most common pitfalls licensees watch out for - part 1 | brand strategy | brand marketing
TRANSCRIPT
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Mo st Com mon P i t fa l l s L ic e ns e e s
Should Watch Out For
PETECANALICHIO
PART 1
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Over the past fifteen years, I have seen many licensing deals go south because one of the parties fell into a pitfall that could have been avoided.
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BITING OFF MORE THAN YOU CAN CHEW
Licensors interested in licensing a category to a prospective licensee
will ask the licensee for sales projections by region and by channel
along with a sales plan.
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In trying to "win" the license, the prospective licensee will often provide the licensor with a
“best case scenario” instead of a more realistic case.
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The licensor will use projections to develop minimum sales targets and royalties, which
will become part of the contract agreement.
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Licensees can get into trouble when they agree to just about "any" terms in order to get the license.
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The licensee often ends up accepting sales targets they may not be able to achieve, which
ultimately will result in a breach of contract.
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GETTING IN OVER YOUR HEAD
While negotiating their license, prospective licensees often try to secure
multiple regions or channels as part of the deal.
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This may be because the licensee really believes it can take full advantage of all of the rights offered and sell its product into
each of the channels or regions.
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In reality, the company often has only one opportunity to sell the branded merchandise to
a specific retailer; when the licensee fails to meet its sales and royalty targets and may
request royalty relief.
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This usually leads the licensor to ask the licensee to demonstrate how they are
maximizing their rights.
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When the licensee is not prepared to do so, not only will they not get the royalty relief they
are asking for, they may be required to develop a comprehensive plan on how they
intend to fully exploit their license.
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If the licensee is unwilling or unable to develop the plan or invest in the license, they may lose rights to certain channels or regions.
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CREATING UNREALISTIC EXPECTATIONS
Licensees may not fully understand the true strength of the brand whose license they just
acquired.
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The licensee may overestimate the power of the brand believing the brand alone on their product
will result in acquiring new clients or larger programs with existing clients.
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Even if the licensee has invested in product development and built the essence of the
brand into their product, they may not win new business immediately.
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A license works best when a great product is combined with a great brand to solve an unmet
consumer need.
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Even with the world's greatest brands, there are no immediate guarantees but if the licensee and licensor continue to work together, they likely will achieve positive results over time.
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Have you or someone you’ve known made any of these mistakes? If so, what
was the situation and what was the outcome? Are there any other pitfalls
you’ve experienced you care to share?
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PETECANALICHIO
PeteCanalichio.com/fast-track
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