More than 80% of marketing directors believe brand extension will be the main way to innovate in the next two to three years, according to a survey by brand consultancy thebrandgym. It can also offer a head start at launch because the brand is already familiar to consumers.
The success rate of a new product is reduced by half when consumers are not already familiar with part of the name, according to IRI research.But extending a product out of its core area of expertise is risky, with one in two such ventures ending in failure.
The high flop rate explains why marketers often opt for conservative extensions, such as additional flavours or sizes. David Taylor, managing partner of thebrandgym and author of Brand Stretch, calls these extensions 'dwarfs'. He contrasts these with the 'giants' - bigger, braver launches, such as Apple's iPod, which changed consumer perceptions of the brand.
Many branding experts see little point in creating dwarfs. 'These small incremental changes to core products produce only subtle discernible benefit for consumers and fog up the marketing atmosphere with loud announcements of minor innovations,' says Adam Bass, director of brand licensing consultancy Golden Goose and a speaker at the forthcoming Brand Licensing Show's seminar on product extension. Taylor agrees. 'Think big, or don't do it at all,' he says.
Licensing can provide a safer way to extend a brand out of its core.
By granting a licence to the 'licensee' manufacturer, a brand can outsource product expertise, but still retain control over the brand. The deal will also generate royalties for the brand and, when the contract expires, it can opt to take over manufacturing of the extension product and run it as a profitable business, as sports brand Head has chosen to do with its sports-bag range.
Although many licensees argue that extending products via licensing is like making money in your sleep, not many marketers are getting it right.
Those that have taken the licensing route have tended to become slap-happy with their logo to the detriment of the core product. For them, says Taylor, licensing has become one big ego trip. He cites Virgin's Sir Richard Branson as an example, and claims his mantle is swiftly being picked up by easyJet founder Stelios Haji-Ioannou.
'Brand ego trips are unlikely to be big in business terms, as is shown by many of Virgin's licensed extensions,' Taylor says. 'Virgin forgot what made it famous. Take Virgin Vodka - it failed because the only thing it had going for it was cheapness. Where were the Virgin values of irreverence, fun and challenge?' He believes Haji-Ioannou is falling into the same trap with easyGroup's extensions, such as its no-frills male grooming range easy4Men, and plans for a mobile phone service.
Exceeding the limit
If asked for an example of a brand licensing disaster, experts will almost certainly cite Pierre Cardin - commonly regarded as a luxury brand which sold its soul to the licensing devil.
'Pierre Cardin gave its name to everything and you found it on some really cheap, tacky products because it got greedy.
It was a premium brand, but started signing deals with anyone that came forward. You still see it around from time to time, but it has lost its luxury appeal,' says Kevin James, senior vice-president of international operations at Helen of Troy, which holds licences for the haircare, healthcare and beauty categories of Vidal Sassoon, Cosmopolitan and Scholl respectively.
Greed is the main reason licensing fails, but there are other contributing factors. There is often a tension between the marketing and licensing departments within brands - the latter being intent on getting its name on as many products as possible to create incremental revenue streams, with the former wanting to protect brands from dilution.
Successful brand licensing requires long-term vision, which can be difficult when marketing managers are often only in a job for about 18 months. When product is manufactured off-site, it can lead to an 'out of sight, out of mind' mentality.
When brand licensing works, it can not only generate revenue, but also grab consumers' attention, refresh the established brand image and reinforce its values. 'A Land Rover baby buggy doesn't just compete against McLaren and Mamas & Papas without having to advertise,' says Bass. 'It offers new parents a continuous connection with the Land Rover fantasy of exploration and discovery. The leverage isn't just in the quality of the pushchair, but also in the brand's considerate acknowledgment of its customers' changing circumstances.'
The right choice
The easy part is signing the deals, especially for brands with strong equity. Manchester United, for example, is inundated with licensing proposals such as a recent suggestion that the football club should consider a line of edible G-strings.
Ross Walker, licensing manager at Manchester United Merchandising, turned down this particular offer and is clear about what the key to good licensing is. 'Don't chase the obvious dollar. Make sure the extension makes sense to the consumer and allows them to immerse themselves in what the brand means to them,' he says.
Clever marketers see the licensee as an extension of their brand management team. Head of licensing at French Connection, Sarah Norris, feels it is important to discuss all approaches 'just in case it's an up-and-coming area we should be looking at'. When she gives a deal the go-ahead, she ensures her team works closely with the licensee from that point onward.
'The most important thing when working with a licensing partner is to agree on the direction, the look and the design of the product. Otherwise there is a danger you will see the finished range and it doesn't sit with your handwriting,' she says.
Big brands are often criticised for being too arrogant in their licensing partnerships. The most successful ventures are those where brands understand and support the licensee in its objectives. Licensees are, after all, paying for the brand name and expect a return on their investment.
Ian Downes, former head of Fox Kids Europe and founder of consultancy Start Licensing, cites Lego's licensing partnership with Clic Time watches as a good example. 'The products are developed in true partnership with input from Lego and Clic Time's creative teams,' he says.
Lego provides support and credibility to the extensions via its 'watch stations', where consumers can design and make their own watches. 'The watches represent Lego well in a non-core area and Clic Time has achieved distribution in the US more rapidly than it would have ordinarily,' adds Downes.
Securing good retail distribution is a crucial, but often neglected, part of the licensing process. Retailers want to see new products supported by TV advertising as well as point of sale, and they want the tie-up to be exclusive. For this reason, many brand extensions launch exclusively through one retailer, such as the Peter Rabbit Organics baby food range, which was first sold in Waitrose. 'Exclusive deals go with the territory.
It's the nature of retail markets today,' says Gill Thomas, marketing director at Frederick Warne, which granted the Peter Rabbit baby food licence to Buxton Foods.
FCUK still sells its health and beauty range exclusively through Boots stores because, according to FCUK's Norris, this has proved highly successful.
But not all its licensed products have taken off. When the brand tried to launch an alcopop, FCUK Spirit, in 2003, it was criticised by drinks industry watchdog The Portman Group and the product was ditched.
There is a difference between this and logo-slapping. The fact that an edgy youth brand such as FCUK wanted to rebel against convention fits perfectly with its values. 'It was exciting. It was expected of French Connection to go against the grain. It raised our profile in some respects and was typical of the brand,' says Norris.
FCUK Spirit's life was short and sweet - not the stuff of successful licensed extensions - but at least the move made sense to the brand and its consumers, if not to the authorities and parents of teenagers downing the potent fizzy pop.
LICENSING EXTENSION SUCCESSES
Clic Time has held the licence to manufacture Lego watches since 2001. The products, which are built on the brand values of stimulating creativity, imagination and learning, are aimed at five- to seven-year-olds. The range is sold in 22 countries, but mainly via Toys 'R' Us outlets in the UK, Lego stores and Legoland.
PETER RABBIT ORGANICS BABY FOOD
The range, made by Buxton Foods, contains no added salt or refined sugar and the emphasis is on fruit, vegetables and grains, with wheat-free, gluten-free and dairy-free options, in line with the property's wholesome, trusted image. The products were launched exclusively through Waitrose last year and have now been rolled out in Sainsbury's, Tesco and Boots.
POP IDOL KARAOKE MACHINE
More than 75 Pop Idol licensees have been appointed worldwide, with 30 granted in the UK. The most popular product is the karaoke machine, followed by partworks and dance mats. More than $60m of products have been sold in the US. Mattel is to create an American Idol Barbie doll.
LAND ROVER BIKES
After the success of its baby buggy range, Land Rover launched a line of bikes in June this year through a licensing deal with Ultimate Cycles. The bicycles take the names of existing Land Rover vehicles - Defender, Freelander and Discovery - and are designed to emulate the attributes of each.
LICENSING EXTENSION FAILURES
In 1994, Virgin put its name to vodka after a licensing deal with William Grant & Sons, the distillers of Glenfiddich whisky. The product used the Virgin brand's red and white logo. However, it never achieved its lofty ambitions, despite a high-profile TV ad campaign. The product was ditched in summer 1998 after it achieved less than 2% of the UK vodka market.
BIC UNDERWEAR AND PERFUME
Biro and razor manufacturer Bic launched ranges of disposable perfume and underwear in the UK in 1998, which sold through chemists, stationers, supermarkets and corner shops. The product was aimed at women who wanted non-designer fragrances. After an unsuccessful relaunch, the range was dropped in early 1999.
In 1999 Cosmopolitan magazine granted its licence to MD Foods to launch a low-fat yoghurt, fromage frais and soft cheese. It was intended to be a sophisticated and aspirational product, bringing young women to the dairy category. The range was scrapped at the start of 2001 because of falling sales.
French Connection granted its licence to Matthew Clark Brands to make a vodka-based alcopop, FCUK Spirit. It was axed later in 2003 after criticism from drinks watchdog The Portman Group, which ruled that it held most appeal for 14- to 17-year-olds. It was the first time an alcoholic drink launched as a brand extension from another sector had been banned.
Brand Licensing Show
Date 26-27 October 2004
Venue Earls Court 2
Visitor profile: Those involved in the creation, distribution and sale of licensed products.
Exhibitor profile: More than 140 exhibitors including: brand owners; licensing agents; TV & film production companies; and publishers of books, CDs and computer games.
Exhibition features: The event will have a core character and entertainment base, as well as zones dedicated to fresh concepts, art, design and fashion.
Seminars will cover innovation for growth, building better partnerships with retailers, and achieving standout in the kids' market.
Further information: To pre-register, visit the event website www.brandlicensingexpo.com or phone 0870 429 4554. Admission is free if pre-registering or booking in advance, otherwise entrance costs £15 on the door.