At the beginning, it is essential to admit, that currently the fashion industry is being completely committed to fierce and long-standing rivalry. Making one’s business successful and profitable, managing this market competition requires implying new programs, developing projects, that enable to acquire desirable receipts by gathering a considerable amount of target customers around one’s product.
Licensing as a way of brand extension in fashion industry proves to be an effective means of creating the stimulating environment for company’s further progress. Generally, the term “brand licensing” implies a strategy of admission of a company given to a licensee to spread the products under its trademark.
Due to this, the licensee has a legal right to develop, produce, represent, and merchandise different kinds of products using the name and the logo of the partner brand company. Moreover, licensing is being treated not only as brand’s building, but also as its rescue through launching new products and getting attention of the audience.
However, the topic of using licensing in brand extension has to be more thoroughly examined and analyzed, which will be the purpose of this paper.
The objective of the study is to make a deep insight analysis of the advantages and disadvantages of implying licensing process as a potential impetus to brand popularisation. In the paper there will be considered different circumstances connected with implementation of licensing method.
Brand licensing as a popular up-to-date strategy of improving the position of a particular brand on the world market reflects the importance of the study.
While carrying out a research, the scientific method and the method of critical literature analysis were employed.
During studying the topic, a great amount of relevant literature was being used and analysed. Firstly, I have to mention the work of Hair, J. F., Black, W. C., Babin, B. J,m Anderson, R. E., and Tatham, R. L. called Multivariate Data Analysis.
There, the writers accurately uncover and characterize the whole complexity of the system of multivariate data analysis, which implies the performance of marketing through simultaneous observation of different statistical variables.
Therefore, the book shows how licensing can interfere with the other processes taking place in a certain company. Due to multivariate analysis, licensing is viewed through a prism of measurement scales and is considered as an alternative technique to satisfying customers’ demands.
The next literature source, that was being used, is the work of Ray Kent Marketing Research – Approaches, Methods and Application in Europe. Having become marketing researcher, Ray Kent has devoted his book to the processes, that currently take place on the market, particularly in Europe.
Naturally, lisencing as one of the most popular strategies of brand building and brand extension was one of the important themes in Mr.Kent’s research. He has imperically analysed the core elements of licensing, how they are correlated and how they function in order to achieve the intended purpose.
Comparing the two sources, we can notice, that the first is concentrated on the mathematical-based analyses of marketing processes, whereas the second describes the way the licensing in particular is applied, why more and more European trademarks venture implying this marketing discipline.
“A brand can take some risks. A strong brand is resilient and can stand some extension…, especially if the extension has some degree of separation.” , says David Aaker, (Aaker, 138) the author of numerous marketing books, which include the one I have used during managing my research, Building Strong Brands. The author has been working on a problem of brand identity and brand building programs.
As it can be inferred, the strategy of licensing was being considered as a reasonable opportunity of extanding the trademark, exploiting the brand. However, David Aaker, supporting the idea of licensing, warns the reader about possible negative cases of applying this business strategy.
His work “Brand Leadership” and “Brand Portfolio Strategy” are also partly devoted to this question. “In 1993, 37% of Gillette’s sales were accounted for by products launched in the five previous years. By launching new innovations when the previous are barely established, Gillette keeps ahead of the competition. Brand extension communicates vision and values of the brand. Fashion brands have always understood this.
When Chanel produce a limited range of skis and snowboots giving them away free to supermodels hitting the slopes, they strengthened their grip on Chanel’s ownership of the quality of luxury: brand extension as marketing.”(Aaker, 87)
There the author expresses a differentiation between “volume-” and “luxury-concentrated” companies, indicating, that the latter imply the licensing strategy less frequently than the first in order to preserve brand’s entity and uniqueness.
Undoubtedly, in the case of brand extension, a considerable hazard to brand’s equity is introduced, as states David Aaker states, but the licensing strategy is the best option for the company to grow and to spread new products into new markets.
The writer has offered to discussion a special scheme. It indicates, that only in a case of brand relevance being beyond the organizational competence brand extension makes a great sense, resulting in gradual brand building and reasonable profit making.
However, “A side effect of extending beyond the company’s core competencies is that it can result in a change of perception and direction for the brand. ”, notices the marketing researcher. (Aaker, 281)
Finally, the author states “The most important contributing factor to the success of a licensed brand is the quality of the manufacturer, which is why it is absurd for brandowners to limit their options to only the most persistent courtiers. ” (Aaker, 305) Indeed, poor quality of a new product, launched to the market can spoil the real brand’s image, authority, which is undoubtedly hard to gain.
This idea is strongly supported by an international authority on brand management and marketing Jean Noel Kapferer in his work Strategic Brand Management. There he has expressed the point of view: “Brands are rejuvenated by new products matching new needs, not by advertising.” (Kapferer, 13) admitting that licensing in terms of performing new products and launching them stimulates interest and, accordingly, revenues.
Jean Kapferer expresses the point of view, that the most prospective brand managers are looking for potential opportunities and free places on the market through the increasingly spread process of branding. The author describes the conditions under which global branding works best and presents possible dangers, that may occur. He illustrates the most effective ways and strategies of brand management.
Kevin Lane Keller, a Professor of Marketing, is famous for his work Strategic Brand Management, where he gives a list of special strategies and tactics of building and developing a brand. “Because it can be a shortcut to building brand equity, licensing has gained in popularity.”, (Keller, 114) admits the author.
However, at the same time he expresses the risk that a company is likely to run when applying the technique of licensing inappropriately: “Inappropriate licensing can dilute brand meaning with consumers and marketing focus within the organization.” (Keller, 122)
“Business success was fuelled in particular by licensing of his name for products other than the seasonal designer clothing that made Calvin Klein a household name.” (Keller, 124) Indeed, the CK brand has announced numerous licensing programs of production of golf and other kinds of sport apparel, cosmetics and fragrances. The latter, at a turn, has become a reasonable shot in brand’s extension.
“Other licensing agreements have led to a Harley Barbie doll, Harley cologne, a Harley Visa card” (Keller, 125), led the author, explaining, that inventing new products under the certain brand results in satisfaction of the former customers’ needs and expectations.
Harley Davidson, as a lifestyle, will be undoubtedly appreciated by loyal consumers not only in terms of motorcycles, but also in production of new items, which are intended to create comfort and security.
Alina Wheeler, the author of Designing Brand Identity, has worked on a topic of developing a new brand and revitalizing existing one. This edition explains disciplined and collaborative processes, brand strategies that may lead to brand’s prosperity and world-recognition.
Unlike other authors, Alina Wheeler is looking into a branding process from another point of view, dispelling its essence and reformatting it into a global relation of five stages of methods.
She considers that the most fertile factor of brand development is not that, which leads the company to implying licensing programs, but that, which actually serves as the outer face of the company, the most elementary issues like design, form, and color. In brand revival she prefers alteration in the higher described terms to the technique of licensing.
Integrated Intellectual Asset Management by Steve Manton, offers a comprehensive explanation to appropriate exploitation of the brands’ intellectual assets. This can be achieved by involving the organizations’ management in different kinds of strategies, one of which is brand licensing. This proves the following citation:
“Intellectual asset strategy should address issues, such as:
- How intellectual assets underpinning the organization’s key differentiating and enabling capabilities are to be managed;
- Whether the organization will seek to generate revenue from its intellectual assets via licensing, and if so, how opportunities are to be realized;
- How the organization will use trademarks to protect, develop and exploit its brand.” (Manton, 105)
So, Steve Manton identifies licensing to the list of strategies of intellectual assets management.
Summarizing the contents of different literature sources, we can observe the tendency of wide application of the brand licensing strategy.
The world known researchers on marketing and management have approved of using licensing technique to extend a certain brand and move it further into new markets by finding new customers for lately-launched products.
Requirements To The Licensee Company And A Brief Outview Of The Contract Points
However, according to research, not every brand has a possibility of extension via licensing, there are several universal rules for the potential licensors. Firstly, a large majority of licensing agencies are likely to deal with well-developed companies, which already have a firm basis and consider licensing strategy as an additional activity. Secondly, the brand pretending to being licensed has to be an expert in the product it is producing.
Without a firm ground a trademark is, of course, able to launch new products, but they are likely to end in fiasco as far as a customer has not developed a clear image of the initial brand product yet. The next requirement the brand has to possess is its ability to be quickly recognized through its logo, form or color.
Moreover, the brand has to lead clear policy according to its development steps, because while becoming famous, a company has not to overexpose to the customer and overload the brand strategy program. Finally, a company has to consist of well-organized staff, the inner infrastructure should also be corresponding, creating a strong team, which in cooperation manages the aim of the company.
At first, I have to mention that a standard contract has to include detailed information about both trademarks, their registration numbers, the territory and term, during which a contract functions. Next, a licensee has to sign under the statements, that
- a licensee company has no legal right to own the brand;
- licensing is not a joint venture;
- a licensee is obliged to preserve the reputation of the brand;
- both sides are not supposed t expose all the details of their contract.
According to the contract, a licensee has a legal right to merchandize the products, approved by a licensor company, and does not need to fear infringement. At its own turn, the licensor company has to provide appropriate support to the licensee company, which includes the profound observation of marketing, advertising, and even packaging.
The licensee company is normally allowed to apply the name of the brand company on the packaging; however, the licensor can as well deny the usage of the name on promotional material.
Due to the contract, a licensor has all the possibility to recall the product production and all its marketing, no matter if the process has already begun or not. Moreover, a licensor has the right to prove all licensee’s accounts without a previous warning and inspect the whole factory.
Under the circumstances of not selling the product within the particular territory during the particular time, a licensor has the right to suggest a territory to another licensee company.
Before launching the product, a licensee is obliged to perform it to the licensor brand company and receive either approval or denial. Generally, a licensee’s production has to respond to industry standard. In the appointed term, a licensee has to pay a certain percentage royalty and permanently send reports about marketing process.
A licensee company is liable to merchandize the products only through the allowed channels. The licensor, at a turn, has to keep the licensee informed about the possible marketing plans changes and provide with advance consultation about future marketing options.
“Brand is more than just a label on a product”, they say. Indeed, in modern world it has become a lifestyle, where certain people are being identified to a certain trademark, creating at a time a special community. This community is an expression of loyalty to the brand, the indicator of products’ reliability and quality.
Though, nowadays market due to brands’ fierce competition forces them to apply new strategies, innovative ideas, perform different kinds of products to encourage audience’s interest and heighten demand. Undoubtedly, the one, who is the most creative and ingenious, exposed to changes and improvements, will not only be afloat, but also conquer higher positions in the world trade.
Correspondingly, many companies, especially in world fashion, are actively taking up such business strategy as brand licensing. The latter is being considered an efficient tool not only for gaining a considerable profit, but also for building up a brand, its extension, which is, namely, the topic of my research.
Having defined the term “brand licensing” at the beginning of my research, and having analyzed several literature, concerning this topic, I can surely state, that licensing as a strategy of brand extension is a perfect idea to refresh the brand in the memory of its customers, to offer new products as a definition of brand’s vitality and direction. Generally, extending the brand deepens its sense, delivers its meaning and values to a customer.
In fact, brand’s extension into new markets indicates the level of its development. Brand extension usually receives a feedback in market because the appearance of new products causes customers’ attitude change and gradually boosts the consumption of the innovative items.
Analyzing the positive sides of providing fashion brand licensing, I have to enumerate the following points:
- Brand licensing is the only tool existing for reasonable brand extension without tremendous investments, but with considerable revenues
- The initial brand company is free from many points of legal consideration, such as different tasks of developing new outlet, which will be the duty of licensee
- A fashion brand company acquires a new look and image by launching new products
- Licensee is considered to have stronger incentive than ordinary working man to realize their product, due to the fact, that their whole business depends on it
- From the other side, licensee company with buying a patent for presenting a brand, has already a quick start, because the image of it is already created
Mentioning negative points of brand licensing program implementation, I would like to start with the following statement: “Whether an extension is good or bad, logical or illogical, doesn’t correlate to success in the marketplace,” observes Robert Sprung, CEO of Tipping Sprung, a New York-based brand-extension consultancy.
“Just because it sells well doesn’t mean it’s good for the brand in the long term.” (Sprung) In opinion, Robert Sprung is completely right, because
- the licensing strategy as a strategy of brand extension cannot assure of the desirable results, which depend on several aspects including the relevance and quality of the newly launched products;
- the initial brand company risks its equity and entity;
- the initial brand company can lose demand on its own production with the rising interest in licensee’s product;
- the initial brand company, even being worldwide recognized and approved can lose its position due to poor quality of new licensee’s production;
However, despite having positive and negative characteristics, the strategy of brand licensing is being popular for a long time already.
Annually, such events as Licensing International, Brand Licensing Europe and Brand Licensing Central and Eastern Europe are being held with the purpose of representation a brand to a wide audience of potential licensees. Such popular fashion trademarks as Polo, Calvin Klein, Dolce & Gabbana are being licensed by the other companies to produce new items and accessories.
The main problem of our research lies in the issue of whether the licensing implication in high fashion industry really justifies the brand extension.
Taking to the topic of high fashion industry, at first we have to clarify the components it consists of. According to “Wikinvest”, high fashion industry is devided into five segments: haute couture, luxury, affordable luxury, mainstream, and discount. Giving a brief explanation to each of these segments, it is essential to know, that
- Haute couture as the most expensive and highly appreciated out of all segments is managed by mere fashion organizations, that are to produce special-appointed garment for the richest people of the world;
- The luxury segment has lower quality and price, though is appointed for wealthy customers;
- Affordable luxury aims at the consumers, who are not wealthy enough to buy luxury brand production but are ready to consume lower-priced options;
- The purpose of mainstream brands is popularisation;
- Discount brands are appointed for low-income customers.
Due to this differentiation, we are going to analyze the relevance of implying brand licensing to the companies, which are distinguished by their target audience.
Firstly, I would like to admit, that the highest position of fashion industry called “haute couture” is unlikely to turn its trademarks to brand licensing. Haute couture is a specialized sector of clothing production, appointed only for the weathiest people in the world.
Therefore, such haute couture apparel makers as Giorgio Armani Privé (segment of Giorgio Armani), Christian Dior,Chanel, Givenchy (owned by LVMH Moet Hennessy L.V. (LVMUY)), Christian Lacroix and Emanuel Ungaro have time-long permanent clients and are secure of product’s realization.
Even at the time of unfirm economical situation in a country, these brands are not affected due to the fact, that the highest “strata” of society is also not radically affected and can continue spending millions on first-class garment.
The haute couture brands do not apply brand licensing in order to protect their products from becoming “popular”, to preserve their uniqueness. In this case, consequently, we can talk about irrelevance of brand extension in the whole.
The luxury-concentrated fashion brands such as Dolce & Gabbana, Prada, Gucci, Hermès, Lanvin put also the main accent on maintaining exclusivity of the product, not letting the representatives of middle and lower classes afford it. In contrast, the companies even limit the “access” to their products by raising their prize and simply reducing the production in order to acquire the status of being “exclusive”.
For instance, a famous trademark Burberry has reduced its production in 2002 to return to the definition of being luxurious, to intend its product only for the higher rank of people.
We can observe that at the time, when luxury fashion brand companies are separating themselves from the vast quantity of existing brands, the fashion companies of a lower rank, namely affordable luxury, mainstream and discount brands are giving their best to popularize their production.
As far as the target audience for such companies is higher middle, middle and lower class, the task they set is to realize the customer’s opportunities in launching new products, extending the marketing opportunities. That is why, one of the most applied strategy among garment-producing companies has proved to be brand licensing.
For example, in March 2007 Hugo Boss trade mark, a representative of affordable luxury brand companies, has signed a licensing contract with Swarovski Group Hoding, due to which the latter is enabled to produce and present to the market qualitative Hugo Boss jewelry for men and woman. Despite this, Hugo Boss has extended its brand through having such products as perfumes, cosmetics, and accessories licensed.
Observing the development of the fashion brand Hugo, we see, how the initial company in 1970, which was originally intended for production of men official apparel, has extended itself to numerous segments on the market. Obviously, for fashion industry brands it is an ideal technique of extending the meaning of their brand.
Considering mainstream and discount brands, to which belong Gap (GPS), Abercrombie & Fitch Company (ANF), Dress Barn (DBRN), Macy’s Inc. (M), Polo Ralph Lauren (RL) and others, we have to admit, that they are highly dependant on the economical situation of the country.
With the threat of recession, the quantity of customers lowers considerably, because the middle class is, correspondingly, dependant on the economy too. This is also one of the reasons why these fashion brand companies take to licensing strategies.
To withstand the crisis, a company frequently sells the patents to another company, which starts developing new ideas according to the demands of the customers’ sector and presenting the products to markets, making its own profit. The initial company, in its turn, not investing great sums of money, receives a certain percentage of revenue.
The new items launched into the market not only raise the customers’ interest, but also, being of a lower prise, are affordable for a consumer. Consequently, brand licensing can function not only as brand extension strategy, but also carry an additional function of companies’ avoiding bankruptcy at times of economical breakdown.
Generally, the research is orientated on the following questions:
- In which cases has the fashion brand licensing positive, and in which negative aspects?
- What hazards does the company face implying the licensing strategy?
- What is the relation of the licensor and the licensee?
- On what issues has a licensor company obligation to concentrate while applying the strategy of brand licensing?
Firstly, having analyzed higher mentioned information, I should conclude, that fashion brand licensing as a tool of brand extension does not justify itself in terms of applying it to the haute couture and luxury-concentrated fashion industry. In this case, it carries negative points, as far as brand extension will be treated as an inappropriate policy according to the company’s direction.
Secondly, I would like to express, that licensing serves as an absolutely relevant strategy of brand extension for mainstream and discount brands. This is because they are intended for the wide audience and popularization is their main purpose.
For some brand managers, licensing is a method to get their brands in front of consumers in new ways. For others, it’s a way to bring to market new products without taking on the risk and investment internally.
For manufacturers, licensing becomes a way to differentiate in a crowded marketplace where surviving on price alone is a scary proposition. But one way or another, the licensor has to establish a strong relationship with the licensee, as far as only clear communication and understanding between the both parts are responsible for achieving the desirable results.
The positive side of using brand licensing method is that the licensee company in comparison with the licensor has equal interest in products’ realization, it stands for brand’s innovation and ensures that new products will deliver real added brand value. The licensee company has never been intended to spoil the image of the initial brand company.
However, having acquired a license of using a certain trademark, manufacturers often move in the direction of reducing the product’s price, making, consequently, steps backward in product quality. As practice shows, sooner or later, constant price-cut leads to inevitable brand-destruction.
One of the most important things while implying strategy of fashion brand licensing is the requirement of relevance maintaining. The latter means that while the tastes are constantly changing, the fashion brand company has to remain at least partly loyal to the direction it led earlier.
For example, the customer would be negatively impressed if Burberry turned to the production of football garment only due to temporary increasing interest of customers in this type of garment.
Turning back to the paper’s aim and problems, we can observe the obvious relation of them to each other. Firstly, the aim of the paper lies in fundamental analyses of the process of licensing as a tool of brand extension, what is inextricably connected with comparing the negative and the positive points of the implementation of brand licensing.
What is more, as an objective was set to analyze the relevance of application of licensing to each segment of fashion industry.
The problem of the research lied in the question whether exactly brand licensing is appropriate strategy in extending the brand. Having analyzed all the aspects, I have come to conclusion that taking up the strategy of spreading the brand’s marketing opportunities through licensing has more advantages than disadvantages.
The full list of them has been enumerated higher, indicating that the both sides – a licensor and a licensee – are making reasonable profit out of this contract.
List of References
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Adamson, A, 2007, BrandSimple: How the Best Brands Keep it Simple and Succeed, Palgrave Mcmillan.
Hair, J, Black, W, Babin, B, Anderson, R, and Tatham, R, 2006, ‘Multivariate Data Analysis’, Pearson Prentice Hall.
Kapferer, J, 1994, Strategic Brand Management, Free Press.
Kapferer, J, Bastien, V, 2009, The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands, Kogan Page.
Keller, K, 2008, Strategic Brand Management, 3rd edition, Upper Saddle River, NJ: Prentice-Hall.
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