The Risks and Rewards of Licensing

License agreements offer coffee and tea manufacturers opportunities to penetrate previously untapped markets, increase brand awareness as well as generate incremental revenue. But licensing is a highly strategic business — it’s not simply slapping a well-recognized brand on any product.

By Anne-Marie Hardie

Developing a strong brand presence in the marketplace has never been more important. Part of the increased influence is the massive role that social media has played in both generating awareness and building communities where customers are able to engage with their favourite brands. Social media, and its various platforms, have helped to increase the emotional connection to the audience. “Brands essentially have no value unless they elicit an emotion from the audience, whether it’s nostalgia, trust or humour,” said Martin Brochstein, senior vice president, industry relations and information, International Licensing Industry Merchandisers’ Association, New York. “It’s an age where brands mean something, they provide reassurance to the shopper.”

Customers today expect more from their brands. They actively seek companies that align with their values and consistently provide high quality products. But how do you get the consumer to sample your product if they are not aware of your brand? Companies can either diligently cultivate their own brand presence or enter into a licensed product agreement. Licensed products present an opportunity for coffee and/or tea manufacturers to penetrate previously untapped markets, expand brand awareness, and foster relationships in complementary industries.

Expand Market Penetration

For the coffee and tea manufacturer, entering into license agreements with established brands can strategically increase their overall product awareness. But, not, any licensed product will do. “The licensee should be making an evaluation that if they pay royalty to the branded company, then they can, in turn, sell more product (ideally for a premium),” said Brochstein.

Part of what the licensee is paying for is the visibility of the brand, but they also should consider the brand’s current audience and the marketing that will be required to launch the new product. In the case of tea and coffee, it is important to consider whether the current followers also enjoy tea or coffee. If the answer is no, it may not be the right brand for your company.

What’s in a Name?

Whether it’s Apple, Disney or Lego, recognizable brands immediately convey a feeling for the consumer. License agreements are much more than using a well-known name for a product launch. Licensing allows the coffee or tea company to benefit from the values and recognition that the brand has previously established. However, entering into license agreements comes with risks not only for the licensee, which is responsible for selling the product, but also for the brand itself. If the coffee or tea company fails to produce and market a quality of product it could potentially have a negative impact on the brand image.

License agreements are created to ensure that the licensee adheres to the brand standards and commits to marketing the product. “Essentially, the company is giving the right to sell their brand, however, they are also putting a protection in place in case the licensee decides not to market it,” said Brochstein. Brands want the reassurance that the company will invest the resources to market the licensed product successfully.

So, why do brands take on this risk? From the brand’s perspective, it is virtually impossible to become an expert in every marketplace. In fact, one of the reasons that brands look for a licensee is to help them break into new or complementary markets. Entering into license agreements with established professionals in the field helps ensure that the product launch will be a successful one.

Reading the Fine Print

“License agreements will change according to who you are representing, whether it’s the licensor or the licensee,” said Catherine Holland, Knobbe Martin Intellectual Property Law. “Each party will have specific parameters that they want to put into place to minimize their risks and maximum their benefits.” The agreement will specify exactly what materials the licensor will provide, and any specific brand requirements that the licensee will need to adhere to. It will also outline the terms of the royalty, minimum guarantee, exclusivity, and termination.

Before signing the agreement, the licensee needs to consider if the resources that they will need to invest will produce the desired results. “Some companies focus more on label slapping, providing products in a variety of market segments instead of strategically choosing products that align with their target market’s interest,” said Jackie Newman, vice president, World of Coffee, Stirling, New Jersey, which markets Jack Daniel’s-branded coffee. “The fact is, not every brand is a good fit for tea and/or coffee.”

Higher Risks, But Greater Rewards

As primarily a private label roaster, World of Coffee is extremely cautious about license agreements. The success of the product launch is highly dependent on choosing the right licensor relationships. “From my perspective, the main difference with the licensed product, Jack Daniel’s, and our private label customers, is that with the Jack Daniel’s project we are 100 percent in charge of the product,” said Newman. “We are responsible for the entire process from production to the final sale.” This includes taking on the financial risk of marketing the product and the results (whether a profit or loss) from its sales.

Companies need to be prepared to make a substantial investment in the product, shared Newman, but the result can be extremely rewarding. “We are paying a royalty fee to use Jack Daniel’s name in the coffee line, the remaining revenue from the sales is ours.” When entering into license agreements, World of Coffee is extremely selective, choosing brands that will result in long-term partnerships and success. “It’s a lot of time to invest, so if we are going to put in both the time and effort, we want the product to stick around,” said Newman.

Innovative Branded Product Lines 

Not all licensed products are focused on the long term. Films, television shows, and even video games, are branching out into other products including food and beverage. These media-branded products provide a unique opportunity to share stories and develop relationships with “existing fans” of the brand. However, the licensee needs to understand both the brand itself, and how and where to market it.

The Republic of Tea, which already had established a strong brand following for its product line, extended its outreach through collaborating with film and television shows for unique product launches. “The Republic of Tea first collaborated with a film years ago with a tea for Memoirs of a Geisha. Since then, we have developed these relationships and created teas for Eat Pray Love and The Help among others,” said Kristina Richens, Minister of Commerce, Republic of Tea, Novato, California.

The Republic of Tea collaborates with series that would appeal to their current customer base – The Citizens of The Republic of Tea – to provide tea lines that can be enjoyed while watching a show. “We do this for the Citizens, for their delight,” said Richens. “Sipping teas to commemorate a favourite show or movie enriches the whole experience, whether it’s shared or alone.” Currently, The Republic of Tea offers three licensed product lines, Downton Abbey, the popular Netflix series The Crown, and the recent launch

of Peter’s Garden Tea to celebrate the 9 February launch of the Peter Rabbit movie.

Choose Companies with Aligned Goals

Branching out into licensed products, is an extremely strategic business. “For every licensed deal that you develop, there should be a hierarchy of goals,” said Brochstein. “This could include diversifying the company offerings, breaking into new specialty channels or simply providing a novelty line that will appeal to your consumer base.” However, it is important to consider, whether the company that you are going to engage with is going to fit with your business values.

From the brand owner’s perspective, they will most likely be looking to develop relationships with companies that make quality products, are disciplined in what they do, source correctly and abide by the environmental/labour laws. “Initially, there may be a bit of a push and pull between the brand owner, as they know their brand, and the licensee who ideally, knows the market better then the brand owner does,” said Brochstein. “At a certain point, the brand owner needs to trust that their licensee will deliver a quality product to the marketplace.”

Strong brands recognize the value in developing relationships with companies that are experts in their specific area. “Jack Daniel’s trusted that World of Coffee would deliver premium coffee products that reflect their brand,” said Newman. “They are excellent partners to work with as they look at creating the best-selling products by partnering with companies that can help them get there. Instead of spreading themselves too thin through producing and marketing these product lines internally.”

There is no question that developing licensed products requires a substantial time commitment from the licensee. However, adding a branded product to your line can increase market share, profits, and the overall visibility of your company. The key is finding the companies, and in turn, developing the products that will align with your goals and brand values.

Anne-Marie Hardie is a freelance writer, professor and speaker based in Barrie, Ontario. She may be reached at: [email protected].

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