Licensing: opportunities and pitfalls: restrictive and exclusive product licensing practices may reduce complexities, but are they maximizing revenue?

When I Started Manufacturing customized diploma frames 16 years ago, I quickly realized I was going to need authorizations from the colleges and universities to use their name, seal, and logos. I learned that some had well-defined systems for grant-ing usage rights and licenses, while others were uncertain of how to set up a formal licensing procedure. Some were openly skeptical about the value of such licensing endeavors. Many administrators did not respond to my request for permission to use their school logo or branding on a diploma frame. Many had little knowledge or interest in marketing their "brand" through licensing high-quality products.

As I became more conscious of how important licensing relationships were going to be for my business, I made comparisons to other industries that were capitalizing on licensing opportunities. In competitive sports, salaries for professional athletes were skyrocketing, and team and league management aggressively used licensing as a vehicle to boost revenues needed to fulfill their expanding payroll commitments. Perhaps administrators at IHEs began to adapt from what they observed in these related licensing fields. The benefit to institutions was the generation of a new revenue stream, capitalizing on their brand equity by thoughtfully assigning rights to use the institution's name and logo on commercial products.

Over the past decade, licensing opportunities have escalated as a result of improvements in license management, graphics capabilities, and reproduction quality, as well as the broadening spectrum of feasible products. With the momentum of licensing success, administrators at many IHEs have been broadly issuing licenses and building an increasingly complex-to-manage web of vendors and enforcement issues. Some schools have become overwhelmed with the number of vendors and products to evaluate, monitor, and manage. Now many are pulling back and becoming increasingly restrictive or even exclusive in certain product categories, aiming to ease the complexities. But they're not always carefully assessing how to best maximize revenue at the same time.

INSIGNIA GIFT OPPORTUNITIES It's important for IHEs to determine what licensing arrangement will generate the optimal balance between revenue, high-quality exposure, and manageability. The key here is benchmarking. Reach out to peers in other similarly sized and situated schools to find out what they're doing, where they excel, and what pitfalls they have encountered. Capitalize on their experiences.

Other key resources for this kind of information: existing licensees, a licensing agency, the bookstore, and successful off-campus retailers. This research helps ensure sound decisions in the long run.

According to a recent Collegiate Licensing Company (CLC) study, the top-performing licensor schools were generating nearly 60 percent of royalty revenue in apparel and almost 40 percent in nonapparel categories, including insignia merchandise and gifts. The schools with lower-tier licensing revenues averaged 85 percent of royalty revenue in apparel, and only 15 percent in nonapparel insignia merchandise and gifts. The old-school thought that T-shirts and caps are the licensed business backbone is increasingly outdated. If a school's licensing program is in the segment where 85 percent of revenue comes from apparel, it's missing a significant (and growing) piece of the royalty pie!

For schools with underdeveloped insignia gift businesses, the temptation may be to dramatically weed out insignia gift vendors, since they represent a relatively small segment of revenue. But this could dramatically reduce in future revenue earnings potential. This cost is twofold--first, in the obvious missed revenue dollars, and second, in the lost "guerilla marketing" exposure benefit. In most cases, these items are purchased as showpieces. Examples are wall clocks, desk accessories, insignia chairs, diploma frames, lamps, watches, crystal vases, and framed campus art.

If nonapparel sales aren't generating 40 percent of an IHEs royalty income, the high-end insignia gift business is one of the largest potential revenue sources--particularly at a time of heart investment in marketing programs to stay in touch with alumni. How else can you earn prime real estate in homes and offices of graduates worldwide? Insignia gifts allow an institution to earn licensing revenue and, at the same time, benefit from free daily marketing exposure that even the savviest marketing expert could never duplicate.

Underdeveloped business categories rarely grow by just making a product available to the public. Especially given the typically higher price tag of insignia gift items, true velocity will not develop by simply placing the goods on a store shelf. Here are some tips for getting the most value out of relationships with insignia vendors:

* Carefully evaluate potential vendors, making selections based on a demonstrated capability to dramatically grow high-end insignia gifts.

* Request comprehensive marketing plans, proven "similar school" case studies, and evidence that demonstrates having the resources and the experience to maximize income for the business segment represented.

* Choose vendors with the resources to market this product category.

DEAL DANGERS

Gene Wandling, executive vice president of Licensing Resource Group, cautions, "Beware of the potential pitfalls of granting broadly encompassing 'exclusive' licenses without carefully evaluating each business segment and campus retail partner to be included under the umbrella." Not every vendor seeking a licensing privilege has expertise or demonstrated market leadership in every market segment.

Derek Eiler, chief operating officer at CLC, emphasizes the value of making a "campuswide deal" a "campuswide decision"; don't "give up rights for other parties on campus without including them in the decision. They may already be generating more from certain areas than the new deal will stand to generate." Eiler adds that it's "important to include all key parties in a deal." Purchasing, bookstore, alumni office, licensing, athletics, student affairs, and other departments "can all contribute to making the sum greater than the whole of its parts," he says.

Recently, I talked with someone at an IHE who was initially delighted over signing an exclusive contract for "graduation"

merchandise with a guarantee of $100,000 in annual revenue. When the contract was evaluated at the end of the year, $90,000 of revenue came from traditional graduation regalia--caps, gowns, announcements, and rings. Customized diploma frames accounted for only $10,000 of the guaranteed income.

In studying the school's marketplace, diploma frames should have represented $50,000 in annual income (given the number of graduating seniors and the demographics), rather than the $10,000 yielded through the exclusive agreement. The true value of the licensed "graduation" business was $140,000, but because the potential of diploma frames was misunderstood or not appropriately represented, the cost was very high for the school.

From my experience, it is healthy to allow a reasonable and qualified group of vendors to compete for the licensed business. It keeps the chosen licensee vendors on their toes and helps ensure product quality. It also gives marketplace consumers a choice and point of comparison.

But balance remains important. Too many licensees can be burdensome, even counterproductive. Beyond the drain of managing a plethora of smaller vendors and a complex web of similar product variations, studies have demonstrated that offering consumers too many choices makes it harder for them to make a choice--and purchase, the ultimate goal. Vendors should be expected to earn their place on an IHE's licensee list. They should continue to ratchet up their performance year after year, especially in underdeveloped business categories.

GREATER VALUE FROM ALUMNI PRIDE

Licensing programs have the power to generate a significant revenue source. Maximizing the opportunity means managing an IHEs "brand" in a changing world to ensure the program performs at its full potential.

The guerilla marketing benefit resulting from the presence, awareness, and repetition of a school's name and logo via a framed document, an insignia desk accessory, or a personal showpiece such as a watch is invaluable. It affords a constant reminder of the link one has to their school, and it spurs conversation with others. What better resource could an institution have for generating alumni contributions or referrals of future students than a pool of engaged alumni who herald the school's marks with pride?

Lucie Voves is president of Church Hill Classics/ DiplomaFrame.com, which has licensing/partnership relationships with more than 650 U.S. colleges and universities. She is a former Procter & Gamble marketing executive.