Picking up again on the topic of Licensed Products: we’ve established that the best licensees in terms of revenue maximization are those with the strongest distribution and specialising in one or two categories. Depending on the territory in question this generally means that you’re going to need quite a few licensees to both cover all the key categories and maximize distribution and sales.
This is a fact of the marketplace – everyone’s always looking for economies of scale and ways to rationalise the business but that is Ivory Tower thinking; there is really no simple solution to the complexities of the marketplace (and certainly each territory in Asia, my place of doing business) and a successful and comprehensive licensing program requires this level of specificity and comprehensive relationships across multiple product categories and retail distribution channels.
So a license agreement will usually first determine the category(ies) of products to be included and then a detailed outline of what specific product items. There are sub-categories which also come into play – for instance, in Sporting Goods you could have the sub-category of “Camping/Outdoor” or “Baseball”, which are also good to provide structure and logic to a product schedule and then you’ll want to be as specific as possible about the ACTUAL products in the agreement. From the Licensor’s perspective, the more defined the Product Schedule, the more clear about what is NOT in the agreement. If you have “Shirts made of 100% cotton” then that means that “Shirts made of silk” are NOT included. On the other hand, and logically, the licensee will want the product schedule to be as broad and non-specific as possible, for exactly the opposite reason.
Ultimately, the more specific the list is, the better, as this demonstrates that the licensee and licensor have had a thorough discussion about what the licensee intends to create and licensor will have had a chance to confirm licensee’s experience in the manufacture and distribution of each of the items. Additionally, it isn’t intended that either side is trying to ‘trick’ the other necessarily by either keeping things too broad, or too specific – indeed, hopefully a license agreement is being signed at the end of a good and collaborative discussion about the IP and the product plan, and it is the intention of both parties to commit to the license agreement and the relationship – rather the more specific the agreement, the more likely that both sides have put sufficient attention and thought into how their business together will roll out, have shared expectations about that, and therefore more chances of success.
As I’ve previously suggested, for your standard multi-category licensing program, you will want to find licensees with strong distribution and expertise in certain categories. While there are always legit exceptions, if you’ve got a deal coming in from a licensee or agent that is spread all across a variety of categories – going wide, rather than deep in to any particular category – this would normally set off warning bells. For one thing, it would raise questions about the licensee’s area of expertise and strategy, and secondly, normally when you cherry-pick a few items out of a particular category, it will make it difficult to license up the rest of the items to another party. For instance, if you give one licensee bath towels, it will be hard to find another partner to take up hand towels and wash towels. So when it comes to product categories the licensor will want to go deep with its partners, rather than wide.
Further on the topic of specificity of product schedule, this will vary from licensor to licensor, but again, the more information the better – and this even goes beyond just the listing of the product type. Some examples of what licensors may require on the product schedule for apparel should be target age group and sizes, materials used, how the IP will be applied (by embroidery, by screen print, etc.) and even target or suggested wholesale price. The more detail the better to not have misunderstandings with the licensee about what is in/not in their agreement, and if and when another licensee has been awarded the same or similar rights.
Now to conclude and coming all the way back to the beginning, how, when and where I licensee gets its product manufactured is also important. If the licensee doesn’t own the factory producting the licensed products, most licensors will require a 3rd party manufacturer’s agreement be signed by that factory, to ensure there is a legal chain of custody for 3rd party possession and use of the licensor’s IP. It is the licensee’s responsibility to ensure that the factory operates in good faith and there is no product being sold out the back door or falling off the truck, due to factory’s possession of the licensor’s artwork. Also, while quality is always a factor it doesn’t mean everything has to be high end. Obviously there are price thresholds (and concomitant product quality expectations) for product that will be sold in hypermarkets, contrasted with that to be sold in high end department stores. It is for the licensor to set the positioning in the market for its brand vis a vis price positioning, then for the right licensee (with retail relationships that align with that positioning) to take up the license and produce quality product for whatever are the standard for that distribution channel in that country. In otherwords, if you want to distribute into high end department stores, don’t sell the license to a company whose total business is distributing to mass market.
That should about do it for Licensed Products. More sometime soon!