A logo and a product are only the tip of the iceberg—what lies beneath all brands is a vision and a degree of faith in that vision. If I say Apple, Levi's, Coca-Cola or Montblanc, I immediately trigger off a set of synapses in your brain that conjure up an image, a taste, maybe even a sense of status—all based on a set of beliefs and expectations built up during continued and consistent brand exposure. If you were asked to describe the NASA brand you'd probably find words like "exploration of space for the benefit of mankind"—much more than just a logo.

You can register an image or a trademark but real intellectual property is in the minds of people who believe in the brand's ability to deliver. Brands generate belief as the result of an innovation process that can broadly be broken down into:

1. Identify a market opportunity that justifies belief and invest in a specific competency.
2. Develop that competency to a point beyond the initial market opportunity so that as the belief is realized, the business can grow.
3. Develop a reputation for the brand by consistently delivering the product/service.

In my opinion, sustained market-making innovation beats advertising hands-down as a powerful way of forming a strong and distinct mental impression and gaining continual brand recognition—as Jean Noel Kapferer puts it in his book Strategic Brand Management: "Brands are rejuvenated by new products matching new needs, not by advertising."

In the 60s, Jaguar's designers identified an opportunity for a groundbreaking sports car and rightly believed that the E-type would give them sustainable ownership of the category. In the 70s, Sony uncovered the latent desire to have your own music in your own space, making the Walkman the teenage product du jour; and in the 80s Apple created a stylish, user friendly personal computer giving the Apple brand the right to innovate in a wide range of categories where personal computing and style overlap.

Of course it's easier to own innovation in the expensive world of high-tech but even in FMCG there are brands that can claim to have created categories through innovation. Innocent is the definitive smoothie brand. Häagen-Dazs and Ben & Jerry's grew the luxury, adult ice-cream category by investing heavily ahead of the curve. Kellogg's launched Nutrigrain to bring us breakfast in a bar. Red Bull and Gatorade brought us energy drinks. So the question is, if brands can claim category ownership through innovation, why don't we see established brands innovating more successfully?'

Well the short answer is that innovation is easy when all you have is faith. Once you have a successful business with real profits, developing new competencies is risky and expensive. It takes a long time, drains resources away from the core business, and risks the brand's reputation.

A lot of branded innovation is actually incremental, developed in response to market opportunity—as people moved from cassette to CD, the Sony Walkman became the Sony Discman. Surprisingly though, Sony missed the whole MP3 opportunity until it was too late. Apple's broader underlying vision meant they were geared up to exploit the market opportunity presented by music digitalization, and their reputation for technological innovation meant customers were ready to trust them. Apple didn't have to massively extend their manufacturing or programming base to launch the iPod because their vision meant they were already experts in hardware, software and networking. Smart brands like Apple don't just grow in response to market opportunity, they grow market opportunity by harvesting competencies built to support the unrelenting pursuit of a relevant vision.

It would probably have taken Caterpillar forever to build the business case, let alone develop, manufacturer and distribute a successful clothing range. Their shoe manufacturer recognized the brand's relevance in rugged outerwear and, after securing a license, grew the market such that, in some countries, Caterpillar is better known as a fashion brand than a hard goods manufacturer.

In today's world, brand origin has been lost (everything is made in China), the product development cycle is speeding up (everything is made in China while we sleep), and fashion and celebrity culture has invaded every category from ready meals and functional foods to curling tongs, cooking equipment and furniture (because of reduced development cycles, media-fragmentation and because everything's made in China). Functional benefits are easy to imitate and in grocery stores, private label is the number-one brand in virtually every category. Pressure on brands to reduce margins is only matched by the pressure to innovate.

In today's economy, brand's often can't justify the time and expense of developing new competencies until they are well behind the opportunity curve. Successful licensing offers a way of accelerating new product development and deepening brand relevance. However, before licensing, brand owners should invest in learning one more important new competency: "How to run a licensing program."

Why is it hard to set up a licensing department?
One of the reasons so few specific licensing departments exist is because licensing intersects with many other areas of business. As a Brand Licensing Consultancy, our work overlaps with both internal and external teams including:

Brand—because new products will only add to the brand's relevance if we communicate the strategic brand vision to partner manufacturers—in some cases that means helping to research and reinvent the vision itself.

Legal—before licensing your brand into new categories, you need to understand the details of your trademark registrations, and any copyright issues there may be over images and designs. You may also have to issue cease and desist letters to people who are currently infringing on your brand in different categories, and you'll almost certainly have to prepare a standard licensing contract.

Design—because licensees need brand guidelines and these can be very different from the current guidelines. This is especially true if the brand is moving down the price scale where logos are more ostentatious and design more disposable.

Marketing—because licensees need help communicating the point of difference and the underlying vision, and the internal marketing department needs to be part of any conversation about licensing.

Technical—because new licensees production processes need to be inspected and approved.

Trade sales—because sometimes the licensor has to supply a core ingredient

Other licensees—joint promotions and marketing initiatives should deliver the brand consistently to the consumer

Online—because the new products will need online marketing

Retail sales—because we're screwed unless we're SKU'd.

Accounts—because unless you collect your royalty and audit potential licensees, things can very quickly get out of control.

So how do licensing experts do things?
Licensing experts, Disney Consumer Products, generated $21 billion in retail sales in 2005, up 15% over 2004, with 2006 projected at $23 billion. Mickey Mouse, Donald Duck, and Winnie the Pooh are some of the most successful licensed brands in history so it's useful to study their activity as an example of how licensing can work. After serving out a 10-year contract with McDonalds, Mickey and Winnie have responded to the obesity epidemic by reinventing themselves and getting ahead of the healthy eating curve. Mickey has abandoned the burgers and is working hard as an ambassador for healthy, locally sourced food.

Across the world "Farmer Mickey" and his friends are helping to sell fruit, vegetables and other nutritious products in conjunction with major retailers such as Tesco, Carrefour, and Krogers. One of my favorite variations on this theme is Marvel-inspired vitamins which have taken a leaf out of Popeye's book by licensing onto Spiderman Vitamins. There is a risk attached though—imagine the disappointment of the adult who, after taking these pills for years, fails to develop the ability to walk up walls!

The move into making fun healthy food, is fully in line with Disney's vision of family friendly fun and speaks volumes for their licensing expertise. Disney Consumer Products have such confidence in the power of their brands that when they decided to launch into another category, consumer electronics, they invested heavily in research, commissioned product designs and even sourced factories in China ready to make the designed product. Only at that stage did they initiate conversations with manufacturers and distributors. This up front investment massively reduced the licensee's risks and increased the prospects of success.

Any brand manager who dismisses licensing as a cheap way of generating quick incremental income or a way of developing merchandise is missing the point. Licensing is brand building through innovation and can be an integral part of the marketing and new product development process.

A licensing program should start with a blank piece of paper and some real, out-of-the-box thinking. We use mind-maps to help understand how the brand can pivot around specific axes. Other companies will run consumer ideation sessions generating a list of possible extensions.

Once you strip your brand back to its core vision it's almost like starting again. Yes, Montblanc makes expensive, high quality pens—but the owners have decided that the brand's vision is about delivering luxury in other categories and have taken the brand into familiar lifestyle extensions such as perfume, jewelry, eyewear, and leather goods. Putting aside the practicalities of product ranges and extended SKU's and tapping into the real Montblanc vision, it could be argued that Montblanc is actually in the enhanced written communication business and the founder would probably have been more intrigued by PDA's than perfume. Imagine the potential features of a Montblanc PDA—valuable raw materials, totally indestructible, beautifully engineered, great design, works every time, beautiful packaging in short: as valuable as the work you'd do on it. Aren't these qualities more in-line with the brand's vision than the ephemeral vanity of perfume? This is especially true when you see the perfume because the only liquid I associate with Montblanc is ink.

So what do you do once you know what categories you want to be in?

In Strategic Brand Management, Jean-Noel Kapferer writes about his research on brand extension which found that consumers gave brands permission to extend a long way, but only after a series of steps via related extensions. This step-by-step consumer buy-in means it's not only important to consider which potential extensions are brand enhancing, but also in which order to pursue them.

It's a long way from Jaguar cars to Jaguar speedboats but it would be possible via Jaguar motors that could be applied to everything from lawnmowers to leaf-blowers to boats—Honda has successfully extended along this axis.

To establish an order it's important to prepare a clear strategy evaluating opportunities against criteria weighted according to priorities of speed, visibility, revenue generation and target audience. With this approach some of the far out extensions may end up higher than expected on the list of priorities because they stake a claim to new territory.

Land Rover's move into licensed baby buggies in the 90s was a great example of the rugged proto-military machine's transformation into the family friendly people carrier. This category may not have been top of the list in ideation sessions but it was a great strategic fit, putting Land Rover way ahead of the emerging Chelsea tractor curve.

With a clear licensing strategy in place, a style guide can be prepared featuring potential products, packaging, and artwork. This will save a lot of heartache later when several licensees propose alternative color schemes for similar products.

Food brands looking to develop a licensing strategy need to consider developing a flavor map as well as a style guide. In recent work for OXO, we developed a set of recipes pivoting on the brand's axes of Beef, Chicken, Lamb, and Vegetarian—using the colors to identify which were the target product areas and which flavors best suited these food groups.

What happens to brands that don't innovate?

A walk through the Museum of Brands in Notting Hill provides interesting food for thought because the display cases are full of advertisements and packaging from brands for boot blacking and other arcane household products that no longer exist. Whilst these ancient brands might have spotted and satisfied a market opportunity, they didn't notice it disappear and so they no longer exist.

Unless their vision is deep enough, companies only invest in technology and core competence to extend their offering in response to market opportunity, putting them at risk from increasing competition and the winds of change. Core competence is slow to learn, and rarely reproduces the impact of the original innovation.

The deep underlying vision of successful brands ensures that they already have the competence they need to create new market opportunities and can grow market opportunity and brand relevance in tandem. Smaller brands with a deeply relevant vision but no power to invest should consider licensing rather than powerlessly witnessing their market's decline. The only sustainable competitive advantage brands have over private label is a vision built on a genuine heritage and history that originated the category in the first place. If you're not satisfying the next generation of customers your claim to history and heritage diminishes in value every day. To accelerate growth and brand extension via licensing, brands need to invest in developing licensing competency so that new products deepen their reason for being. If they can't find a reason for being, it may be time to move on.

(Source: Interbrand)