At RTR Sports Marketing we’ve put together a short guide to explain the concepts and practices behind these two lucrative options for a successful marketing campaign.
Firstly, what is licensing?
Licensing is the owning by a brand of the right (given by the owner of a trademark) to produce objects or provide services bearing the mark itself upon payment of a fixed or variable fee (aka, a royalty.) The rules of this relationship are reported in the licensing contract.
In sports, a licensing agreement means the use of a sports team’s logo, branding or other collateral on promotional materials or merchandise. The licensee has the right to use the brand or logo for commercial gain or sales of their product.
How can licensing help you?
Quite simply, the coming together of a licensor and a licensee in a mutually beneficial partnership can have long-lasting financial benefits for both parties.
When a well-known brand, one that is highly recognized and of great appeal to its target audience, teams up with a product, it can benefit everything from its perceived image and its level of brand awareness to direct sales and economic growth.
Double marks if the brand and the product share the same values, ethos and strategic aims (as well, of course, as demographics.)
Of course licensing isn’t just used in sports marketing or by sports teams – its ubiquitous across the advertising spectrum, from fashion to food.
Most of the great luxury brands (Armani, Dior, Prada, YSL, Chanel, Gucci and Stella McCartney, to name just a few) have granted their licenses to companies that produce perfumes, glasses or other items. These campaigns, like the vast majority of licensing deals, are based on royalties, i.e. profits coming from the amount of sales made.
Of course, the same success can be replicated in sports marketing. Think famous athletes and well-known teams licensing their brand – names that spring to mind include Ferrari, Ducati, David Beckham, Valentino Rossi, Juventus and Barcelona, amongst many others.
All have licensed products: sunglasses, chocolate eggs, children’s rides, razors, perfume, laptops… Cristiano Ronaldo has a perfume, and a line of underwear under the brand CR7. David Beckham also has a perfume. Jordan and Nike have teamed up to link their brands together, maybe for years to come.
Who invests in licensing?
Companies with children and teenagers in mind are always ready to invest in licenses, but of course we do not have to limit our operating field to these
Here are some examples: Peg Perego has a license agreement with Ducati, and produces a line of three-wheeled electric motorcycles for children. Kawasaki and Mercedes have similar deals in place. Cast your mind back, and you’ll remember that we all grew up playing with toy cars that reproduced Ferrari, Porsche and Corvette in miniature.
All this is licensing, and it’s being spearheaded by the world’s most iconic brands.
How do the finances work?
Licensing contracts are usually remunerated with a fixed part (minimum guaranteed), plus a variable represented by royalties on sales.
The minimum guaranteed has a dual function for the licensor. First of all it makes sure that the licensee does not purchase the license to keep it in a drawer – the initial cost means the license will be used, and no parties will lose out.
Secondly, with the minimum amount guaranteed, the licensor covers the costs that he might have faced to close the contract – e.g. legal fees.
The variable part, royalties, is a percentage of commission that’s calculated on sales.
What does a sports licensing contract look like?
Of course, the licensor and the licensee both have an interest in the partnership and its success (that is, that the products that derive from it are sold well), since both have an economic and brand awareness benefit.
The licensor has the right to control the accounts to check the economic results, and contracts generally contain clauses to regulate extensions and renewal of the license.
The number of these agreements in themselves should be sufficient to explain that licensing can be highly rewarding for both subjects – done right, this can be a highly lucrative long-term opportunity.
The owner of the brand can see its name used across audiences and locations far from what they’re used to, widening the market and reaching subjects that, with their own business, they might never have been able to reach.
At the same time, the licensee enriches their product with the values of the brand that they have acquired. They also have the opportunity to serve new audiences and to activate promotional activities that are bolstered by the fame and the image of the brand used.
Put this way, it seems simple – and actually, it really is.
Ok, I’m sold on licensing. But what’s co-branding?
Co-Branding can be explained as an agreement between companies that mutually decide to produce and sell products or services that bear both of their brands.
What’s the aim of co-branding?
The aim of co-branding is to broaden the reach of both brands to their respective markets, leveraging awareness and bringing their consumers closer together.
Are there any strong examples of co-branding in sports marketing?
What about multiple brands teaming up?
Co-branding is extremely flexible, and it is not uncommon to see more than two brands engaged in the creation and production of capsule collections.
In this case the goal is obvious – a brand of great prestige (Louis Vuitton) that isn’t often frequented by a young audience would like to approach this audience in a fresher way, and one that is more likely to grab their attention than their previous ad campaigns. After all, teenagers have buying power – and it’s those between 14 and 24 who can, and do, regularly launch new trends.
Meanwhile, the partnership works to reaffirms, if it were still needed, Supreme among the dominant superbrands of the past few years.
Co-branding campaigns can also reap the rewards of an incredibly wide distribution, which is as big as any of the brands want to make it – so not just a communication message, but a relationship that can really impact the bottom line.
Licensing and co-branding present numerous opportunities for companies belonging to even the most seemingly disparate categories to develop interesting and financially successful campaigns.
If you look for ideas, you want support or simply want to have a chat to explore the world of motorsport from this viewpoint, we are always reachable – give us a call and one of our sports marketing experts will be on hand to answer any questions you have.
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