Licensing in the Fashion Industry. Opportunity or Threat?


Bachelor Thesis, 2017
46 Pages, Grade: 2.1

Excerpt

Table of Contents

List of Abbreviations

List of Figures and Tables

1 Introduction
1.1 Problem Definition and Objectives
1.2 Course of Investigation

2 Fundamentals and Theoretical Framework
2.1 Brand and Branding Components
2.1.1 Definition of the Terms Brand and Trademark
2.1.2 Definition of Brand Equity
2.1.3 Definition of Brand Image
2.1.4 Definition of Brand Identity
2.2 Brand Stretching
2.2.1 Definition of Brand Stretching
2.2.2 Types of Brand Stretching
2.3 Licensing
2.3.1 Definition of License and Licensing
2.3.2 Dissociation from Merchandising
2.3.3 Industry Overview
2.4 Fashion and the Fashion Industry

3 The Concept of Licensing
3.1 Licensing Agreements
3.1.1 Licensees and Licensors
3.1.2 Content of a Licensing Contract
3.1.3 Compensation
3.2 Types of Licensing
3.2.1 Personality Licensing
3.2.2 Character Licensing
3.2.3 Event Licensing
3.2.4 Brand Licensing
3.2.5 Designer and Fashion Licensing
3.3 Licensing Objectives
3.3.1 Objectives of Licensors
3.3.2 Objectives of Licensees
3.4 Licensing as a Strategy to grow Internationally

4. Brands and Licensing in the Fashion Industry
4.1. Brands and Fashion
4.1.1 Fashion Brands
4.1.2 The Importance of Fashion Brands
4.2. Licensing in the Fashion Industry
4.2.1 Brand Licensing Concepts in Fashion
4.2.2 Examples of Brand Licensing in the Fashion Industry
4.2.3 Opportunities and Threads of Licensing in the Fashion Industry
4.2.4 Advantages and Disadvantages of Brand Licensing in the Fashion Industry

5 Summary and Conclusion

Reference List

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures and Tables

Figure 1. Position of Brand Identity between the Past and the Present. Adapted from "Marketing" by Meffert, 2000, pp. 877-878

Table 1. Property Types and Revenues in 2007. Adapted from Licensing Industry Merchandiser's Association Website, 2010

Figure 2. Allocation of Royalty Payments depending on the Segment. Adapted from “Lizenzierung von Marken,” by Binder, 2000, p. 364

Table 2. Opportunities and Threads in licensing. Own Depiction based on "Konzeption und Umsetzung von Markenerweiterungen," by Esch, Fuchs & Brauetigam, 2000, pp. 209-227

1 Introduction

In 2008, the performance of companies, which are operating in the European fashion industry, resulted in a total market sales volume of approximately € 55.4 billion. A ranking of the best-performing fashion brands is published annually by the German fashion industry's magazine "TextilWirtschaft". The ranking for the year 2008 listed 134 of the European fashion brands. However, analyzing the ranking for 2008, one can see that almost 40% of the sales in the European fashion industry were generated by the top-ten fashion brands listed in this ranking. Comparing numbers with the ranking of 2007, it can be told that only 57% of the fashion brands managed to increase their sales. In 2007, however, almost 70% of the fashion brands were able to increase their sales. This can be interpreted as a decrease in performance. There may be several reasons why fashion brands were not able to increase their sales. Nevertheless, it has to be pointed out, that in total the industry itself was able to increase its market volume by 2% in 2008 (PressePortal, 2009).

Within the European fashion industry, the German fashion market has to be considered as one of the most attractive allocations for retailers and fashion brands from all over the globe. In 2008, the top-ten fashion retailers in Germany generated sales of approximately € 21.5 billion (PressePortal, 2009). There have been several surveys conducted among retailers in Europe. Basically all of those surveys have shown that about 47% of the retailers in Europe plan to expand their business to Germany by the end of 2010, latest (TextilWirtschaft, 2009).

A topic, which is regarded as a crucial and effective tool for fashion brands, is licensing. The licensing industry has turned out to be a very profitable and high-sales generating business segment. The Licensing Industry Merchandiser’s Association (LIMA) states, that the total licensing industry’s market revenue accounted for more than $ 5.9 billion in 2007. These figures, however, only include the revenue, which has been created only from licensing fees and royalties, paid as compensation to brand owners.

The present sales figures for licensed products in the fashion and apparel industry underline the presence and effectiveness of this marketing tool. The entire fashion and apparel industry's sales volume for licensed products is more than $ 80 billion (LIMA, 2010). The totals sales volume of licensed products in German-speaking countries, including Germany, Austria and Switzerland, was approximately € 22,4 billion in 2005 (Hartmann, Sattler, & Völckner, 2005, p. 1). This shows that more than a quarter of annual sales in the European fashion industry are generated in those countries. Due to the fact, that most of the sales were generated with products arising from brand licensing agreements, brand owners see the biggest potential for growth in brand licensing agreements (Hartmann, Sattler, & Völckner, 2005, p. 6). Additionally, growth expectations arise from the increasing number of contracts and market volume. The number of brand licensing contracts, which were signed in Germany, grew from 750 contracts with a market share of more than € 6 billion, to a current number of over 1,000 brand licensing agreements with a total market volume of over € 8.5 billion in licensing fees.

1.1 Problem Definition and Objectives

In today’s marketing economy, business entities are able to make use of several tools and instruments in order to expand their field of operation and to exploit new markets. Among all the different options (e.g. exports, or joint ventures), licensing has to be considered to be one of the most powerful tools companies can use in order to expand and grow their business (EzineArticles, 2010). The same approaches apply for fashion labels and brands. Among these strategies, licensing can be seen as a special type of brand extension. Companies use licensing as an effective strategy in order to lower the risks in the process of extending their brand. Even though licensing offers vast potential for the different parties involved, strategies of pursuing licensing agreements vary between industries and countries, exposing companies to risk. Many manufacturers increase their sales and wholesale price by labeling their products with designer names, brands or trademarks (Ehrbar, 1993, p. xvi).

An increasing number of the products, which are purchased in the fashion and apparel industry today, are licensed products. In addition to this, consumers care more about brand names (EzineArticles, 2010). The increasing demand for branded goods and the fact that consumers cared more about brand names over the past years, has led businesses operating in the fashion industry to enter more and more licensing agreements with companies operating in other industries. The main fractions of fashion items sold in retail stores are licensed products. Often consumers are not aware of the fact that someone else than the brand owners may actually have manufactured most fashion items and accessories. To maintain customer’s unawareness or indifference of who manufactured the product, brand owners are striving to maintain a stable level of quality and project these standards to their licensees. Moreover, fashion companies have to make sure that the product matches the expectations a customer has towards a brand. Furthermore many fashion companies that make use of licensing their brand or trademark strive to keep consumers from knowing, that a third party actually manufactures their products. Due to a lack of statistics and literature, it is hard to gather information about licensing, the fashion industry and fashion companies’ involvement in licensing agreements.

The objective of this thesis is to analyze how brands develop and act in the fashion industry. In this context it is crucial to provide a clear overview of the fashion industry and the brand operation in this special industry. The main objective of this thesis will be the examination of how and to what extent companies and brands operating in the fashion industry use licensing. Examining the opportunities and threads arising for brands entering licensing agreements, this thesis will provide an explanation about the motivation for brands, especially in the fashion industry, to enter licensing agreements. After reading this thesis, the reader should be able to evaluate the advantages or disadvantages of licensing in the fashion industry and have a broad understanding of the importance of licensing for this industry in the past, present and future.

1.2 Course of Investigation

The second chapter of this thesis will provide the reader with information, which are essential for the further understanding of the topic. First of all, Section 2.1.1 will provide a definition of the terms brands and trademarks, in order to avoid confusion. The terms brands and trademarks will be used throughout the course of this thesis and require a clear definition. The fact that licensing, as described in the following chapters, can help brands to increase brand equity and brand image, a clear definition of these terms will be provided in Sections 2.1.2 and 2.1.3. However, brand image has to be separated from the term brand identity. To lay the foundation for an understanding of the licensing concepts, brand stretching and its different subtypes will be defined and described. To complete the process of laying the theoretical foundation for this thesis, Chapter 2 will be closed by a detailed description of licensing and an overview of the licensing industry, followed by a detailed description of the terms fashion, fashion industry and also recent trends in this very special industry. The descriptions of the terms fashion and licensing are most essential for this thesis.

Chapter 3 will provide a more detailed description of the licensing concepts. In order to present and highlight the concepts of licensing, this section will define different parts of the licensing agreements. To differentiate and analyze the concepts of licensing and its impacts and importance for the fashion industry, a description of the licensing and property types will be provided in Section 3.2 of this thesis. In order to highlight the property types and to provide a better understanding, the description section of the property types will contain different examples according to every property described. Chapter 3 will also cover the objectives of the parties involved in a licensing agreement. This section is crucial in order to show, what motivates fashion brands to enter a licensing agreement.

The fourth chapter of this thesis will be split into different parts. In order to give a basic understanding, how fashion brands develop and of what importance they are for the fashion industry in general, the first section of Chapter 4 will contain a detailed description of the brands and their importance. Chapter 4 also includes the analysis of licensing in the fashion industry. In order to structure the analysis of the importance of the licensing concepts in the fashion industry, first of all the concepts of brand licensing in the fashion industry will be presented in Section 4.2.1. To underline the impacts of brand licensing on the fashion industry, the following section will contain a lot of examples of brand licensing in the fashion industry, followed by a detailed description of the opportunities and threads arising from brand licensing agreements, before Section 4.2.4 points out the advantages and disadvantages of brand licensing over different strategies to grow businesses. To present final results from analysis, Chapter 5 will first of all summarize the different findings before presenting a future outlook for the concepts of licensing in the fashion industry.

Due to the fact, that there are only few articles or literatures, which refer to licensing in the fashion industry specifically, it is difficult to gather detailed information about the success of brand owners using licensing as a tool to expand their fashion brand. This thesis will therefore primarily focus on describing the concepts and frameworks of licensing. These will then be transferred on a theoretical basis to the fashion industry and the brands operating in this industry.

The evaluation of the opportunities and threads arising from licensing agreements in the fashion industry will be based on theoretical assumptions and on information gathered from literature review. All the assumptions will be provided with appropriate examples in order to underline and justify the author's statements and point of view toward the question if licensing will play an important role in the fashion industry.

Based on literature reviews and analysis of statistics, articles and statements this thesis will answer the question of how important licensing is for fashion companies in order to increase sales and grow on an international level. Additionally, the course will provide a clear understanding of what opportunities and threads are arising for all parties involved in a licensing agreement.

2 Fundamentals and Theoretical Framework

2.1 Brand and Branding Components

2.1.1 Definition of the Terms Brand and Trademark

Generally speaking, a trademark can be defined as a symbol, word, figure, sound, shape or even colors. These attributes, or even a combination of those are required for companies in order to distinguish themselves or their range of products from competitors and their products (§ 3, Abs. 1 MarkenG). The term brand can be defined as a name for a product, service or business. Once a brand name is registered, it is often referred to as a proprietary name (Dictionary.com, 2010). This can be seen as a more technical definition that has to be complemented by the customer’s point of view. From this point of view a brand is defined as being a unique image of products or services, which manifested in consumers’ minds over a certain period of time (Meffert, 2000, p. 847). The logo and the branding of a brand are main characteristics of a brand. It is likely, that these characteristics result from a stable or improving quality and awareness of the brand. In some cases, the availability of a product is mentioned or added as one of brands’ main characteristics. However, this does not apply for luxury brands (Pepels, 2000, pp. 78-81), which will be defined later in this section.

Currently, there are more than 400,000 brands registered in Germany by their owners. Less than a quarter of these brands are still in use by their owners (Binder, 2000, p. 54). Registering a brand is a necessary measurement for brand owners in order to keep other parties from using this brand without authorization (InvestorWords, 2010). Registered brands are often referred to as proprietary names. To gain the right of a proprietary name, a brand has to fulfill several aspects that help the brand to be distinguished from competitors’ brands, products or services (Mattmüller, 2006, p. 180). If a brand is trademarked, the registrar (e.g. the company owner) owns the intellectual property (IP) of that brand (phpBB Group, 2010). Trademarks are often labeled with a “®”-sign, for registered, or a “TM”-sign, stating trademark. Rights arising from a registered trademark are commonly referred to as intellectual property rights (IPR). The example of Christian Audigier, as the brand, and Smet or Ed Hardy, as trademarks shall illustrate the difference between a brand and a trademark. The very special case illustrates that a designer also can be seen as a brand, and that he can trademark or license his property. This will play a very important role in the further course of this thesis.

Brands represent the image of products and services and have become an important aspect for consumers when evaluating the quality, credibility and satisfaction a brand offers to them (BusinessDictionary, 2010). Stronger brands inhabit more security for the consumer. This perceived security could help a brand to gain consumer’s trust (Meffert, 2000, p. 848). In order to gain the trust of their consumers, many brand owners try to create brand loyalty and brand awareness. The latter often arises from marketing activities used to create a certain image of the brand. Creating brand loyalty and awareness helps brand owners to justify the prices asked for their products or services (Scharf & Schubert, 2001, p. 125).

Depending on a consumer’s social background, a brand is descried as being something prestigious and coming with a certain image (Meffert, 2000, p.848). Consumers try to differentiate themselves from others. This theoretical assumption applies especially for lifestyle brands. This phenomenon can primarily be observed among teenagers. Most teenagers use brands to demonstrate their belonging to certain groups or to gain others’ attention (Esch & Wicke, 2000, p. 6).

Even though the meaning of the word brand is the same, there are different types of brands. Global brands, present in at least two continents, which have to maintain global protection from infringement or misuse and, however, sustain a global identity. International brands can be defined as brands sold in at least two countries. Most brand managers try to expand the brand’s activity over the home country’s border to generate economies of scale and economies of scope. A precondition for international brands is the functionality of the brand’s concept in all countries abroad (Mattmüller, 2006, p. 192).

Due to the fact that defining brands simply on reviewing literature, there has to be made a more detailed breakdown of the different types of brands. One of the most common ways of differentiating brands is by the owners. There are in general three different brands. Manufacturer’s brands, such as Ralph Lauren, trademarks, as for example Boss’ Boss Bottled, and service marks, such as H&R Block. Trademarks have turned into a serious competition for manufacturer’s brands (Esch & Wicke, 2000, p. 38). Luxury brands are a special subtype of trademarks. Bruhn (1994) refers to the term “luxurious” as something that goes far beyond the essential and beneficial (p. 646). Luxury brands represent perfection and a high level of quality that has been developed by the brand owners (Pepels, 1996, p. 540). However, luxury brands offer their customers a perceived level of security and credibility. Additionally, they represent the effort that brand owners put into building the brand equity, brand image and value (Bruhn, 1994, p. 648).

The further development of this thesis requires a clear definition of the term brand. Brands shall be defined as a symbol or characteristic, as for example logos, trademarks or shapes, that can be used by any participant in the industry to mark the services provided, or the products manufactured and sold in order to differentiate from competitors' products or services. The previous description of luxury brands will apply for most of the brands mentioned in the course of this thesis.

2.1.2 Definition of Brand Equity

The term brand equity can be defined as the added value that is brought to a product or service by adding a brand name (NPGoodPractice, 2010). It can be defined as the value of a brand, in monetary terms. Consumers’ perception and expectation towards a brand, its products and appearance are also a part of the brand equity (LearnMarketing, 2010). Brand equity can moreover be defined as the capability of a brand to gain consumers’ trust and loyalty and also to attract new customers. Especially the latter requires certain marketing measurements and activities, such as advertising and PR efforts. These marketing activities imply a high level of spending on advertisement (White, 2005). The Business Dictionary’s website defines brand equity as a “brand’s power derived from the goodwill and name recognition it has earned over time, and which translate into higher sales volume and higher profit margins against competing brands.” It is difficult to define the true value of a brand. Because it is necessary to appoint the compensation for brand owners, the evaluation of a brand is required prior entering a licensing agreement.

2.1.3 Definition of Brand Image

A brand can be seen as an ideal image of products or services in consumers’ minds. A brand helps consumers to identify the commercial source of a product (Meffert, 2000, p. 847). This psychological aspect of a brand is known as brand image. The brand image includes information and expectations associated with a product or service, and additionally, brands add value to products or services and justify higher prices (ArabNews, 2007). The embossment of a brand’s image is influenced by emotions. Thus, a brand’s image is the result of a learning process and the conversion of information regarding that brand (Diller, 2001, p. 941). The brand image is the most important visible part of a brand for the consumer. It is determined by the brand awareness and the uniqueness of a brand (Esch & Andresen, 1997, p. 14). Branding helps the consumer to create a certain image of a brand. The brand and its image help consumers to justify their buying behavior, and most consumers are willing to spend more money on products of a well-known brand (Esch & Langner, 2000, p. 411). Due to the fact, that creating a brand’s image always comes with high financial input (Sattler, 1998, p. 1), the brand image is of relevance for any kind of licensing agreement.

2.1.4 Definition of Brand Identity

The brand identity is referred to, as the image the brand has or creates of itself. A brand’s identity is positioned between its past and the present. The brand identity represents the stage of development of a brand. Past attributes, as for example the history and tradition of a brand, and present attributes, as the strategy, the name or even the point-of sale appearance, influence the actual stage or strength of a brand’s identity (Meffert, 2000, p. 878). Consumers will only create a strong image of a brand, if the brand has a unique and clearly defined brand identity (Sälzer, 2003, p. 10). The main objective of brand management should be the creation of a fit between the brand image and the brand identity (Meffert, Twardawa, & Wildner, 2001, p. 3). Figure 1 illustrates how the brand identity is developed and positioned.

Figure 1: Position of Brand Identity between the Past and the Present

Abbildung in dieser Leseprobe nicht enthalten

Source: Own depiction, raw data obtained through Meffert, (2000, pp. 877-878).

Compared to the brand image, which represents the relevance for the consumers, brand identity represents the relevance of the brand for its stakeholders.

2.2 Brand Stretching

2.2.1 Definition of Brand Stretching

Companies owning established brands tend to use brand-stretching strategies in order to expand their businesses to new markets and new market segments (Sälzer, 2003, p. 9). The transfer of a brand includes different aspects. The formal aspect deals with the problem if only the name, or the name in combination with the brand’s logo should be transferred (Hätty, 1989, p. 25). The aspect with regards to contents deals with the image and positioning transfer of a brand. Many articles and books refer to brand stretching as a synonym for brand extension (Sattler, 2001, p. 142). This can be explained by the fact, that the brand may not have been transferred into the same product category in the past (Meffert, 2002, p. 136). The focus of this thesis will however lie on brand stretching defined as brand extension, which will be defined in Section 2.2.2 of this thesis.

Transferring a brand between products or different product groups is defined as brand extension (Sattler, 2003, p. 2). In most cases brands are transferred to products that have not been part of a company’s product range. As already mentioned, a precondition of brand extension is that there has no transfer into this product or service category in the past. As it will be described in Chapter 4 of this thesis, brand extensions do not only carry opportunities, but also risks that can result in a total loss of credibility and image (Scholz&Friends, 2002, p. 33). The transfer of a brand’s image to other products or services is the objective of brand extensions (Homburg & Schäfer, 2001, p. 166).

Transferring the image of a brand can be defined as the process of alienating a brand’s positive attributes to another, new, product or service. This transfer focuses on consumers’ experiences, their perceptions and associations of a brand and its products (Caspers, 2002, p. 235). Brands’ characteristics that are transferred can be technical features, which are objective. But there are also subjective aspects, as for example emotions, that can be transferred. The transfer of a brand’s image is an important aspect in the brand extension process.

2.2.2 Types of Brand Stretching

In general the term brand stretching can be divided into subcategories. One, as described in the previous section, is brand extension, which impedes the transfer into another product category (Sattler, 1998, p. 137). There are also the possibilities of internally stretching a brand, licensing, franchising or acquisitions (Baumgarth, 2001, p. 133).

2.3 Licensing

2.3.1 Definition of License and Licensing

A license is referred to as a legal arrangement between two parties, the licensor and the licensee. The licensee is granted the right to make use of copyrighted or trademarked property, as for example logos, names, graphics, signatures or shapes, owned by the licensor, to a certain extent. This is referred to as an IPR-transfer. There are various property types (e.g. art, character, personality, brand), which will be described in detail in Chapter 3 of this thesis. It has to be pointed out, that only the owner of the brand or property is allowed to use the property or brand to any extent (Braitmayer, 1998, p. 35). There are two types of licenses, basic and exclusive licenses. Basic licenses can be granted to several licensees at a time. An exclusive license can be granted to only one licensee (Harke, 2000, p. 53).

Licensing is defined as a marketing instrument dealing with licenses and their usage. Moreover, licensing can be described as the process of giving out or granting permissions to use properties. From a strategic perspective, licensing is an alternative for brand owner’s to exports, joint ventures and wholly owned subsidiaries. However, licensing can also be a component of those (Ehrbar, 1993, p. xvi). Licensing contracts embrace the term or duration of the agreement, the exclusiveness of the license, the financial aspects and the geographical validity of the license (Baumgarth, 2001, p. 169).

The term licensing itself is a combination of the words license and marketing. It can be defined as commercial use of intellectual and copyrighted property. This can be a person, a fictional character, an event or even a brand. One of the objectives in licensing is the projection of the licensed brand’s image to the products or services of another party. In general there are two parties involved in a licensing agreement. The owner of the brand or property licensed, referred to as the licensor, and the manufacturer or “user” of the licensed property, defined as the licensee. In most cases licensing agreements are arranged and managed by licensing agencies (Böll, 2001, p. 53). Due to the importance of licensing and the different terms for this thesis, a more detailed description of licensing will be provided in the third chapter.

2.3.2 Dissociation from Merchandising

The terms merchandising and licensing are often considered to be the same. But there is a difference arising from certain aspects. The characteristics of merchandising are more of a non-profitable and sales-increasing nature. Merchandise products are basically used for promotion in order to increase sales of the brand’s core products. In general the products used for merchandising purposes are used as incentives or to promote a product or brand. These promotional gifts may include sweets, flags, calendars or pens (Böll, 1999, p. 4). In cases of merchandising, the distributor or manufacturer of the merchandising products and the owner of the brand are the same (Kutz, 2000, p. 37). In comparison to merchandising, licensors gain profits through the fees they receive for granting the rights, of using their property, to a licensee (Böll, 1999, p.3). The history of licensing and merchandising has shown only a few cases where merchandising products have been added to a company’s range of products (Fügner, 1999, p. 2).

[...]

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Details

Title
Licensing in the Fashion Industry. Opportunity or Threat?
College
European Business School - International University Schloß Reichartshausen Oestrich-Winkel
Grade
2.1
Author
Year
2017
Pages
46
Catalog Number
V500544
ISBN (eBook)
9783346035066
ISBN (Book)
9783346035073
Language
English
Tags
licensing, fashion, industry, opportunity, threat
Quote paper
Maximilian Bogner (Author), 2017, Licensing in the Fashion Industry. Opportunity or Threat?, Munich, GRIN Verlag, https://www.grin.com/document/500544

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