Licensing in India will be worth $500 mn in the next five years. While this figure is miniscule compared to other international markets, India is fast establishing itself as a strong potential market in the future world of licensing. Mayuri Pitale and Dwijorani Senjam give us in-depth knowledge of licensing opportunities and untapped potential in India.
Take a walk to the nearest mall and you will see a surfeit of licensed products around you. These products range from regular product categories like toys, apparel, back-to-school and food products to unusual product categories like backpack holidays and wall paints.
Brand extensions are flourishing for a number of reasons. More and more companies today, realise that one of their most valuable assets is the brand and not just their technology or other tangible assets. A strong brand commands loyalty, emotions, preference and associative powers, which are hard to duplicate by the competition. The brand is the USP for many products today. Also, in the much cluttered marketplace, where it is very expensive and time consuming to get brand recognition and brand affinity, many companies choose brand extension licensing to launch new products, by leveraging the power of existing strong brands and to shout out through the clutter.
Many consumer products marketers believe that the brand has become more important than ever before and many a time, the only differentiator in many product categories. Brands with strong consumer recognition, relevance and loyalty have been successfully extended into new product categories. In fact, for years, brand extension licensing has been used as a strategy to generate revenues. But today, the scenario is changing, with more focus on other benefits that a carefully crafted licensing program can deliver, apart from just royalty revenues.
Some of these benefits are:
- Brand extensions are seen as an excellent strategy to enhance and reinforce existing brand equity.
- Typically, a licensee benefits from the popularity of a particular brand. However, there is also a reciprocal benefit that the licensor receives from the advertising and promotional support by the licensees.
- Licensing revenues tend to be the most profitable revenues of the company. Because the investment in building the brand has already occurred, there are few additional costs associated with putting forth a licensing program. As a result, a high percentage of revenue is pure profit.
- Finally, the licensing program lends exponential increase in brand exposure, a cornerstone for developing consumer preference and a strong brand; consider the sheer number of impressions generated by hundreds of licensed products and the marketing communications to all the stakeholders–consumers, shareholders, employees, suppliers, etc.
Over the last few years, we have seen a lot of change in the Indian licensing industry. India, once a closed market, today, has a foray of international and strong local brands to choose from. Today, we have celebrities who have become licensors - Amitabh Bachchan with his very own perfume and designers like Sabyasachi, with their own range of bed and bath - retailers have also become licensees and the marketplace, more competitive than ever before. Licensing is no longer limited to character licensing in India. Albeit small, we cannot deny the slow but sure emergence of other types of licensing in India today, such as, sports licensing, art licensing and brand licensing.
The licensing industry in India has gained substantial momentum now. The licensors, for sure, stand to gain the maximum, but this has also opened doors for others in the value chain, like independent licensing agents, retailers, advertisers, consumer products manufacturers and distributors.
Advent of licensing agents
Recent growth in the licensing industry in India, has also led to the advent of a new breed of licensing professionals, that of independent licensing agents. Licensors have realised the importance of entering new territories and to charter these untested markets, they rely heavily on the expertise of licensing agents. Licensing agents act on behalf of the licensor, to execute successful licensing programs. There are many reasons for a licensor to appoint a licensing agent. The main ones being the licensing agent's expertise in implementing licensing programs in his territory, his existing contacts and knowledge of the marketplace, greater speed to market and most importantly, minimal out-of-pocket expense to the licensor. Historically, it has also been seen that agency based agreements typically yield significantly better financial and non-financial terms.
Retailers and advertisers gain from character/brand licensing
Given the intensifying competition in the retail segment, the challenge for most retailers today, is to increase footfall and conversion rates at their stores. Realising the power of strong brands, many retailers worldwide, get into direct-to-retail licence, which enables them to exploit the brand licensed, to the fullest, by launching consumer products in various product categories, creating unique events and promotions in their stores, to pull traffic to using the brands, to advertise in popular media. A retailer becomes a one stop shop for everything for the licensed brand. For a retailer, licensing works better than private labels as it allows him to leverage the popularity of a particular brand, by gaining access to the huge bank of artwork provided by the licensor and the support of the core brand, by the licensor. Consider a kid who loves Popeye. This kid would want everything 'Popeye' from his clothes, school bag, tiffin box, stationery, toys and games. He would even want his birthday party to be themed around Popeye. However, this craze is not restricted to kids. For adults who have grown up watching Popeye in their childhood, Popeye is 'vintage' and they would love Popeye collectibles, vintage T-shirts & bags. A retailer can, therefore, target the entire spectrum of audience from kids to adults, with a brand like Popeye.
Advertisers are also turning to the use of many characters as 'spokestoons' for their brands. Given the clutter in the marketplace, where most celebrities, whether from Bollywood or cricket/sports, endorse more than a few brands, using apt characters for their brands works wonders to create a niche, as well as, enhance recall. Use of a particular character in advertising a brand, also allows extensive use of the character for events (using the costume character for example) and promotions (specific collectibles/premiums as give away). Characters, like Popeye–who is a hit with moms and kids because of his association with spinach, healthy eating, unmatched strength and an unshakeable attitude, are used worldwide in advertising for brands such as Duracell, PepsiCo, Mazda, Toyota and many more.
Opportunity for consumer products
Manufacturers and distributors
Most of the consumer products manufacturers and distributors today, face one grave problem and that is, to gain the attention of their customers, maintaining their interest levels in the products they offer. Licensing helps achieve this and much more. Licensing can do this by:
- Reducing the risk associated with new product launch. The consumers find comfort in brands they are familiar with and are more comfortable with a new product from those brands.
- Transferring the brand values and consumer favour towards the brand, to the licensed product or service.
- Providing added value and differentiation from competitive offerings.
- Gaining from the momentum of the core brand's marketing activity provided by the licensor.
- Giving credibility for moving into new market sectors through product extensions.
- Gaining additional retail space and favour.
We, at Extend Brands, estimate that the size of character licensing in India, will be worth $500 mn in the next five years. While this figure is miniscule compared to the US market at $108 bn at No. 1 or even the French market at $7.7 bn at No. 5 (source: LIMA 2007), India has been identified as one of the four emerging markets for licensing besides Eastern Europe, China and Russia. Licensing in India has garnered enormous interest and this is likely to grow significantly in the next three to five years (Source: LIMA 2007). This essentially means that all licensors, licensees (manufacturers, retailers, advertisers and distributors) and licensing agents stand to gain by leveraging the growth and opportunities this industry has to offer.