate Brands
Similar to how licensing works for brands externally, many international organizations own the brand at a group level, or within a Brandcompany (a separate legal entity that owns the intellectual property rights of the corporate brand or organization). This is done to protect the ownership of the brand where there are transactions within the business, and to ensure that the ownership is secured. In exchange, the Brandcompany charges an internal royalty fee to its operating companies.
Apart from the legal ownership and protection-perspective, this construct offers great opportunities for setting up a decent infrastructure and the governance for managing the brand across an organization. The simple fact is that the operating companies pay a charge which comes with a license or royalty agreement, and within this agreement, the rights and obligations for its use are specified. With this agreement in place, the management of the brand is more strongly governed.
As you can imagine and might know from your own experience, there are many internal discussions about how to manage and use a brand within organizations. We recommend to always check the applicability of a potential Brandcompany construct with the internal tax department, as the international framework of tax rulings sometimes enables synergies in this area. Different to many strategic synergies and benefits, the tax synergies are cash-advantages for organizations when applicable after thorough analysis.
Contributed to Branding Strategy Insider by: Marc Cloosterman, CEO, VIM Group. Excerpted and adapted from his book Future Proof Your Brand.
The Blake Project Can Help: We offer brand licensing workshops to help brand owners develop a strategy for licensing or refine an existing one. Another way we serve our clients is through a Brand Licensing Audit which is an essential guide in considering, building and/or fine tuning a program. Please email us for more.
Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education
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