What happens after the licensor says yes? Most, if not all,
companies will ask for a minimum guarantee of sales covering the
life of the contract paid in advance or in installments, and will
charge royalties as well. Royalties are a percentage of sales paid
by the licensee to the owner of a property or a designated agent,
usually based on the net wholesale selling price. Some licensors
are willing to negotiate these fees; others are not.
The contracts' length and the process for renewing them
varies among companies. "We usually renew automatically,"
says Blum. "There is a renewal clause [in our contracts] that
says if you meet certain financial and quality obligations, you get
an automatic renewal. This is negotiable and varies from license to
license."
Major League Baseball, on the other hand, does not automatically
renew. Instead, it requires licensees to prove they earned the
money paid to the league and asks companies to submit marketing
plans for the next contract period, says Francis.
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While sports teams, TV shows and movies are among the best-known
licensed properties, they aren't the only avenues. Harvey
Christie, a Pickaway, West Virginia, manufacturer, took a less
traditional route.
When the founder of Diversified Nature Associates Inc. began
selling his herbal vinegars at local specialty shops and state
fairs, he had no idea it would lead to private-label agreements
and, ultimately, licensing for world-renowned five-star resort The
Greenbrier in White Sulpher Springs, West Virginia. The Greenbrier
vice president of food and beverage, Rodney G. Sterner, came across
the vinegars at a state fair in 1990 and was so impressed, he asked
Christie to make all the resort's specialty foods under a
private label arrangement.
In 1993, the agreement expanded into licensing--and sales
increased 125 percent that year. "We help develop products
with their chefs, and once we get their approval, we get to use the
Greenbrier label on the jar," explains Christie, 32. As part
of the licensing agreement, Christie sells Greenbrier products only
at upscale specialty food companies.
Although he hadn't been considering licensing when The
Greenbrier approached him, Christie immediately saw the
possibilities. "The name Greenbrier is like gold in the
culinary world," he explains. "We had tried to do
wholesale marketing [to a larger food-store chain], and it was like
`Diversified who? Why would we want to buy from you?' "
Today, just as Christie hoped, the Greenbrier arrangement has
opened the door not only to wholesale marketing but also to other
licensing agreements with clients such as The Red Fox Inns.
That's the advantage of licensing, agrees Altchuler: It
offers a wedge to help open doors. But he also warns that you must
tread cautiously, "particularly in the entertainment field.
You may think `Gee, I'll have guaranteed sales,' but what
if the movie bombs at the box office?"
Blum agrees there is no pat formula for success. Her
recommendation: "Create an engaging, fun and exciting product,
and find a way to promote it to consumers so they like it and
connect with it."
In other words, the recipe for licensing success is the same as
for success in any business venture.
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