Chapter 15

Valuing and Leveraging Your Brand

In This Chapter

Appreciating the good economics of a great brand

Understanding and evaluating the value and equity of your brand

Reaping the value of brand extensions and licensing

It seems almost too good to be true that a name, a promise, and a great reputation can be worth thousands, millions, or even billions of dollars, but it’s a fact you can bank on when you build and manage a great brand.

Often, when companies are bought and sold, as much as half of the money that trades hands covers the purchase of the brand name and all it means in the marketplace. That means that roughly 50 cents out of every dollar exchanged in many business sales goes not for inventory, buildings, physical items, business contracts, accounts receivable, or other tangible assets but for the purchase of the brand — something no one can actually see or touch, which is why brand equity is called an intangible asset.

Brand equity is so important that, in the world’s most successful businesses, the most valuable single intangible asset is the brand.

Great brands are great assets. This chapter helps you get your money’s worth by defining what it takes to build the value of your brand, how to convert brand value to brand equity (and how to protect that equity), how to measure and enhance your brand’s worth, and how to leverage the value of your brand through cautious and smart co-branding, brand extensions, and brand licensing opportunities.

The Brand Value–Brand Equity Connection

The value of a brand results from two elements:

• How your brand is valued by consumers: Your brand’s value in consumer minds is the result of public perception formed by all the impressions your brand makes in its marketplace. If you’re making impressions that are positive and consistent, your brand’s value is likely to be positive and consistent, too. If impressions are erratic or even negative, brand value is likely to waver and sink.
• How your brand is valued by investors or prospective brand buyers: Your brand’s value as an asset is called brand equity. Brand equity is determined by a complex process that assesses the monetary value of your brand based not only on current consumer perceptions but also on the ability of your brand to deliver economic advantages in the future.

Revving up the economic engine

From its invisible post deep in consumers’ minds, brand value drives market activity. When your brand value is high, your brand enjoys a long lineup of economic advantages, including

• Premium pricing: When consumers in your target market hold your brand’s attributes and promise in high esteem, they’re willing to pay more for what they perceive is higher value and lower risk than they believe is represented by lesser-known or lesser-valued alternatives. As a result of high brand value, your brand enjoys the benefit of lower price sensitivity. What’s more, customers purchase highly valued brands even when the price fluctuates, because their decision is based more on the perception of brand quality than on product price.
• Lower cost of sales: When people value a brand highly, their feeling of risk is reduced and their inclination to buy is increased because they believe in the brand’s offerings and its well-accepted image. This leads to greater sales volume and greater likelihood of repeat purchases without the need for extensive and costly sales promotions, sales negotiations, and customer-retention efforts on your part. As a result, high brand value allows you to reduce initial sales-acquisition costs and, subsequently, to amortize a one-time sales expense across multiple purchases and a longtime client or customer relationship.
• Lower cost of promotion: Customers who value your brand highly become brand ambassadors. They enhance your brand’s marketplace visibility by speaking well on your behalf, spreading positive word-of-mouth and online mentions, and recruiting others into your clientele at no additional promotional cost to your business.
• Higher market share: When customers stay loyal to your business — and recruit new customers to boot — you enjoy increased market share, which is the percentage of market activity captured by each competitor in a market arena. Dominant market share provides a two-pronged economic advantage: It reduces your brand’s need for new business development expenses while boosting your brand’s immunity from competitive attacks.
• Lower employee turnover: High brand value almost always exists in the minds of employees before it reaches the minds of consumers. (Chapter 13 is full of tips for instilling a sense of brand value and brand passion in your employee team.) When customers catch brand spirit from employees, they tend to pass their brand enthusiasm back to employees, making employees’ jobs easier and far more enjoyable, thereby reducing employee turnover.

Gaining a competitive advantage

Strong brand value inoculates an organization against competitive threats it may otherwise face. It also provides a number of other competitive advantages, including:

• Consumer recognition: Brands with high brand value enjoy strong support and loyalty from customers. This loyalty results in long-term relationships that are resistant to overtures from competitors. It also results in higher sales volume, lower cost of sales, and greater return on investments in business development and customer retention.
• Industry recognition: Brands with high value enjoy stature in their industries or business arenas that results in advantageous leadership roles, trade media coverage, favorable relationships with suppliers, and preferential supplier terms.
• Media recognition: High brand value results in high levels of market awareness, including awareness among those who cover news stories. When seeking comments from industry leaders, news writers call on the names they know, catapulting high-value brands to even greater prominence.
• Financial industry recognition: The financial world monitors brand value as an indicator of the strength of an organization’s management and corporate health. Analysts and investors see strong brands as reflections of strong businesses that they reward with higher levels of investment, lower cost of capital, and advantageous financial relationships.

To assess the current value of your brand, use the worksheet in Figure 15-1.

Estimating Your Brand’s Equity

When a customer goes out of his way to buy a pair of sneakers bearing a certain logo, a cup of coffee from a certain outlet, jewelry in a certain pale blue box, a donut made while-you-watch at a certain bakery, or a reference book bound in a certain yellow-and-black cover, he does so because he believes the product he’s buying offers a unique set of benefits. Those benefits translate into what consumers perceive as brand value.

When consumers go out of their way on a repeated basis, when they willingly pay a premium to obtain the set of benefits they attribute to a branded product, and when they encourage others to do the same, they deliver an economic advantage — brand equity — to the brand owner.

Brand equity measuring sticks

To measure brand equity, most brand evaluators assess a brand’s ability to achieve premium pricing, lower costs, and business strength and growth.

Sales performance

As a starting point in evaluating the worth of your brand, assess whether your sales are going up and at what rate.

1. Calculate the percentage of sales growth your brand has experienced for each of the past three years.

   For example, if two years ago your sales totaled $3 million and last year they grew to $3.25 million, your business experienced one-year growth of 8.3 percent. (Sales were up $250,000, and $250,000 ÷ $3 million = 8.3 percent.)

2. Calculate your average sales growth over the past three years by totaling the growth (or decline) of sales over each of the past three years and then dividing that number by three.

   For example, if you experienced 5 percent sales growth three years ago, 5 percent sales growth two years ago, and 8 percent growth last year, your three-year average growth rate is 6 percent ([5 + 5 + 8] ÷ 3 = 6).

3. Indicate if extraneous circumstances factored into the growth or decline of any of the past three years.

   For example, if your business underwent a significant remodel that resulted in fewer customers and lower sales over a one-year period, note that factor and explain how the remodel contributed to brand worth even as it detracted from sales revenue.

4. Indicate if extraneous circumstances will affect the growth of sales over future years.

   For example, if your business projects flat sales for the next few years as you complete development of a major new product, explain the development schedule and how the product launch will result in future sales and increased brand worth.

Unless you explain circumstances that affected your recent sales growth (or lack thereof), it’s fair for brand evaluators to assume that your average sales growth over the past three years indicates the sales growth rate you’ll achieve during the next few years.

Marketing strength

The size, growth rate, and composition of your market arena also affect your brand equity. Obviously, if the size of your market is decreasing, if consumer preferences are turning away from your brand attributes, or if new competitors are grabbing large slices of what used to be your share of market, the worth of your brand suffers. Measuring brand equity by marketing strength requires you to address the following questions:

• Is your business arena one with growing or declining market interest? For instance, the home sewing industry, the ski industry, and the tennis and golf industries are arenas that have seen consumer participation decline over recent years. In contrast, pet ownership, wine consumption, and healthcare usage are all up.

  To assess trends in your industry, go to a major public library reference area and consult the Lifestyle Market Analyst from SRDS and Nielsen. The publication presents lifestyle and demographic information for residents of 210 major U.S. market areas. By obtaining your market area statistics for current and past years, you can determine whether the population of people who fit your customer profile is growing or declining.

• Is consumer demand for your offering growing or declining? Consult your own records first. Are your inquiries, your new customer accounts, and your customer purchase rates increasing or decreasing? Then obtain information from publications that serve your business arena. Are their subscription and circulation counts on the increase? Does your business association show increased or decreased activity in your business arena? Together, your findings can help you make a case regarding the strength of consumer demand for your brand’s offerings.
• Is your business arena getting more competitive, and is your brand faring better or worse in the competitive field? List your top competitors for each of the past three years, along with how you ranked in terms of sales against each one. Note whether competitors have entered or left your market arena and whether competitors have gained or slipped in market share against your brand. The degree to which you’re gaining business from competitors is a good indication of brand strength and worth.

Brand experience

Your brand experience is the means by which customers form impressions about your brand, and as such, it links directly to your brand’s success. To assess your brand experience, use the worksheets that appear in Chapter 13. Also consider the following questions:

• Are your brand’s distinguishing attributes clear and consistently conveyed?
• Are the benefits your brand promises ones of increasing value to consumers?
• Does your brand convey and keep its brand promise at every point of contact, whether with employees, prospects, customers, consumers, suppliers, investors, shareholders, or other stakeholders?

Brand value

To assess your brand value as a contributor to your brand equity, use the worksheet in Figure 15-1. If necessary, conduct research, following the guidelines in Chapter 5, to deepen your understanding of customer opinions and purchase tendencies. Use your findings to address the following questions. As you arrive at answers, realize that positive responses indicate that your brand value is strong, a mixed-bag set of responses indicates that your brand value is at risk, and a lineup of “no” answers indicates that your brand needs serious repair in order to restore its value.

• Is your customer base growing?
• Is your customer retention rate increasing? (Conversely, is your customer attrition rate — your churn rate — rising?)
• Is your brand awareness level increasing? When prospective customers are asked to name the top few brands that come to mind in your business arena, how many cite your name, and has that number grown or declined over recent years?
• Is your brand’s mindshare increasing? When prospective customers are asked to name the top brand that comes to mind in your market arena, how many cite your name, and has that number grown or declined over recent years?
• Is your average sale price and profitability increasing?

  The degree to which consumers pay a premium for your offering, from additional cents to big bucks, depending on the average price of your offering in the marketplace, is often viewed as a primary indicator of your brand’s market advantage and resulting equity.

Calculating your brand equity

Brands are worth money. As proof, John Stuart, one of the 20th century’s great business leaders and a former CEO of the Quaker Oats Company, is quoted as saying, “If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you.”

To figure out the equity of your brand so that you know the worth of the asset you’re building, protecting, and leveraging or so that you understand your brand’s possible sale price, use either or both of these two approaches:

• Assess the costs involved to establish or replace your brand.
• Assess the economic worth of your brand based on its market share advantage, price premium advantage, cost of sale advantages, and reputation.

Figuring out the cost of establishing or replacing your brand

One approach to estimating your brand’s worth is to figure out what it would cost if you were to create your brand today or if the organization seeking to purchase your brand were to try to build your brand from scratch.

In assessing your brand from this angle, take the following into account:

• The cost of creating your brand identity, including
  • Name development and registration
  • Logo development and trademarking
  • Slogan development and trademarking
  • Domain name registration and establishment of web presence
  • Development of brand-identifying elements such as a unique and widely accepted color scheme, an olfactory signature or scent, a musical signature, and other elements that contribute to what your market understands to be the identity of your brand
• The cost to achieve your current level of market awareness, including
  • Advertising
  • Promotion
  • Digital presence
  • Publicity to achieve knowledge of your brand name, your brand message and promise, and your brand benefits and distinctions
• The cost to attract and retain your current clientele, including
  • Advertising
  • Promotions
  • Lead generation
  • Customer acquisition
  • Relationship development
  • Implementation of loyalty programs necessary to develop the level of customer retention and passion that contributes to your current levels of sales, repeat purchases, and positive reviews, ratings, comments, and word-of-mouth

Determining the economic value of your brand’s premium market position

When businesses get ready to sell brands, often they begin by calculating the actual economic advantage of the brand. You can assess your own economic advantage by watching two indicators:

• Price elasticity: When your consumer demand remains high even when your prices go up, your brand enjoys pricing leeway known as favorable price elasticity. Price elasticity usually results from high brand value and usually leads to premium pricing.
• Premium pricing: To assess your brand’s pricing advantage, determine how much extra consumers are willing to pay in order to purchase your branded product instead of the offering of a lesser-known or lesser-valued brand. This difference, multiplied by your sales volume, indicates the economic value of your premium market position.

In other words, high brand value leads to favorable price elasticity, favorable price elasticity leads to premium pricing, and premium pricing leads to higher brand equity.

To calculate the worth of your premium pricing position use this formula:

1. Determine the price difference between your offering and generic offerings or offerings from lesser-known or less-respected brands.

   For example, if a six-partner accounting firm sells time for $100 an hour and average rates in the firm’s market area are $85, the accountants’ price premium equals $15. Or if a bottled water product sells for $2.29 and competing, nonbranded products or products with lesser brands sell for $1.99, the branded water’s price premium is $0.30.

2. Multiply the price difference by the number of units sold.

   If the six-partner accounting firm sells a total of 10,000 partner hours a year, its annual price premium equals $150,000 (100,000 hours × $15 price premium). If the bottled water producer sells 600,000 bottles a year, its annual price premium equals $180,000 (600,000 bottles × $0.30 price premium).

3. Adjust your result to account for future brand performance projections.

   These projections include the likelihood that customers will continue to behave in a similar manner in the future, that the brand’s current economic reality is transferable to new owners, and that the brand’s momentum will continue at its current pace. For example, if a service business commands premium pricing in large part due to the powerful reputation of the owner, and if the owner wants to sell the brand and depart the business, then the value of the price premium would likely be discounted by those considering a purchase of the brand.

When calculating the worth of a brand’s premium price position, be aware that the number you arrive at is a valuation starting point, not the finishing line. The effect of future brand-building activities, market growth or retraction trends, actions of competitors, and other market realities affect whether the value of the price premium should be adjusted upward or downward in assessing the brand’s worth.

Identifying evaluation experts

If you’re thinking about selling your brand in full or in part, a good first step is to follow the advice in the preceding section so that you have a sense of what you believe to be your brand’s worth. From there, you may have enough information to begin sale negotiations for a smaller brand, but for larger brands, it’s worth it to call on professional assistance.

Evaluating the worth of a brand is both an art and a science. To obtain expert assistance, take these steps:

• Visit the website www.brandchannel.com, produced by Interbrand. Search the site for “equity evaluation” to reach case studies, white papers, and brand valuation advice. Go to the About Interbrand section and click “Our Work by Discipline” for information on Interbrand’s brand valuation services.
• Contact brand development specialists in your market area to see if they’re experts at brand valuation or to seek their assistance in reaching those who are.
• Conduct a web search for “brand equity valuation experts” to find resources for information and brand valuation.

Protecting Your Brand Equity

For as long as you own your brand, you have to protect its value by following the same marketing approach you used to build the brand’s equity in the first place, described in Chapter 2 and detailed in the first two parts of this book.

Chapter 9 includes advice for planning your brand launch, including how to set strategies for each of the four Ps in the marketing mix: product, pricing, promotion, and place (or distribution). As you build and protect your brand, regularly update your brand marketing plan, always monitoring these four strategic areas to be sure that all brand marketing decisions are consistent with your brand position, promise, and image.

• Product: If you adopt new product lines or make product adjustments, be sure they match your brand image and market position, including the quality for which your brand is known. While some brands have extended successfully into lower-level market positions, most success stories involve brand extensions that match the quality of the established brand image and market position.
• Pricing: Make all pricing decisions with your brand’s market position and image in mind. Discounting is a popular way to win quick sales, but if your market position is that of the high-end, elite brand, a discounting strategy is probably also a quick way to ruin brand esteem.
• Promotion: Be sure all promotions are consistent with your brand identity. As brands mature, too often leaders loosen their grip, turning brand management over to those with less passion or understanding. The result is costly, brand-eroding diversion from the brand image and promise.
• Place: As you broaden your distribution — the way you get your product to your market — be sure to select channels that support your brand identity. Too many high-end brands have suffered by cutting distribution deals that send their best-branded offerings to warehouse outlets, later receiving a very cold shoulder from top-tier retailers with whom they’d built their reputations and clientele.

As if that weren’t a long enough list to consider when protecting your brand equity, there’s one more “P” to consider, and that’s people — the employees who power your brand experience. Turn to Chapter 13 for plenty of advice on how to build brand spirit within your organization and how to achieve brand delivery excellence by developing a team of enthusiastic, knowledgeable, and passionate brand champions.

Planning for Product Innovations

Of the tens of thousands of new products that enter the retail arena each year, most die early deaths and few soar into the news as success stories. That’s the bad news. The good news is that most of those that “make it” — those that beat the dire product start-up odds — have two things in common that, as a brand owner, you can leverage to your advantage.

The first common trait is that the innovation provides meaningfully different benefits from what exists in the marketplace. The second common trait shared by most successful new products is that they ride into the market on the magic carpet of a known name. That’s why most bestselling new books are by known authors, and most top-selling new music releases are by known artists. Most successful new products either carry the names of known brands or are fueled by the powerful endorsements of known authorities or personalities. By gliding into the market on the current of an established brand, a new product debuts with the advantage of instant credibility, a strength that’s basically borrowed from a brand name and reputation that may have taken years, decades, or even longer to build.

Leveraging a brand name is lucrative as long as you avoid some danger zones. If your new product doesn’t align with your brand message and promise, or if it doesn’t build on the emotional connection you’ve established with your customers, you can actually hurt your brand in the process of trying to help your new product.

Figure 15-2 illustrates the opportunities you can pursue as you aim to increase purchases by current customers and to attract new customers into your business.

Product innovations range from minor revisions to brand-new product introductions. Most new products fit into one of the following categories:

• Brand extension: When you introduce a new product or product line that supports your core brand message and promise while taking your brand outside its initial category, it’s called a brand extension. A few examples include Starbucks Coffee Liqueur, Axe Face and Shave, and the Adidas training watch.
• Line extension: When you introduce a variation of your existing product or service that features the same characteristics and primary benefit of your established offering but with a new secondary benefit, it’s called a line extension. Examples include Diet Coke, Crest Extra Whitening Toothpaste, and Dove Sensitive Skin Body Wash.
• Repositioning: When you present your established product in a way that causes consumers to think of it differently, expanding or altering its target market as a result, it’s called repositioning. A few examples include St. Joseph Aspirin as a cardiac health treatment and Arm & Hammer Baking Soda as a cleaning, deodorizing and even cat litter box solution.
• Revitalization: When you make anything from a moderate to a radical product change to address evolving market realities with new packaging, benefits, pricing, or distribution, it’s called revitalizing. A few examples include Kool-Aid Singles packets for making single servings of Kool-Aid, H&R Block TaxCut Online and Software for do-it-yourself tax preparation, and Tostitos Scoops for those preferring thinner, crispier, shaped-for-dipping version of Tostitos. (See Chapter 17 for more complete information on revitalizing your brand and offering.)

Some new products enter the market as new brand launches, following all the brand-introduction steps outlined in Chapter 9. Others take a profitable shortcut by entering the market as brand extensions or line extensions, riding in on the strength of an established brand identity.

As you leverage your brand, realize that you’re working with a very valuable asset. In some ways, extending your brand is like taking out a home equity loan to underwrite a new investment. It’s a great idea as long as the new venture you’re funding doesn’t shake the stability of your established asset. Before dipping into the reservoir of goodwill of your brand, look long and hard at the new product opportunity you’re considering.

Tiptoeing into a Brand Extension

Most brands loan the value of their names in one of two ways:

• Line extensions stretch the brand name to cover a new offering with new and different consumer benefits in the brand’s current product category and consistent with the brand’s established promise, position, and quality level.
• Brand extensions stretch the brand name to new product categories, usually in one of three ways:
  • By entering a new price or quality category in the same general product arena (such as a car company launching a new make and model)
  • By entering a new but adjacent product category (such as Crest toothpaste moving into Crest toothbrushes or whiteners)
  • By entering a completely new category (such as Nike introducing sunglasses or wearable technology)

Both forms of leverage — brand extensions and line extensions — come with some common advantages and risks.

• On the plus side:
  • The new offering enjoys faster market acceptance at lower promotional costs than would be required if the product were to enter the market with a name consumers have never heard of.
  • The extension allows the brand to reach current and new customers with a new offering capable of generating new sales revenue.
  • Announcement of the new product allows the brand to strengthen and renew its brand message and promise in the marketplace.
• On the minus side:
  • If the new product doesn’t match the brand’s position and promise, it can confuse customers and shake their confidence in the brand.
  • If the nature of the new product causes the brand to drift from the brand’s core message and promise, it can dilute the brand’s strength and reduce brand loyalty and passion at the same time.

When extending your brand, the safest bet is to stay in your same product category or to stretch only so far as a complementary category. For example, a window manufacturer may safely extend its brand to screens and awnings.

Extending your name to a distant product category is the equivalent of making a loan to a risky venture, and any good banker will tell you that there’s a reason why loan requests for risky ventures are routinely declined. When the profile of the applicant doesn’t match the risk of the request, a bank loan officer simply says “no.” When it comes to brand extensions, sometimes brand managers need to issue the same response.

If you see an opportunity to extend your brand into an altogether new category, proceed with caution, making certain that your brand promise still makes perfect sense in the new market arena. If it doesn’t, either decline the new product opportunity, or seize it under the banner of an altogether new brand, following every step in the preceding chapters of this book. The section “Putting your extension idea through the hoops” later in this chapter helps you separate good extension ideas from brand-damaging ones.

Avoiding line-extension traps

Of the thousands of new products introduced each year, more than half are line extensions that carry the name and all the characteristics of an established brand while offering a distinct new advantage to the market.

When you extend your line, you seize a number of opportunities.

• You capture a greater share of your current customer’s billfold by giving that person more reasons to buy from your business.
• You attract new customers by offering a new benefit and purchase incentive. For instance, adding a low-fat version of your product allows you to attract weight-conscious prospects. Offering single-sized portions allows you to serve one-person households and also to gain trial usage by those not willing to make larger-quantity purchases.
• In the retail arena, you expand brand presence by creating the need for more shelf space.
• Internally, you wring more profitability out of existing marketing and production investments.

Offsetting the upsides of line extensions are some major pitfalls to avoid:

• If the new product doesn’t live up to brand expectations in terms of quality, market position, consumer preference, or brand promise, it erodes brand confidence in a hurry. Remember New Coke?
• If the new product extends your line to a mind-boggling and indistinct assortment, customers can become confused, which leads to selection dilemmas that result in no purchase at all.
• If people view the new offering as an improvement of an existing product in your line, they may purchase the new offering at the expense of the established offering (called product cannibalization and advisable only if you’re trying to phase out the cannibalized product).
• If those inside your company aren’t clear about the distinct attributes and target market for the new offering, or if they feel the new offering cannibalizes existing offerings, uncertainty and internal competition may result among the very people who should be championing your products.

Before extending your product line, answer the questions in Figure 15-3.

Looking before leaping into brand extensions

In many ways, an established brand is like a magic wand for new product introductions. But (there’s always a hitch when something seems almost too good to be true) if you haven’t done your homework, extending your brand into a new category can be a dangerous roll of the dice that an article in AdWeek described as “delusions of brandeur” and “mercilessly infecting otherwise healthy products.”

What works? What doesn’t?

Marketing graveyards are filled with brand extension failures. At the same time, business publications are filled with headlines heralding brand extension successes. In all cases, the new products started with good ideas, but from there, the paths went in vastly different directions.

In three steps, here’s how you can steer your extension away from disaster and toward success:

1. Make certain that there’s a real market opportunity for your new offering.

   Be sure your offering features innovations that result in meaningful value to customers. Also be sure the excitement for the new offering inside your business is equaled by excitement from those outside your business and in your target customer audience. Turn to Chapter 5 for advice on conducting market research and staking a market position for your offering.

2. Make certain that your business has the staff, production, and financial resources necessary to support the new product without sacrificing the strength of existing offerings.
3. Make certain that your brand message and promise both extend to the new offering.

   If the new offering isn’t in complete alignment with the brand image held by those who know your brand, both your new product and your brand will suffer.

The illustration in Figure 15-4 comes courtesy of Prophet, a global brand consultancy specializing in branding and marketing. It shows how market opportunities, organizational capabilities, and brand relevance must converge to create a “sweet spot” for your brand extension.

Don’t ask your brand to stretch too far

When brand extensions fail, the downfall rarely stems from a lack of organizational ability or market opportunity. Most businesses stop themselves before stretching the ability of their staffs, production facilities, or management capability. And most businesses make sure that sufficient market potential exists before launching new products.

Most brand extension disasters occur when businesses try to stretch their brand identities into distant product categories where they lack relevance. In doing so, they basically expect the brand’s followers to take a giant leap of faith. They assume that the consumer’s belief in the brand as a preferred solution in product category A will translate into consumer trust in product categories B, C, and even X, Y, and Z.

Expecting your brand to stretch easily from category A to adjacent categories B and C may be reasonable. For example, asking consumers to believe that Oprah’s magazine is a good launching pad for a hardcover book series obviously made sense. Longer stretches, however, get problematic. Remember when high-powered celebrities launched the Planet Hollywood restaurant chain? The effort required consumers to trust that great actors would be great restaurateurs. Shuttered restaurant sites prove otherwise.

Putting your extension idea through the hoops

Before proceeding with a brand extension, test the relevance of your brand to the new category by putting it through the process illustrated in Figure 15-5.

Cobranding Cautions

Cobrands capitalize on the benefits of two compatible brands that present similarly desirable attributes to consumers with similar profiles. Cobranding advantages include:

• Both brands benefit from the opportunity to appeal to a greater customer base than either may be able to reach on its own.
• Each brand stands to enhance its esteem by borrowing on the strength of the partner brand.
• The brands share marketing costs, resulting in cost savings for each.
• Each brand benefits from the perceived endorsement of the other.

Following are the potential dangers of cobranding:

• Brand management is complicated by the need to integrate the separate operating systems and management approaches of each brand.
• The cobranded offering can confuse consumers unless the link between the two brands is immediately obvious, sensible, and easy to understand.
• One brand can be diminished in stature if consumers consider the partner brand to be an incompatible match.

Cobranding efforts may involve strategic alliances in which two brands unite to reach common goals or cobranded promotions in which two brands team up to achieve short-term sales objectives. Efforts may also involve cobranded product introductions in which two brands bring their production and marketing efforts together to achieve a greater market impact than either could achieve alone.

Examples of cobranded product introductions include the Coach Edition of Lexus, the AT&T Universal MasterCard, and the Eddie Bauer Edition of Ford Explorer. Each leverages the esteem and attributes of both brands through a partnership that’s a good fit in consumers’ minds because the brands appeal to similar markets, offer similar quality, and represent similar benefits.

Before joining a co-branding partnership, be sure you can answer a strong “yes” to each of these questions:

• Are your brands compatible without directly competing with each other?
• Do your brands appeal to the same or very similar customers?
• Will both brands enhance their reputations through the partnership?
• Do customers, media, investors, and others respect both brands equally?
• Are the management and marketing styles of both brands compatible?
• Do you trust each other?
• Are all the details down on paper and signed by both parties, including the cobranding marketing plan, budget, timeline, and responsibilities?
• Can you explain the cobranded product or promotion in a sentence that will make sense to employees, customers, and others? Are both brands explaining it in exactly the same way?

Brand Licensing

Brand licensing is one of the most widely used ways to extend a brand, largely because it allows a brand to achieve new product introductions without gearing up operationally for the task. Instead, the brand licenses its name to a manufacturer that takes on all the production and marketing efforts of the new product.

When you license your brand, basically you rent your legally protected brand identity to another business that will manufacture and sell products carrying your name.

To the consumer, licensed products look just like branded products. So before you consider a license agreement, be sure the agreement will result in products that meet all the brand characteristics and avoid all the brand-damaging landmines detailed in preceding sections of this chapter.

Understanding licensing lingo

Brand licensing comes with a language of its own. The terms you hear most include the following:

• Licensing: Leasing a trademarked or copyrighted brand identity, including brand name, logo, tagline, or other form of brand signature, to another business, usually for use on a product or product line.
• Licensor: The owner of the brand and the renter of the rights.
• Licensee: The business renting rights to use the brand identity.
• Contractual agreement: The formal permission document that defines how the licensee may use the brand and how the licensor will be paid.

  The contract should include specific usage purposes, limitations on applications, geographic area, time period, payment schedule, and terms. Rely on an attorney to draw up and review the agreement, and obtain formal signatures. Handshakes are great, but only after the ink is dry.

• Royalty: In most contracts, the licensee agrees to pay the licensor a guaranteed minimum payment plus a royalty on all sales that exceed the minimum payment amount.

Benefits of licensing

In a good licensing agreement, both parties benefit. The licensor gains the benefit of a brand extension and revenue (via royalties) without any investment in product development, production, or marketing. The license agreement provides a no-cost form of brand value leverage.

The licensee gains the benefit of the licensor’s brand name, which lends immediate awareness, distinction, and trust to the manufacturer’s product rollout. Without the need for any brand development investment, the licensor is able to achieve marketplace prominence and command a premium sales price thanks to the lease of the licensor’s brand name.

Licensing steps to follow

Most license agreements result in what looks to the consumer like either a brand-produced product or a cobranded product. For instance, Disney licenses its name to Timex, and Timex makes watches featuring Mickey Mouse. The consumer thinks the two teamed up to make the watch possible, and they did, although it was likely through a licensing agreement rather than through a manufacturing and marketing partnership.

How your branded product gets to market is a behind-the-scenes issue that’s invisible to consumers. The consumer simply sees the product, links it to your name, and decides whether the product enhances or diminishes your brand image. (The sections “Don’t ask your brand to stretch too far” and “Putting your extension idea through the hoops” earlier in this chapter help you evaluate the match between licensing opportunities and your brand image.)

Give licensed offerings the same level of consideration and scrutiny that you give any other brand or line extension.

1. Build, protect, and manage your brand and its esteem. Otherwise, few licensees will find your name worth the lease price.
2. Establish licensing guidelines. Include how far you’ll allow your brand to range — in terms of product categories, price range, and distribution channels — through licensed products.
3. License only to well-managed, well-respected, and well-financed companies.
4. Limit licensing partners to one or only a few in each product category or geographic area.
5. Implement a comprehensive licensee training program to ensure that all licensed products are developed and marketed to your brand standards. Most licensee training programs begin with education that immerses licensees in the brand image and usage guidelines. They also cover the steps licensees must take in order to gain approval of products, packaging, and any materials or communications that carry the brand identity.
6. Monitor and protect the way your brand is presented via licensed products in the same way you protect its usage within your own organization. Be vigilant regarding misuse of your brand identity or infringements on your license. Turn to Chapters 8 and 18 for help.