Is character licensing right for your product?
News that Sphero is to discontinue their Disney line and potentially move away from licensed products altogether has led the toy industry to ponder if other startups might follow suit. To character license or not is indeed an interesting dilemma and one I touched upon very briefly in my last post. For some, the idea of licensing contradicts everything they stand for. However, for others, licensing might just prove to be the answer to helping a toy achieve commercial success.
Many startups fail to utilise a license effectively, assuming that simply slapping a known brand on a toy is all that’s needed to generate sales. Getting the link wrong can lead to irrevocable damage for both the character and product. In this post, I delve a little deeper into the perils of licensing and, on the flip side, how it might be used effectively to create unique customer experiences and build a lasting brand that goes beyond superficial recognition.
What do we mean by licensing?
Before we get into the nitty-gritty, let me clarify what I mean by licensing. In short, licensing can be broken down into three elements:
1. The lincensor
The owner of the intellectual property/license (in this case, the character) being purchased.
2. The licensee
The company or brand seeking use of the license in its products.
3. The lincensing agreement
The formal agreement between licensor and licensee stipulating details of the license’s use (often including, but not limited to, the form of products involved and length of the agreement).
The three elements work together in tandem. The licensor and licensee agree on the use of the property (e.g. the character) in question, typically with the expectation that the agreement will provide both parties with some form of sales growth. This forms the licensing agreement. Licensees expect that the brand they are licensing has significant brand presence that will open doors and ultimately help them meet or exceed their business objectives. As licensing agreements often force licensees to achieve certain sales targets and royalties, the goal of the licensee is to meet their targets to fulfil their contractual obligations as quickly as possible.
Phew… Now that the terms are clear, let’s move on to how licensing came to be.
The evolution of licensing
Over the decades the toy industry has evolved, it used to be that manufacturers would adopt a traditional consumer goods approach to marketing and design, focusing on building long-term classic toy brands with staying power – think Crayola, Play-Doh and Slinky. Manufacturers soon changed their approach by placing the emphasis on discovering, producing and launching the next big ‘hit’. They found that when they promoted toys through saturated marketing campaigns involving movie tie-ins, sales would soar. This significantly contributed to the overall growth of the toy industry. In case you haven’t seen it already, Netflix’s The Toys That Made Us explains how Star Wars changed toys forever.
In terms of the commercial success of a toy, this can also be broken down into several key aspects including play value, parental appeal, emotional need, trend, aesthetics, novelty and, most importantly, marketing.
So it comes as no surprise that with the discovery of a correlation between license-driven marketing and commercial success, the toy industry entered into the fifth ‘age’ of modern character development. Below is a history of how characters have developed over time, divided into five categories:
- First Age Illustrated children’s books
- Second Age The growth of cartoon characters in comic strips
- Third Age Characters in animated films
- Fourth Age TV and video characters
- Fifth Age Characters as brands – the growth of licensing
It is this fifth age that the toy industry still currently finds itself in, and has been since the ’90s.
The ebb and flow of trends
At a seminar for children’s research, Joël-Yves Le Bigot further pointed out that segmentation by age of children ‘is a logical imperative for manufacturers, distributors and advertisers’ and can be defined within five distinct markets:
- Babies (1-2 yrs) TV-based programmes aimed at this age group
- Pre-school (3-4 yrs) Similar to the above
- Infant school (5-6 yrs) Typical 5 to 14-year-old characters
- Kids (7-10 yrs) Growing popularity for TV-based programmes such as The Simpsons and Family Guy
- Adolescents (11-15 yrs) Dominated by programmes such as The Simpsons and Family Guy
Research has shown that crazes do not die down overnight, although they may emerge very quickly. The lifespan of what we have even called ‘short-term’ crazes is sufficiently long, at two years or more. This signals a sizeable gap for when manufacturers can make use of popular brands and trends to increase sales.
Beware of neophobia
Whilst children today express interest in the latest technology, clothes and new foods, their actual behaviour differs immensely. Inherently, young people are actually afraid of new things. The term for this is neophobia.
In stark contrast, startups by nature are driven by a desire to communicate a sense of novelty and uniqueness in their products. Therefore, it is useful for startups to keep in mind that to be successful with the use of licensing, and to effectively address neophobia, they should provide play patterns and forms that are familiar to children, putting the concentration instead on character integration.
The model works well because of the child’s familiarity with the character – in children’s brains, ‘familiarity’ and ‘liking’ are highly correlated. As Charles Riotto, President and CEO of the International Licensing Industry Merchandisers’ Association (LIMA), states:
“No one really goes looking for the generic video or t-shirt. It’s the characters, brands and logos people know, trust and feel good about.”
The 5 tiers of brand integration
As I mentioned earlier, many startups wrongly assume that simply throwing two properties together will result in skyrocketing profits. The search for the right license must first start with a thorough understanding of a startup’s brand and its target consumers. Matching up the characters and the product profile is a precise science, and the key is to ensure that they complement one another and communicate the right message. Today, brands must create a particular experience that enables consumers to interact with the license in a way that is distinctive to that brand. This allows for the unique elements of both properties to flourish and minimises the risk of the licensed brand taking over and detracting from the end quality of product.
Taking a look at several ways in which companies and brands currently ‘integrate’ characters into their products helps to illustrate these points. From most to least effective, methods include:
1. Character-integrated products
These can be a combination of both ‘character-affected products’ and ‘character-related categories’ (see below), but include an extra layer of uniqueness. Parents are often less likely to object to paying a premium for these products because they know that they will achieve their objective and that the toys will be accepted by their children. As a result, these products tend to be the most effective and are likely to last longer.
2. Character-related categories
These have some (limited) relationship with the licensed character and benefit from a more ‘natural fit’ and therefore stronger chance of success.
3. Character-affected products
The packaging or product shape is changed to reflect but not directly showcase the character on the product. Again, this produces a subtle ‘fit’ between the product and licensed character.
4. Promotional use
Using characters for a particular promotional campaign, usually when a film is released. Often this is in the form of a giveaway character-related toy or item. This is a way to promote products and can prove efficient for the licensor, but generally translates into limited success for the licensee.
5. The ‘Logo Slap’
Using characters on products merely as ‘kid pull’. These products tend to go out of fashion as quickly as they come in, and end up in landfill.
Notably, it is therefore essential to develop and emphasise the personality traits of the license in order to truly connect and deliver a brand’s core message. The use of products allows the marketer to deliver that message, but only if executed in a thought-out, nuanced manner.
Losing the connection
Often, the failure to reach intended sales targets as part of a license agreement can be attributed to licensees not fully understanding the actual strength of the intellectual property acquired. It is generally a case of overestimation, where licensees may put too much value on the power of the license, believing that the brand alone will result in new customers or increased revenue. When new sales fail to happen, licensees may feel as if they got sold a bill of goods, but this is not ordinarily the case. Simply put, a license works best when a great product is combined with a great brand to solve an unmet consumer need.
“Simply put, a license works best when a great product is combined with a great brand to solve an unmet consumer need.”
For a sustainable partnership and long-term growth, the use of a license needs to be thought out and have a coherent link to the product it is being used in conjunction with. It is important that a startup has an in-depth understanding of the marketplace and how to connect with their customer. A child needs to be able to relate to the product on an emotional level and there needs to be a clear, concise story throughout. A toy with or without a license must still benefit the child.
“A toy with or without a license must still benefit the child.”
Toys are tools for development and play a vital role in defining and nurturing a child’s personality and abilities for later in life. This is the benefit that good design can bring. Purchasing a successful license is just the first step. For many companies, this may be enough, but to go deeper and to bring added value to the customer requires an additional step in the design process. Delivering innovative, thoughtful toys that, when used in partnership with a license, enables both the license and toy brand to shine, enhances the value perception of both parties. Design can contribute to the long-term success of a brand and license, and once you have established the right property for the product, you must exploit that connection fully.
Special mention to the following publications for use as reference:
– The Toy Manufacturers of America Guide to Toys and Play, NYC: Design Rogers Seidman.
– Designing: Marketing Design that Speaks to Kids, Massachusetts: Rockport.
– Out of the Garden: Toys and Children’s Culture in the age of TV Marketing, Toronto: Garamond Press.
– From Rugrats to Spice Girls: The role of characters and personalities in lateral marketing to child and youth markets, Copenhagen: ESOMAR: Youth Marketing.