Ideas about licensing process from IMC


Integrating New Products with Licensed Properties

Demands on new product development have greatly increased over the last decade with increased need for speed to market, lowering risk, and increased revenue. But innovating and creating new products through partnerships such as licensing, while effective in addressing these challenges, can be even more complicated and fraught with pitfalls than innovating from within. Licensing requires two companies from different industries, with different expertise, different processes, different values, and different…..you get the picture…to come together in order to deliver for consumers. In order to successfully cut through that added layer of complexity, partners need a strong collaboration framework to guide their work. With some key adjustments for the elements licensing throws into the mix, the Stage-Gate Product Innovation Process,[1] created by Robert G. Cooper and Scott J. Edgett, is an incredibly effective way to navigate a collaborative product development process.

Retail Trends Upping the Pressure to Deliver Innovation

Consolidation in the retail space has made it more difficult to reach consumers and the rise of e-commerce has increased the pressure on retailers to bring innovative, differentiated products into their stores. Retail consolidation in virtually every sector (food, drug, furniture, electronics, apparel, etc.) resulted in the loss of major names such as Circuit City, Linens N’ Things, and Borders and has left distributors with fewer channels through which to move their product. Fewer outlets mean increased competition to get products placed and more difficulty in reaching consumers on a significant scale.

At the same time as scale is becoming increasingly difficult to achieve, pressures are mounting for retailers to differentiate themselves in order to compete not only with each other but with “brandless” e-commerce. Recent partnerships between Target and Neimann Marcus, for example, and retail exclusives such as TopShop at Nordstrom and Martha Stewart at JC Penney, underscore the pressure on retailers to stand-out. Underlying that pressure is the rapid adoption of e-commerce as a retail channel:  Providing consumers with innumerable choices while diluting the impact of retail brands. In his blog post Al Farrara of BDO notes: “Today, consumers are finding that many retailers offer essentially the same product and the same shopping experience, simply with a different name on the door.” In order to stand-out, retailers are partnering with new brands or integrating innovative brands into their catalog.[2]

The advantages of licensed products:  (1) increased speed to market, (2) lower risk, (3) price premium, and (4) consumer loyalty to the property, combine to make strategic licensing partnerships part of a winning strategy to compete with mounting retail pressures. The disadvantages, added complexity and the potential for increased licensor liability, demand a disciplined framework for navigating the relationship in order to keep both parties focused on bringing excellence to market.

Stage-Gate® Product Innovation Process

The Stage-Gate model was established in the early 80s to describe a systematic approach to developing new products. It is now in use, according to their Web site, by 80 percent of North American companies. While the basic underlying principles of the development process have long been established, Cooper’s innovation was the framework that includes “Stages” or activities, and “Gates” or decision points. (See Exhibit 1.)

Stages are where the work gets done. The project team completes the activities needed to advance the project to the next Gate, or decision point. Each Stage is cross-functional (R&D, Marketing, Finance, etc.), with activities in each specialty undertaken along parallel paths to increase the speed at which the organization can move through the process. At each Stage, each function gathers the critical information the entire team needs in order to manage risk and make careful decisions. Because each stage is incremental, costs and resources are committed incrementally. As a result, there are no multi-million dollar, year-long R&D studies that go sideways. Broken into short phases, with incremental funding for each, this phased approach lowers risk.

Gates are where Go/No-Go and prioritization decisions are made. You can imagine multiple projects moving through the process and at any Gate moment, the priorities can be reset so that a particular project gains or loses resources. The Gates are focused on three fundamental issues:  (1) quality of execution, (2) business rationale, and (3) the quality of the action plan. In other words:

  • Can we be world-class in delivering this?
  • Does this align with the revenue, brand, and other company objectives?
  • Are we getting the critical information out of each stage that we need to have a detailed, achievable action plan?

Applying Stage-Gate® to a Licensing Collaboration

 

Stage 1—Ideas

As Julie Andrews sang in The Sound of Music: “Let’s start at the very beginning, a very good place to start” and talk about Ideation. Licensing relationships throw a kink into the Ideation process by mashing-up what should be an open and collaborative brainstorming process with the need for clear boundaries about how ideas will be evaluated and who has responsibility for generating them.

Establishing boundaries for the brand, what is “in-bounds” and “out-of-bounds” for new products and brand extensions, lays crucial groundwork for an effective partnership strategy. Having a well-articulated framework for where the brand can go allows the Licensor to be proactive in identifying the right partners and establishing constructive boundaries within which to operate. That’s a much more effective way to bring new products to market than being reactive and responding to ideas tossed over the transom! Rather than the Licensor dictating the specific direction development should head (which might leave opportunities on the table and expose the licensor to down-stream risk) the organization can leverage internal and external resources to identify potentially fruitful directions first.

The following are excellent ways Licensor’s can establish parameters for the brand without proscribing the result:

¾    Consumer Research:  Focus groups, concept tests, brand appropriateness, and extension studies all help to identify the brand equities consumers value and provide insight into possible directions to extend them. From the Licensee’s point of view, these insights help establish creative boundaries. For the Licensor, it helps ensure that the ideas that come back align with the core elements of the brand.

¾    Ideation Firms/Immersion:  A third-party facilitated session that draws on broad expertise within the organization to brainstorm new channels, products, consumers, and categories to extend toward based on brand equities, experience, and available capabilities.

¾    Retailer Feedback:  Retailer impact is not as obvious as direct-to-retail licenses or retail exclusives. A single buyer’s affinity for a brand or product can lead to featured or preferred placements. Direction from an influential category manager can produce a lighted path to a spot on the shelf.

¾    Market Research:  Objective analysis of the market segment in which the Licensee might operate can open up otherwise overlooked opportunities while maintaining fidelity to the brand. Rather than a Licensor saying “we want to do scales,” market research on the weight management industry might show that weight monitoring devices are the largest potential market. That insight might translate into scales but it might also open up other opportunities.

In addition to tapping external resources, Licensors also can look internally to identify good ideas that have foundered within the organization. Often, these are great ideas that don’t fit the execution model of the Licensor. Strategic partners, operating in their own business model, might be better suited to delivering on them. The following are resources Licensors can look to internally:

  • Abandoned R&D projects
  • Innovation groups
  • Business units/product lines that have been shelved or are about to be
  • Plussing—taking something developed for one area of the company and translating it to other products in other categories.

The goal of the Ideation phase is to identify “sandboxes” within which Licensees can leverage their own expertise and experience to identify specific solutions that will align with the brand.

 

Stage 2: Business Case

With licensing in the mix, the Business Case step of the Stage-Gate® process takes on the added dimension of building the business case with a particular partner rather than a particular product (because those specifics likely come later in the process, at this point, it’s all about the right relationship and structure). With clarity on where the brand can extend or expand to accommodate new products, the hunt is on to identify the right partners and build the business plan.

Solicitation Plan

Development of the solicitation plan provides an outline of the types of solutions being sought and gives the potential partners a clear understanding of the brand and its boundaries. Executing a good solicitation plan is much like the role of the very best matchmaker or seasoned recruiter at work:  A great match isn’t only about the knowledge but creating an alignment of likes and dislikes, wants and desires, and preferences and aversions. Tackling these things early on can lead to a higher likelihood of success downstream. In evaluating partners, five key areas of “fit” should be evaluated:  (1) brand fit, (2) philosophy and vision, (3) licensing experience, (4) category experience, and (5) competitive landscape. If a potential licensee matches up well on these key areas, due diligence comes next. Following the Stage-Gate® rubric, you could think of the output from the solicitation plan and initial evaluation as a Gate or a Go/No-Go. At this point, the Licensor may need to tweak its parameters if it’s not finding the right partner.

Due Diligence

Time invested on rigorous due diligence will yield substantial returns especially when the organizations begin discussing the business terms of working together. Due diligence allows the Licensor to dig deeper on the items assessed in the initial evaluation. The key items for due diligence include:  licensee background; potential conflicts; financial health; sales, marketing, and distribution capacity; manufacturing capability; social accountability; quality, and safety standards performance; and reference checks. Due diligence requires detective work and mining of industry relationships to get a full picture. There are publicly available sources such as Hoovers D&B, SEC filings, CPSC, annual reports, legal databases, etc. that can be tapped. The potential partner will need to supply sufficiently detailed financial statements (unless they are a public company) and references, including bank, retailer, and other partner references. In the due diligence process, it also is important to get an understanding of the partner’s approach to new product development. This can be done by pulling together key pieces of information from sales and marketing, social accountability, quality and safety, and recall procedures.

At the end of the Due Diligence process is another Gate. At this point, the Licensor may decide to pursue its next choice of partner if the first didn’t perform well. Coming out of the Due Diligence phase we move onto Business Terms, so the Licensor wants to ensure they are moving forward with a great potential partner. Taking a pause at the end of the Due Diligence process to ensure that all parties agree on the fit and caliber of the Licensee will save time and effort at later stages in the process.

Defining Business Terms

In the Terms phase, the Licensor and Licensee begin a discussion in earnest on process and financials. On the process side, the Licensor will get a detailed understanding of the new product development process and the partners should agree on which process, the Licensor’s or Licensee’s, should govern the project. In the case of a sophisticated, experienced Licensee, its development process might be the most appropriate. Additionally, this is the time to understand the decision making process and key decision makers on both sides. Understanding how approvals are accomplished and who is involved in achieving approval will prevent “gotchas” from happening in the Development stage. In general, the Terms phase is the time to unearth all the potential pitfalls so they can be addressed in the planning stages, rather than in the production stages.

The Terms phase also produces an understanding of the financial framework for the relationship, the classic “Business Case,” that documents assumptions about potential market share, royalty rate, market acceptance of the new product, and price. This is another Gate – if the financials don’t make sense for both parties, it is back to the drawing board. But, assuming everything is on-track, the hard work of getting a new product developed begins.

 

Stage 3: Development

Defining the Roadmap

In the Business Case stage, Licensor and Licensee got to know each other and learned about each other’s processes, key players, and approaches. In the Development stage, it’s time to get specific. A good place to start is a Kick-Off Meeting with all of the right stakeholders (decision makers and influencers) and any and all facilitators (outside agencies, third party consultants, advisors, etc.) in one room. The goal of the Kick-off is to build a single, shared understanding of contractual procedures, submission guidelines, quality documentation procedures, and the role of specified third parties.

In that meeting, IMC’s experience has been that spending time to develop a detailed map of the process from this moment to Launch is a productive use of time. The process that’s developed is not intended to be memorialized in the final contract, it often requires some degree of flexibility in execution and rarely happens exactly the same way twice, but it does ensure that everyone is clear on the Gates to come. The net result is mutual awareness of expectations, understanding of priorities and sensitivities, and mutual agreement and alignment on next steps. In short, the kick-off meeting wraps up with a roadmap for the partnership. (See Exhibit 2.)

Landmines

In the Product Development stage, there are a few landmines that can be avoided with sufficient anticipation and planning. The ones that seem to pop-up regularly include:  flavor matching, fragrancing, stability, children and infant/American Academy of Pediatrics guidelines, Environmental Protection Agency and Federal Drug Administration registration, foreign regulations for packaging and products, and language translations. None of these is a deal-killer but anticipating them and determining an approach for addressing them up-front in the development process will ensure the program isn’t derailed downstream. The murky waters surrounding Prop 65 regulations of food supplements are challenging enough but even more so if they’re being navigated for the first time by a brand or manufacturer with no established experience in a particular product space.

Communication and Project Management

Once roles and responsibilities are clear, the roadmap is defined and work begins, project management can become an epic challenge. There is a simple, elegant solution:  third party collaboration software. There are many tools available, including Sharepoint, Basecamp, ProofHQ, Google Wiki, Dependable Solutions, CTI Solutions, Royalty Zone, and others. Several companies have built software custom-tailored to the licensing industry. The genius of third-party, Web-based software is its ease of implementation and use. It can be implemented outside of corporate IT infrastructure and becomes a tool that everyone can use, providing consistency and transparency to the project, at a very low cost.

 

Stage 4: Testing and Validation

Coming out of Development, the next Gate is Testing. This is an opportunity for the team to pause and ensure the product meets the brand’s definition of “in-bounds” developed in the Idea Stage. Similarly, the product is evaluated to ensure it meets the quality and safety requirements and any other agreed-to parameters from the Business Case Stage. Assuming it meets the brand and production requirements laid out in the previous stages, the product moves to the Testing and Validation phase.

Testing and Validation is an opportunity for external feedback from consumers and retailers. During the Development phase, the market appetite that informed the initial approach may have changed. Market pressures shift. Or, perhaps, the concept migrated farther than expected based on initial understandings. There are many reasons why additional testing and research at this stage is valuable. Advanced research at this stage can help answer quantitative questions, such as price sensitivity, purchase interest, and competitive analysis; and qualitative questions, such as brand positioning, features and benefits, and marketing support. In-home and online testing are effective techniques to evaluate product and packaging features. Nielsen data, discrete choice modeling, and market/category research can evaluate the more quantitative questions.

Market Validation is the last check-point before launch and allows a Licensee one more opportunity to tweak the product. In-store tests allow for “real-world” experience on a focused basis. Trade promotions, in addition to the brand, can assist with getting the product into stores. Once in stores, the experience is evaluated in order to shed light on key questions such as:

  • Can the licensed and core product reside together on the shelf?
  • Is this an opportunity to “reinvent” where the brand can reside in the store?
  • Is the price point correct?
  • What are the consumers saying about the product?
  • Is the product’s sales performance meeting category manager’s or buyer’s needs?

Stopping to evaluate now isn’t a diversion, it’s a strategic evaluation of whether it’s time to “Go Big or Go Home” on the idea. Once the organization decides it is ready to Go Big, the full force of distribution and marketing are unleashed. Those are expensive, precious resources that should be employed for products that have been thoroughly vetted, and redeveloped, if necessary.

 

Stage 5: Launch!

The research is done; product is ready; homework is ready to turn in …. It’s time to go to market! Given that all or some of the money normally budgeted for marketing support is going to pay royalties, Licensees operating on that reduced budget will most likely be drawn to social media and marketing tie-ins with the core brand, as opposed to traditional marketing such as print, FSI (free-standing inserts), and television. As a licensed product proves itself, integrating it with the core brand marketing is the absolute key to a successful program. Marketing message integration occurs on all levels including online, bricks and mortar, social media, database, and direct marketing. Integration also applies to customer analysis so that in-bound feedback channels such as customer feedback and online product reviews are providing input to both the licensed and core products. There is a common (mistaken) assumption that because a product is branded, it is “marketed.” Without marketing behind it a licensed program will underperform, or at worst, fail entirely. Just having the brand behind it in retail isn’t enough.

An example of a successful marketing effort with a licensed product is Cub Cadet’s use of their licensed ride-on lawn tractor. Before rolling out the product to mass market, Peg Perego and Cub Cadet developed a promotion for their dealer network, giving that important part of the business special treatment and recognition. Any customer who bought a Cub Cadet piece of equipment at a dealer (generally paying closer to an MSRP) got theirs and their kid-sized equivalent delivered to their home at the same time – imagine the joy on the little one’s face when their mower rolled off at the same time as Dad’s. The promotion created great buzz and delighted consumers.

And, relaunch!

Improvements and adjustments are a continuous process. Minimally, Licensees should expect a brand refresh, packaging updates, and messaging updates every two to three years. The closer Licensee and Licensor can get their production schedules to align, the more efficient it is for each party and the better effect it will have in the market—appearing seamless to the consumer.

 

Conclusion

The Stage-Gate® Product Innovation model, tried and true in the industry, can accommodate the additional layer of complexity that licensed products bring to the mix. The discipline of Stages and Gates is that much more critical when two organizations are working to blend their visions, processes, and business models to achieve incremental revenue and consumer loyalty. The advantages of a well-implemented Stage-Gate process are many:  increased speed-to-market, greater probability of product success, discipline, efficiency and thoroughness, clearly defined roles, and mitigation of risk.

 

Published October, 2012 in The Licensing Journal.

 

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