The Brand Licensing Process — Step 2: Determine How To Win

Once the product category that satisfies the brand extension goals and creates positive associations for your brand has been identified, the next step is to determine how to go about executing the extension. Any marketing activity requires substantial resources and before a project is begun, the brand owner must determine whether the company has enough resources to complete the endeavor. There is nothing worse than starting a project and then having to terminate midway due to lack of resources.

So how should the brand owner determine the best way to go about entering the product category that has been selected? A first step would be to mobilize key departments within the organization to conduct their own due diligence.

When contemplating entering a new product category, the first step is to determine whether the company has the competency to design, produce and market the product with internal resources. When we refer to internal resources, we are referring to either the company’s manufacturing capability to produce the product, or its ability to source the product competitively from one of its third-party suppliers.

One way to accomplish this is to delegate the operations team to evaluate the competency of manufacturing or sourcing the product and the finance team to conduct a cost/benefit analysis of manufacturing versus sourcing the product. If the analysis confers with the ability to produce the product, the next step is to determine whether there is sufficient budget and capability to market the product. Are there adequate resources to invest in product development, advertising and promotional activities? Do relationships exist with distributors and retail channels through which the product will be sold? Is there sufficient presence in enough geographic locations to make the brand extension viable?

Even though it may be preferred to manufacture the product or source it and price it competitively to earn a healthy margin, the company may lack the resources or the capability to market the product effectively. This can affect the decision whether to manufacture the product internally.

If at the end of the analysis, it’s determined that the company has the capability to design, produce and market the product, it should go ahead and proceed with product development. However, if a company does not possess the capability to produce the product internally, it should look at the other options available.

One way to extend the brand into the new category is to acquire a manufacturer of the product to make it and then market it using your own resources. This option is often harder than it seems. For one thing, a company would need extra cash flow to fund such a transaction. Also, acquiring new businesses is a time-consuming proposition. First, potential target companies must be identified. Next, due diligence must be completed before negotiating on a price. Once acquired, the company must be integrated within the existing company structure. Because of the lengthy process, critical time can be lost in launching the product. Even if a company decides to go with this option and the timing fits, it still may not have the marketing budget or the capability to go forward.

Figure: Different approaches to licensing

The other way to extend the brand externally is to license the brand to a manufacturer of the product in the same category. As mentioned in previous sections, there are several advantages to licensing a brand. To begin with, the manufacturer (or licensee) not only possesses the capability to manufacture the product but also to market it, having done so for unbranded items or lesser-known brands. They also possess the necessary relationships with distributors and retailers to make a success of the program. On the downside, the brand owner forgoes some control when they choose to license their brand. However, entering a new market via licensing has lower risk in terms of investment.

You may decide to enter a new product category via licensing as you evaluate your go-to-market strategies. Alternatively, your brand could be solicited by a manufacturer who believes his product would be a good fit for your brand. This would then start the process of the brand marketing team evaluating the product category of the manufacturer from a brand extendibility perspective.

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