Brand Licensing Workflow 101: How to Navigate the Brand Licensing Value Chain
Brand licensing is an important tool for increasing brand exposure and awareness, and it’s an efficient way to create additional income streams for a brand.
Intellectual property control and management are integral responsibilities licensors take on when licensing their brand.
Brand Licensing Workflow in a Nutshell
Brand licensing enables intellectual property owners to gain access to royalty income without the risks and business costs of manufacturing and distribution. Successfully establishing a profitable brand licensing program relies on a clear strategy with carefully devised operational segments.
Brand licensing workflow involves:
- detailed licensing program strategy
- intellectual property protection
- sales management
- contracts, style guides
- product development
- brand assurance
- financial management
- and licensing management software
Because brands risk damaging their image and potential financial loss by leasing their intellectual property, it is crucial for a licensor to oversee all aspects of property management and control.
In order to maintain a brand’s reputation, steps must be taken to avoid oversights and errors. Implementing a strategic brand licensing workflow is essential for smooth and successful business transactions.
Good brand licensing workflows rely on the following framework:
- Licensing Program Strategy
- Define intellectual property
- Define geographic markets
- Intellectual Property Protection
- Determine the form of protection
- Confirm ownership
- Sales Management
- Conduct market research
- Determine guidelines
- Evaluate licensee
- Negotiate terms
- Exercise due diligence
- Create deal memo
- Draft NDA
- Style Guides
- Provide images, logos, and graphics
- Product Development and Brand Assurance
- Generate approvals
- Develop prototypes
- Create promotional material
- Financial Management
- Collect royalties
- Perform audits
- Supply work tools
- Licensing Management Software
- Implement brand licensing software
In this article, we’ll walk you through each step and teach you how to modify each according to you brand identity and overall goals.
Licensing Program Strategy
Brand licensing is an extremely successful and lucrative business strategy used across industries to broaden revenue sources and create brand awareness. Brands rely on third-parties to distribute products and reach markets they might not have access to.
Creating and implementing a new brand can be very time-consuming and success is not guaranteed. Producing licensed products from a reputable brand increases the chances of success for licensees and gives them access to markets and retailers they normally couldn’t reach.
Avoiding common mistakes and implementing a solid brand licensing workflow helps all stakeholders reach their desired outcomes.
Before entering the licensing business, a brand should evaluate its intellectual property and build a licensing program strategy. The strategy should clearly define the intellectual property, identify targeted markets and end customer segments, create guidelines for preferred licensees, and evaluate the short and long term performance targets.
Failure to identify these elements in a brand licensing strategy can lead to over saturation of licensed products in a particular market or with certain retailers. This occurs when an error has been made estimating the supply and demand for a particular product and that the competition is too heavy.
Consistent revenue flow from licensing can typically achieved in around two years. The best partnerships are accomplished when all parties; licensor, agents, and licensees, reach a clear understanding of each others’ strategies and objectives. Hiring an independent consultant to perform a market study may help make the licensors objectives more specific and clearly defined.
When a licensor targets a fandom for their products, there is a good chance that the goods will move faster and produce revenue within two years. Fashion goods like t-shirts with licensed video games have topped the list of successfully licensed products and can typically generate revenue much sooner than other categories. Celebrity-branded partnerships are also on the rise, with celebrities promoting beauty products, beverages, and an array of other items.
Intellectual Property Protection
Intellectual property refers to a work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, etc. The image is usually very specific and is an essential part of brand awareness. Protecting intellectual property allows a brand to maintain their reputation and position the market.
In this context, we’re discussing intellectual property as it refers to trademarks or copyrights that the licensor establishes when initiating the brand licensing program. The intellectual property is safeguarded against unauthorized use before the license is acquired. The licensor can give the right to use to a licensee, allowing them to use their intellectual property without transferring ownership.
Having intellectual property protection before pursuing brand licensing agreements is ideal but it can also be done during the planning phase of the brand licensing strategy. This allows the licensor to protect themself against possible infringement, and also reinforce a brand’s credibility with the licensee during transactions.
Protections in this context means that the licensor owns everything related to the intellectual property that is being protected by trademark or copyright. Elements like logos, graphics, and designs are trademarked or and are owned by the licensor. Copyrights protect creative/artistic expression on a fixed medium (i.e. blog content). The licensor maintains complete control over the general image of the brand and licensees cannot infringe on this image. They must abide by the intellectual property rules, restrictions, and general appearance. No matter the product category being discussed, the intellectual property is protected to ensure quality items get launched and sold.
Trademarks are applied by category and can be time-consuming to obtain and quite expensive. They need to be filed and registered in each country the licensor intends to sell products. A trademark can protect words, brand names, character designs, symbols, phrases, and any combination of these elements. A conflict check should be performed before the actual filing of the trademark to make sure that the intellectual property is not being used by another brand on the market.
Trademark registration is good for 10 years and should be monitored closely and actively used during this time by the licensor. The trademark can be extended an unlimited number of times if you are able to provide proof that it is being used accurately.
Copyrights are easier and less expensive to obtain than trademarks. Copyright protection becomes valid upon creation of the work. The owner doesn’t need to take any actions, as the intellectual property is automatically copyrighted when it is made. However, in order to take any legal action for infringement, the copyright must be registered.
It is recommended, however, that parties register the property with the copyright office, especially if the intellectual property will be used for brand licensing purposes. It’s an extra way to protect the intellectual property that will be licensed. In additional, legal action for infringement or misuse cannot be taken unless copyright is registered.
The difference between a trademark and a copyright is that trademark only protects designs, logos, and images. Words, phrases and the written idea behind the creation of the intellectual property are not protected in the same way. Copyrights are the only way to ensure the protection of the ideas in a fixed form are safeguarded.
Once a copyright expires, it is considered public domain and can be used by anyone. Copyrights typically cover 70 years past the death of the intellectual property’s creator, 95 years after publication, or 120 years from creation.
Brand Licensing Strategy Workflow
In addition to protection through trademarks, copyrights, and close monitoring for counterfeits and licensing infringement, the licensor will conduct audits and execute regular checks.
The licensee is obligated to provide books, sales, and records that pertain to the licensed material. This can be performed by the licensor or by an audit team. During the audit, the obligations of both parties involved will be reviewed to make sure that all agreements are being respected.
Counterfeit products are a huge problem for licensors and licensees. Apart from restricting revenue to all parties involved in the brand licensing agreement, the reputation of the brand may also be compromised.
Infringement and piracy are different. Infringed products are produced by the licensee outside the terms of the contract while pirated or counterfeit products are unauthorized products manufactured by a company with no legal rights to the intellectual property.
One way to prevent piracy and counterfeits is to bring the quality branded products to the market in a timely manner. If the product enters the market quickly,, the chances of the counterfeits reaching the market are greatly diminished. You saturate the market with your goods leaving limited need for consumers to seek out counterfeit products.
Once the intellectual property is protected by trademark or copyright and the licensing program has been implemented, the sales process can officially begin.
Before proceeding with a prospective licensee, market research should be conducted which includes market potential, due diligence, and confirmation of the brand protection. Licensee evaluation is essential to ensuring quality products are produced. Licensees will provide information regarding their viability as a business to show that they can actually embark on this endeavor.
Non-disclosure agreements should be signed with licensees in the very beginning to further ensure the privacy of the intellectual property. NDA’s are not mandatory as the intellectual property is already protected, but it can be an extra precaution in case negotiations fail.
It’s important to avoid licensee overlaps in the market. If two licensees end up on the same distribution path with the same category product they will conflict with each other. Double licensing should be avoided in order to keep the competition healthy. For this reason, evaluating and understanding the distribution possibilities and the licensee’s market range and strategy is vital.
A deal memo is a deal-point memorandum that outlines the agreement terms and commercial details of the upcoming brand license. This is when the actual negotiations begin. Deal memos can save considerable production time and help assure on-time market launches, addressing important points without wasting time on unnecessary topics.
In order to sustain market demand, licensors must constantly update the core property and work with their licensees to create new product lines, promotional activities, marketing campaigns, and other programs to keep the intellectual property relevant in the eyes of the retailers and consumers.
Once all terms are negotiated and agreed upon, the brand licensing workflow goes into the contract administrative phase and the licensee will typically provide an advance payment at this point.
Once all commercial details have been agreed upon, the actual contract administration process can begin. Usually, legal assistance is introduced at this point to make sure that the details are understood by all parties involved and to provide support if needed.
Each licensing agreement differs depending on the licensee which can present a challenge for the licensor. Negotiations are different for every licensee because this is a flexible and unique process with every new license distribution.
All parties involved want to get the best deal they possibly can in order to assure their own financial gain with the licensed product. Some negotiations with licensees may take longer than expected and therefore extend production schedules and market launches.
When the term of the licensing agreement is about to expire, , the licensee’s performance is evaluated and if there is a valid business opportunity to continue operations, a renewal agreement is pursued. In cases where the contract is terminated or expires without renewal, the licensee is obligated to dispose of all the licensed inventory during an agreed period called a sell-off.
Style Guides and Assets
At this point in the brand licensing workflow, the licensor will develop and provide a graphic look with guidelines given to the licensees in the form of a style guide and possibly other materials.
Graphic assets and other design features for developing the licensed products are provided for the licensee to follow. The style guide will include guidelines for logos, representation, signatures, design variations, and packaging instructions. Licensees are obligated to follow this style guide for in all of the licensed products they will produce.
Ensuring a continuous development process of style guides is crucial y to stay relevant and fresh in the eyes of both retailers and consumers. This sometimes means developing seasonal products and changes in colorways and designs to reflect trends and guarantee satisfaction of market demands. This can be done by the licensor or by the licensee depending on the product.
Once the style guides and materials are reviewed and completely understood by the licensee, they can enter the product development stage where the items will be conceptualized and produced, under the regulations of the style guide and brand image.
Product Development and Brand Assurance
Licensors have the full control of their intellectual property usage in brand licensing by approving, denying or changing product development.
The licensee is required to receive official approval from the licensor for each licensed product that will be manufactured before launch. The approval process is usually done in stages where the licensor approves each step before moving on to the next.
The drawings or concept sketches are first approved, then the prototypes are authorized. Finally, product samples are be reviewed and approved before they can be sent out to the market and to retailers.
The challenge in the brand licensing workflow at this point is to have the approvals completed by the launch dates and retail shipment dates. It is essential that every party in the process understands the style guide well and adheres to the instructions in order for the progression to go as smoothly as possible.
The main objective of the licensed products is to differentiate it from the non-licensed products. “Logo-slapping” should be avoided to ensure brand quality and reputation.
The licensee needs an understanding of the intellectual property and must adhere to the brand’s image and respect the brand’s reputation in the marketplace. Understanding the brand’s values is essential to produce products that reflect the brand properly.
The main challenges in the product development phase are the ability to control product quality and the dependency on the licensee’s skills, abilities, and resources. The best results can be achieved by combining the licensor’s expertise of the brand and licensee’s knowledge of the product. This is why brands license their intellectual property to businesses that specialize in a particular kind of product. This provides entry to certain markets that the brand alone could not achieve. This is known as the “golden rule” of brand licensing.
Promotions and Marketing Campaigns
The most effective way to keep the product relevant in the market is to have continuous marketing and promotional programs to increase awareness,customer interest, and therefore sales. Marketing or promotional funds may be negotiated in the licensing agreement and collected as a marketing fee.
Both licensor and licensee should synchronize their marketing activation schedules for best outcomes. The responsibility of successfully launching a licensed product line is held by both licensor and licensee. As with the product development stage, all marketing and promotional materials will have to be approved by the licensor before unveiling.
A Common Marketing Fund (CMF) is a general practice for many in the industry and allows for the simultaneous promotion of multiple licensees. The funds are gathered from the licensees and used for common marketing strategies to be used by all licensees, no matter the market.
The most important financial key performance indicator (KPI) for licensors is the royalty percentage from every deal. Every licensing agreement is different, sothe royalty payment accrued with each licensee will vary. This is usually calculated as a percentage of all net sales, gross sales, net profit, or fixed flat fee of licensed products. This payment method and percentage is determined and agreed upon during the negations and included in the licensing agreement contract.
The minimum guarantee (MG) serves to minimize the business risk for the licensor and to incentivize the licensee to sell actively during the contract term. All royalties usually accrue against the guarantee amount. The MG can take different forms and is worked out during the negotiation phase.
The main function of the licensing finance team is to collect royalty reports from the licensees on a monthly or quarterly basis and manage the invoicing process to assure that the royalty payments and guarantee instalments are paid in time.
During the brand licensing workflow, operations and licensing strategy will need to be closely monitored and managed. This ensures that program performance and progress and being regularly reviewed.
It is important to set up a workflow that assures that the licensee remains within the limit of the grant of rights and the transparency with different parties to work on their best performance with the tools needed.
A risk for the licensor is losing control on the intellectual property and damaging the brand’s reputation. Everything from design details, product quality, sales, and distribution should be closely monitored by the operations team.
It's important for the operations team to have the tools and capabilities needed to monitor all different licensing agreements during all stages of the licensing agreement.
Licensing Automation Software
The brand licensing workflow has been made easier thanks to the internet and digital tools that help improve efficiency. Brand licensing software can help the stakeholders exchange clear and consistent information throughout the production process.
Specialized royalty and licensing management software are helpful in the licensing workflow, but can sometimes take time to set up. Once implementation has been completed, the management of all departments and processes becomes easier and provides more efficiency in the work environment. Teams can stay connected and exchange valuable information much quicker and therefore avoid delays in production and deliveries.
The productivity of all parties and departments involved in the branded product creation and production is elevated with implemented brand licensing software. Design approvals reach every pertinent department in a timely manner and can be approved rapidly. Milestones can be closely monitored, so that nothing falls through the cracks.While As much as email is a good resource in business transactions, is it they are not the perfect answer to keep brand licensing agreements effective and running smoothly.
Negotiations can also be managed online, but human interface is strongly recommended, to perform the complete negotiations phase and to finalize licensing agreement paperwork.§
Brand licensing has been around for quite a while and has proven effective for both licensors and licensees looking to achieve financial success while bringing their own sets of expertise to the business deal. Identifying a market and targeting it appropriately (but not saturating it) is essential for success.
Following this brand licensing workflow can help avoid unnecessary delays and production issues as you implement your brand licensing agreement. When all aspects are negotiated and well understood by all parties involved, the chances of financial accomplishment for all stakeholders is practically assured.
Protecting the intellectual property and making sure that the image of the brand is well understood by all licensees will also ensure quality products are delivered to the market and to retailers. Each licensor will have varying negotiations and different licensing agreements with each licensee that the brand will work with.
This workflow is structured in a way that sees all phases flow into the next effectively. Variances are flexible inside each phase and can be adapted to any brand licensing agreement.
Implementing an effective brand licensing workflow when considering licensing agreements is a good way to ensure successful results during the negotiations and during the process of applying brand licensing with a licensee.