Brand licensing enables a company (licensee) that markets a product or service to lease or rent a brand from a brand owner (licensor) who operates a licensing program, in exchange for royalty payments.

Combining your product with top brands is an incredible way to escalate growth. If you are looking to drive revenue, enter new markets, or reposition your product, brand licensing can lead to dramatic results.

As with any new endeavor, however, pitfalls abound.

The biggest cost to an organization is not just the time or money but the loss of momentum regarding and commitment to the endeavor. What was supposed to have had a positive return on investment becomes a neutral or possibly negative one, which can lead to an untenable situation with contractual strings attached.

Here is a list of the most common pitfalls that I have witnessed or experienced over the past 15 years.

1. Biting Off More Than You Can Chew

Licensors interested in licensing a category to a prospective licensee will ask for sales projections by region and by channel, along with a sales plan.

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. When that happens, the licensee ends up accepting sales targets that may not be achievable, ultimately resulting in a breach of contract.

2. Getting in Over Your Head

Prospective licensees often try to negotiate for multiple regions or channels but are banking on just one opportunity to sell the branded merchandise. If that falls through, the licensee will fail to meet sales and royalty targets, and may request royalty relief.

When licensees cannot demonstrate that they are maximizing their rights, however, they will not get royalty relief; moreover, they will also be required to develop a plan to justify their license. If they are unable, they may lose rights to certain channels or regions.

3. Creating Unrealistic Expectations

Licensees may not fully understand the actual strength of the brand the license of which they just acquired. They may overestimate the power of the brand, believing the brand alone will result in acquiring new clients or larger programs with current clients.

When new sales fail to happen, licensees may feel as if they got sold a bill of goods.

A license works best when a great product is combined with a great brand to solve an unmet consumer need.

4. Logo-Slapping

Licensees often do not understand that the licensor expects them to custom-design the brand's attributes into their product, and not just slap on a logo.

The licensor wants the licensed product to be of the same quality as (or better than) the internally developed product. When the licensee doesn't meet the licensor's requirements, the product usually does not get approved and must be reworked, resulting in lost sales opportunities.

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The 10 Most Common Pitfalls of Brand Licensing

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ABOUT THE AUTHOR

image of Pete Canalichio

Pete Canalichio is is a global authority on brand expansion. He is on a mission to help brands become more alive in the hearts of those that experience them. He helps them write a better story through compelling content, and he provides inspiring platform talks, in-depth consulting and workshops, and practical tools. Reach him via pete.canalichio@brandlicensingexpert.com.

LinkedIn: Pete Cnalichio