Brand Licensing

1. 22 T h e L i c e n s i n g J o u r n a l NOVEMBER/DECEMBER 2018
Licensing Markets
Brand Licensing
Sebastian Custodia
Should Your
Toothpaste
Company Launch
a Frozen Food
Line?
A Closer Look at Brand
Extendibility
Brand equity (often equated
with brand value) is an all-
encompassing measure of the
benefits that a company receives
from its brand as a result of its
cumulative marketing and brand
maintenance efforts. There are
various valuation methodologies
that attempt to assign a specific
monetary value to a given brand
which range from simple cash
flow models to complex combi-
nations of various rankings and
analyses (such as the methodol-
ogy used by Interbrand, a global
brand consultancy). In an article
titled Brand Equity: An Overview
published out of the University
of Virginia, brand equity is said
to encompass the following
measures:
• Brand Association: What
triggers consumers to think of
the brand and what comes to
mind when they see the brand
• Brand Vision: The way the
brand presents itself and
reflects the overall business
strategy
• Brand Positioning: How
the brand positions itself in
the target market relative to
competitors
• Brand Image: How consum-
ers view the brand and what
target personas the company
wants to associate with the
brand
• Brand Awareness: A mea-
sure of how well consumers
recognize the brand; on a
scale from “Unaware” to “Top
of Mind Awareness”
• Brand Loyalty: How likely
consumers are to switch
between brands within the
same product category
• Brand Extendibility:
Potential to leverage the
positive perceptions associ-
ated with the brand to new
customers.1
Each one of these components
of brand equity deserves to be
explored at length; however, this
piece will focus on exploring
Brand Extendibility in further
detail. As mentioned in a previous
article “Preventing Brand Value
from Going Up in Flames”,2 the
direct monetary benefits that a
well-constructed brand offers the
company are traditionally boiled
down to two main categories:
the ability to charge premium
prices and diminishing marginal
marketing costs as a company
expands. Brand Extendibility is
the main value driver of the sec-
ond category. A company can
introduce its brand to new cus-
tomers in one of two ways. First,
a company can launch a new
product in a new product cat-
egory. Modern tech companies
are a great example of utiliz-
ing Brand Extendibility in this
way. For example, Amazon has
successfully launched products
in the e-reader, virtual assistant,
tablet, and smart TV product cat-
egories (among many others) all
under the Amazon name which
has become known for its highly
efficient and customer-centric
image. The second method of
brand introduction to new cus-
tomers is extending to a different
target market within the same
product category. Proctor &
Gamble has done an excellent job
of this over the years. For exam-
ple, P&G has extended the Tide
brand to many different subcat-
egories within the broader deter-
gent category and has extended
its Crest brand to many differ-
ent subcategories of the broader
oral care category. Under both of
these brand extension methodol-
ogies, a strong brand relieves the
parent company of a great deal
of marketing and other brand-
building expenses. Similar to the
concept of economies of scale,
where a company’s fixed costs
become less significant as pro-
duction of a product increases,
Brand Extendibility reduces the
significance of marketing costs
as the brand extends to new
products and customers.
The Downside of
Brand Extension:
Brand Dilution
It is important to remember,
however, that a brand can be
over extended. When this hap-
pens, the value of the brand
can actually take a hit, as the
intended messages and associa-
tions begin to get diluted (appro-
priately called “Brand Dilution”).

2. NOVEMBER/DECEMBER 2018 T h e L i c e n s i n g J o u r n a l 23
Think Harley-Davidson Perfume,
or Colgate Beef Lasagna. You
can imagine the rugged image
of Harley taking a hit as bottled
fragrances hit the shelves, and
Colgate’s association with fresh-
ness and cleanliness beginning
to fade when depicted next to
layers of marinara sauce in the
frozen foods section. The lesson
is not only to intelligently man-
age the brand internally, but also
to develop restrictions on who
licenses your brand and under
what terms. Unfortunately, there
are times when a brand exten-
sion is attempted without the
company’s permission.
Such was the case with In-N-
Out Burger, when a micro-brew-
ery launched a new beer called
the “Neapolitan Milkshake Stout”
back in July. The Neapolitan
Milkshake may be ubiquitous
with the burger chain for some
west coast residents, but the
real problem was the proposed
can design for the beer, which
mimicked the In-N-Out soda cup
design almost exactly and used a
clear copy of the company’s logo
bearing the text “In-N-Stout.”
You can imagine the In-N-Out
executives’ reaction to seeing
their clean-cut brand being used
to market what some would con-
sider a vice. If this were a delib-
erate move made by In-N-Out
burger to try and extend their
brand to the adult beverage mar-
ket, we would have to question
the thought process behind the
decision and wonder whether
or not this would actually serve
to damage the family-friendly
brand. In this case, however, the
release of the product was out of
the company’s control, and thus,
swift action was the only way to
mitigate such potential damage to
brand equity. Fortunately, In-N-
Out’s legal team crafted arguably
the perfect response: issuing a
pun-filled cease and desist notice
which has received a great deal
of publicity to date. One could
argue that this response and
the press coverage that followed
may have actually resulted in
increased brand equity.
Surprisingly, this is not the
sole case of a questionable brand
extension into the beer arena.
Back in 2015, breakfast cereal
brand Wheaties teamed up with
a micro-brewery in Minnesota to
launch a Hefeweizen beer called
“HefeWheaties” in an intentional
brand extension effort. This col-
laboration was built on the fact
that wheat was an ingredient in
both products and was offered
for a limited time. Whether or
not this extension positively or
negatively affected the Wheaties
brand equity can be debated;
however, the value-add of Brand
Extendibility is clear. When a
recognizable and respected
brand is used in the marketing
of a new product, the market-
ing team benefits from all past
branding efforts and is relieved
to a certain degree of expenses
that they would normally have
to incur in launching an entirely
new brand. Imagine the relative
expenses that Apple will under-
take when it finally launches its
rumored Apple Car, compared to
the expenses that will arise when
Wheaties inevitably launches its
own electric vehicle.
1. “Brand Equity: An Overview,” Farris, Paul
W.; Gregg, Eric A.; Chinn, Brandon; Razuri,
Mariela. Published February 24, 2015.
2. foresightvaluation.com/preventing-brand-
value-from-going-up-in-flames/
Sebastian Custodia is an
Associate at Foresight Valuation
Group, a Silicon Valley based
intellectual property advisory
firm, where he specializes in the
valuation of intellectual property
assets including patents, brands,
trade secrets, and software.
His experience in finance also
includes work in M&A advi-
sory, high-tech compensation
consulting, and solar energy
financing. He holds a B.S.
in Finance from Santa Clara
University and is currently pursu-
ing his MBA at the USC Marshall
School of Business.