Measuring Up

Using Licensing to Generate Profits and New Revenue Streams for Clients

Marketers need to stop being seen as cost centers and start becoming revenue generators now. Below is an article that Michael Dresner and I recently penned for our trade publication, PR News, about how licensing can do just that.

Our economy has hit a rocky road. Unless you’re in a recession-proof niche (which rarely exists), it’s only a matter of time until your firm is negatively affected by the turbulence. Don’t you wish that your agency had the capability to create real sales and more profit for clients and prospects versus just costing them money on promotions, publicity and more of the same?

Public relations is but one tool to facilitate strategic communication for your brand. Agencies need to think more broadly about all tools available—specifically those that have a direct, quantifiable impact on the bottom line—yet cost clients next to nothing. Strategic brand licensing is one such tool, frequently underleveraged or dismissed—and it’s a tool that the marketing and communications personnel should be using.

THE ROAD LESS TRAVELED
Extending your brand to new categories via third-party license agreements can generate new awareness, increase brand impressions and reinforce the core marketing message. Most important, it generates revenue for clients through manufacturer royalties, rather than a high upfront cost. This is the very organic and resource-efficient marketing brands may seek in uncertain times.

Quite simply, licensing is a strategic marketing service that helps companies with appealing brands (licensors) make money by extending that brand into new categories and industries. This is done by developing new products that current, loyal customers will be interested in—that is, if the extension is strategically designed and executed.

Licensing also can greatly help manufacturers with very little brand visibility because these companies (licensees) can license those attractive brands and use their own manufacturing expertise and retail relationships to create their own products.

Think of licensing as a win/win opportunity for all parties involved. Traditional PR clients can create long-term brand impression generators through licensing that will result in greater customer visibility, as well as show their business leaders that they can bring in real income to the company (thereby earning a newfound level of respect.)

Plus, those licensing clients are now able to obtain ongoing marketing support from third-party manufacturers, all reinforcing messages from the core brand.

LICENSE TO PROFIT
Skeptical readers might be asking, “Licensing? That’s a strange one. Why does this make sense, and why consider expanding into this area?”

There’s an easy answer to that.

Forward-thinking communications professionals are always looking for what’s next. Typically, that means developing new offerings and services to help soothe clients’ pain. Although we at Peppercom didn’t have a crystal ball to see where the economy was heading, we conducted some deep analysis more than a year ago in hopes of enhancing our model. The goal was to offer a completely different type of service that could bridge brand-building with truly understanding and impacting the business of our clients’ business. Whatever we pursued would need to be both synergistic with the strategic nature of our services as well as provide clients with an offering that could have direct impact on their bottom-line revenues.

Which led us to licensing. There are some principles to understand and lessons to learn before jumping in:
1. Licensing isn’t for the faint of heart. Like most marketing functions, it is far more complex than it seems at first glance. The business model of outreach, negotiation and ongoing product development between brand owners and manufacturers is a unique skill set; when not managed correctly, mistakes can be made that adversely affect the brand.

2. A successful licensing practice requires senior mangers’ support. Unless strategic licensing is taken as seriously by senior management as other primary marketing functions, licensed manufacturers, as cost-efficient media vehicles, will never be leveraged as they should. Conclusively, each product category has its own unique rhythm of lead times, buyers, trade spending requirements and competition, so initial paths to sell-through will almost certainly be outside the expectations and experience of the internal client team.

3. Licensing should not be an afterthought. Just like public relations, advertising and consumer promotion need to be priorities or the programs won’t pay real dividends. Recruiting knowledgeable experts from the function to lead and integrate it fully into your client’s culture is also absolutely critical.

With that said, strategic licensing and PR can be leveraged interchangeably to create a fresh set of messages, brand impressions and revenue for clients hungry to compensate for drops in their businesses. And, in a time when any communications/marketing services firm needs to demonstrate much more business acumen and results, brand licensing can truly be a secret, revenue-generating weapon for clients.

My hands feel better, already...

I’m tired of writing about all the problems with our economy. So, today I decided to pick a lighter topic to post about that most anyone can relate to.

Earlier this week, Jeff Bezos (Amazon CEO) made a major announcement that (finally) Amazon would be the first retailer to start ditching those painful plastic packages during this holiday season. You know what I’m talking about, right? For the last decade (or so), every toy, electronics and computer manufacturer have used clear, plastic packages that are so difficult to rip apart that typically one needs a screw driver, pliers, knife and scissors (and sometimes even a hammer) to extract the product successfully.

Every Chanukah and Christmas (we celebrate both), I grimace with the thought of having to open up dozens of toys for my kids knowing that in just a few hours the number of sores and cuts on my hands will surpass the combined ages of my three kids. It really isn’t fun and I just read a not so surprising statistic that some 6,000 people actually go to the emergency room every year due to laceration and stab wounds associated with opening up these terrible packages. One of my friends called this phenomenon “wrap rage.” It made me laugh, but fits perfectly. After about 10-15 minutes of trying intently to open these tightly wound plastic bombs “the right way,” frustration takes over and those with less than enough patience (like me) start using sharp objects to break open the indestructible package in any way possible. That’s when the rage almost always leads to the first self inflicted lesion and the beginning of further mutilation (because you just don’t care anymore.)

Thankfully, through Amazon, Bezos has now created “frustration free packaging.” Mattel, Microsoft and a few other manufacturers will now ship their products to Amazon in environmentally friendly (another perk) cardboard boxes. According to what I’ve read. These boxes may not be as easy on the eyes as clear plastic, but they will certainly be loved by our hands.

I wrote about this problem last holiday season and it’s great to see that some solutions have been created by a few innovative leaders. I still don’t understand why manufacturers can’t have their cake and eat it too, though. They first created clear packaging so that the products could be seen in the most appealing way by consumers. Seems to me the next step would be to find a way to continue using some type of clear material. They just need to do away with the absurd safety ties, screws and plastic shell that make it so unfriendly to the purchaser and the environment at large.

The Internet "loves" Cease-and-Desist letters

Here's another example of bad lawyerly advice. Clear Channel Communications tried to force a Web site in Connecticut to take down an audio recording, only to have the segment pop up on hundreds of other sites within just days.

The cease and desist strategy began after an interview by Tom Scott, a talk radio host at Clear Channel station, WELI-AM in New Haven, recorded a heated interview with Democratic Senator Christopher Dodd. It seems that Mr. Scott is a former Republican state senator. He accused Mr. Dodd of misconduct in getting a personal mortgage. Or course, Mr. Dodd fervently denied this allegation.

For reasons unknown, the interview was never broadcast and Mr. Scott quit the station soon thereafter (he claims censorship took place). And, as fate would have it, the recording turned up on a local Internet news site, The New Haven Independent, along with this article highlighting the immediate demand by Clear Channel to remove this WELI unapproved interview. You can see that the article makes Clear Channel look pretty silly... as if it had something to hide from the public.

Of course, anytime a whiff of legal intimidation, censorship, or corporate "cleanup" is enforced on the Internet, the masses become aroused and this often leads to a story going viral. And, that's just what happened here. Political Web sites, bloggers and other radio stations (including at least one Clear Channel station) downloaded the recording and played or posted it. According to the managing editor of the Independent, "It crashed our server... and is by far the heaviest traffic we've had."

So, what's the moral of this story for corporations? Be smart about how you try to control your own content/intellectual property on the Internet (especially when it surrounds a potentially controversial issue.) Yes, it's important to be the master of your own domain. But, once the information has been released, the reality is that you really aren't in control anymore. Legally, you have every right to crack down on violators. But, the severely negative public relations impact from your actions might cost you a hell of a lot more in the end.

What’s fair… is fair

Five of the richest men in the world (some would say they make up the billionaires club) lined up to speak to a special House Committee yesterday in Washington D.C. These men are the leaders of some of the most successful hedge funds in existence.

Unlike past inquiries where business leaders were called before House of Representative committees as part of a “witch hunt” to be scolded and reprimanded (by the likes of congressmen such as Henry Waxman (D) and Elijah Cummings (D)) this hearing had a completely different tone. You see, these billionaires represent the few investment gurus who have actually fared well (or at least held their own) in this devastating stock market collapse. So, this Congressional panel was more interested in learning about their “magic formula” for making money and how they recognized the end was near (before anyone else did) versus slugging it out on a host of ongoing, controversial issues. It also helped that all five financial barons came ready to appease. They all agreed that the hedge fund industry needs to become much more transparent in how it invests and makes money. And, they unanimously supported new rules that would do just that for investors and the marketplace, in general.

Then someone noticed the elephant in the room. The question was raised by one Congressman, “Is it fair that you make billions of dollars and only pay 15 percent capital gains on your personal income tax?” And, the answer received from one of the titans was….”Yes, it is fair...” To be honest, I stopped paying attention after that.

There’s been a long standing argument that private equity firms and hedge funds have a real advantage over everyone else in America because we pay real income tax based on our earnings level (which for many is 35 percent) and they fork over only 15 percent as part of a capital gains tax. The rationale for paying this small amount is that all their income is made through investment gains and that should be just be viewed as professional compensation. Those on the opposing side (like many in Congress) have argued that much of this compensation should be seen as bonus money and thus should be taxed just like every other red blooded American is.

My opinion – I’m all for allowing any businessman to make as much money as possible as long as it’s legal and ethical. However, you really have to question the ethics behind allowing these wealthiest of the wealthy, who earn $20-40 billion a year in compensation, to only have to pay 15 percent in taxes. They should be taxed at the highest levels (35 percent) just like everyone else in that income range. This is what Washington refers to as a loop hole. It’s a bad one that needs to be closed and this particular one can provide over $6 billion to the government in a time when we certainly need it. 

From a pure public relations perspective, I think the hedge fund industry really needs to rethink how hard it will continue to fight for maintaining this loop hole. In times like this, where Americans everywhere are suffering, these moguls will come across as greedier than Gordon Gecko by pushing for the status quo. No one will feel any sympathy for a man who will make “only” $20 billion after taxes versus $28 billion. Its lobbying group (a powerful one) needs to get with the reality of today’s public sentiment and change its decision on this pretty quickly. Or, the hedge fund industry might be the next witch that is strung up by Congress and the constituents they represent when the Obama administration takes office.

TV advertising ROI is declining quickly

I just finished reading an article that reported 27 percent of American households now have DVRs (according to Nielson, this has increased from just over 20 percent.) Scientific researchers further went on to study the impact of fast forwarding on advertiser recognition. No surprise, those who fast forward commercials, typically only see a second and a half of silent fast moving content. And this sharply reduces the viewers' recall of the commercials.

However, they also found that viewers were still able to recall commercials that contained many frames featuring the brand's name or logo, if the logo was in the center of the screen. Such commercials made viewers like the featured brands better, and increased their desire to buy the product advertised.

My bet is that these researchers are on acid. Because, this is a ludicrous study.

Let me explain. If we're at the point where advertisers need to defend TV commercials by asserting that some fast forwarded commercials are still effectively selling products if the brand logo is in the center of the frame, then this industry is really desperate beyond belief. I can’t believe the premise is actually true. And, it certainly won’t convince any corporate marketer that DVRs aren’t really as bad as they were led to believe.

Here are some facts:

-TV advertising costs a lot of money. The costs come from developing the commercials and more importantly buying the time. In some cases, TV advertising budgets are 10 to 20 times more expensive than direct marketing or public relations.

- Over 25 percent of households skip through commercials. That number will certainly grow every month and every year. I don't believe that DVR'd commercials provide any brand building value. Think about the cost highlighted above. Now, understand that one out of every four potential viewers will fast forward right by it.

- In this economy, marketers need to see that every dollar spent will produce efficient returns. That is the exact opposite of what TV commercials do.

- Today, the best marketing needs to focus on building trust, credibility and direct response with customers/prospects. Again, TV commercials provide none of these.

Lastly, even if a marketer does believe that TV commercials should be a key part of the marketing mix, he/she should maximize those bucks by pushing the media outlet/network to significantly enhance the buy for greater value, at no more cost. This could include additional Web advertisements on the broadcaster’s site, PR related promotions to create a larger call to action, direct response initiatives through online contests or a host of other marketing endeavors.

The Web is our future. TV will clearly still have a marketing role. Only, the cost to benefit received from this medium (alone) better change because many marketers are moving on.

The commercial sustainability movement just may be recession proof

I’ve been involved in a lot of client conversations these past few weeks surrounding general cost cutting and marketing/PR budget reductions. That’s no surprise to anyone. This economy is making the best of the corporate world think twice about how funds should be allocated based on where sales/revenues will be made.

Interestingly (maybe even surprisingly,) none of these discussions have included any talk about slashing from corporate sustainability programs. No, to the contrary, clients remain quite focused and bullish on changing their business practices and models to become more environmentally friendly. And, they continue to speak with tempered enthusiasm about how their efforts will be promoted and marketed to all constituents who matter the most.

This theory was reinforced at a unique panel discussion that I attended this week. Co-sponsored by the American Institute of Architects (AIA) and Wall Street West (both are Peppercom clients) the discussion centered around the ongoing trend/need to build “greener” buildings, data warehouses and industrial plants/factories. I heard one sustainability expert (an architect from the AIA) tell the audience that most companies have already factored in sustainability costs into their business models and don’t view it as a “nice to have” any more. He further said (I’m paraphrasing) that economic slowdown or not, many within the retail/real estate/office/buildings commercial world now view “green” as smart business and have fully incorporated best practices into their daily mindsets.

An article in today’s New York Times (“Green Plans in Blueprints of Retailers”), demonstrates that many retailers concur with these sentiments. In new Wal-Mart stores the baseboards and moldings are made of plastic left over from diaper manufacturing. Chipotle, the Mexican fast-food chain, has installed an energy-producing wind turbine outside a new store in the Chicago suburbs. McDonalds has opened a newly rebuilt restaurant on the South Side of Chicago which is crammed with energy and water saving gadgets as varied as high efficiency appliances, pavement that filters rainwater and tables and chairs made out of recycled materials. Subway, Target, Office Depot (also Peppercom client) and Best Buy have many of their own projects under way as well.

Why are they all jumping on the bandwagon?

That’s pretty simple. Most of these green initiatives will actually produce long term cost savings for these companies. In a bad economy, going green is actually a prudent operations decision. But, the commercial green movement is also fueled by the hopes that these organizations will look that much better to consumers who purchase their products. So, companies with smart sustainability programs have the opportunity to exponentially enhance their brand image. And, that’s always important

The challenges that so many of these companies have though (including some of our clients) is that while they are making sincere efforts to conserve water, become carbon neutral or give back to the environment, they also have businesses or product lines that still create lingering environmental problems. Quite often, those problematic areas are core to sales efforts, or take a long time to modify/change, or in some cases the “green alternative” just won’t work yet.

I’ve seen two types of negative reactions to these challenges. Some companies try to simply pretend the issues aren’t there and want to move full stream forward, promoting all the wonderful new sustainability initiatives in place. That’s a very dangerous strategy because in our 24/7 transparent world it is almost certain that some activist group or angry consumer will make a big deal on the Internet (or worse at their home office) by calling the company out for its hypocrisy.

Other, more conservative companies believe they shouldn’t market, publicly discuss or promote any of their activities until those questionable practices or products are 100 percent changed to be “green friendly.” While those companies should be commended for their restraint, our sustainability experts at Peppercom would tell them that this ultra cautious approach probably isn’t necessary. They’d tell the management at these companies that NGOs, activist groups and consumers understand that even those corporations with the best green practices are still far from perfect. After all, this movement has only become widely accepted over the last few years. What’s more important though, are the substantive details within sustainability plans that these companies need to create (often referred to as roadmaps), showing how the changes will take place over time. Such roadmaps can provide immense credibility and may be as important to promote as the environmentally friendly products themselves.

My feeling is that commercial sustainability is here to stay (especially as our government forces more requirements and offers greater incentives to corporations to become greener). Those organizations that can play key roles consulting to companies on how to build, design, manufacturer, promote or market their green endeavors in the right way, will hold their own even in the worst economic downturn.

Stop Insulting Our Intelligence

Today’s topic of choice is Wachovia Securities. I’ll admit up front that I feel torn writing this post because my financial planner is with Wachovia. And, he does a great job. Still, it has to be written…

Yesterday, I saw a full page ad in the New York Times entitled “The Wisdom of Age. The Strength of Experience.” It went on to boldly proclaim Wachovia Securities as this highly knowledgeable investment firm “with more than 120 years of cumulative experience navigating the ups and down of financial markets.” A few paragraphs further, the ad focuses on the “rock solid” pending merger with Wells Fargo. Key paraphrases include, “Our combined strengths will provide a solid foundation for our extended family of clients, advisors and communities in the days ahead and long into the future… we will create one of the strongest financial companies in the world.”

Let’s get the facts straight before I lash out at this transparently wrong advertisement. From everything that has been reported to date, Wells Fargo is a tremendously strong, well run bank. Wachovia, on the other hand, is not.

Lest we remember that it was only three weeks ago that Wachovia reported over $23 billion in cumulative losses in its 3rd Quarter. At that point, its return on stockholder equity was down a whopping 157 percent. In a one year period, Wachovia’s stock fell from over $40 per share to $6 (where it stands now.) In fact, I have a number of friends and associates who stayed awake during the recent uncertainty at the bank wondering if they should leave their investments in Wachovia accounts or yank them out. Because it certainly appeared that Wachovia could fold, the same as Lehman Brothers.

My, Wachovia management must think Americans have amnesia, but I seem to remember that the bank was holding onto its last lifeline and sinking fast into the depths of no return when Citi Group agreed to snatch it out of the water for pennies on the dollar. Thankfully for the former blue-chip bank, a better offer from Wells Fargo came along to “merge” (uh…that means ‘at this point we’ll take anything you’ll pay for us’). Of course, Wachovia agreed and now a new, behemoth is being created.

Like many others, Wachovia made poor investment choices by being too leveraged in the secondary mortgage backed securities market. Quite simply, its risk management processes were questionable as those in charge blinded themselves with the cash cow that continued to grow versus seeing a market that was about to explode. This isn’t the story anymore. Many other financial services firms are managing this reality as best they can. The important point here is how these firms are communicating effectively (or not) with stake holders in the aftermath.

Because just three weeks after this crisis, Wachovia is telling us that it has wisdom and the strength of experience in full page advertisements. And, that we should invest with this bank/financial planner because it can provide a solid foundation for our futures. I’m sorry, but if I was asked to provide communication counsel to this bank I’d tell them to rip down these ads and any other marketing asserting these foolish messages as quickly as possible.

We may have short memories. But, no one, and I mean no one, has forgotten so quickly. Not only are these ads completely unbelievable, but they actually insult our intelligence (as if we would believe these superficial messages at this point).  Furthermore, they only serve to make us believe that this bank is trying to pull a fast one on us (like that crisis never actually happened). This will negatively impact the brand and business as well.

It simply isn’t credible yet for Wachovia to try and turn the page so quickly and overtly to move on from a reputational standpoint. Instead, my counsel would be to stop this phony, bologna corporate image building program and instead find two, three or four key areas within the firm that have prospered during this economic mess (if that’s possible). Focus the thought leadership spotlight on these services or product areas to begin to bring some positive, believable awareness about this bank to key constituents. Understand, rebuilding a damaged reputation is a slow process that takes a consistent building block effort. These blocks (positive stories) are typically found in small pockets within the company and need to be scrutinized and told in the utmost sensitive and strategic manner.  

Of course, the other natural strategy would be for management to first admit that the bank was far too highly exposed. In this day and age (where it’s already so obvious), that would go a long way to starting a real conversation.
 

What do treadmills, bench presses, popcorn and Goobers have in common?

They all belong in a movie theater. At least that’s what Max’s Cardio Cinema believes. Max’s is a full-sized Gold’s Gym based in Camp Hill, PA, which recently added a large movie theater complex inside its workout facility so that customers could have the pleasure of watching movies while they build muscles and work off calories.

Personally, I love the idea. And, it’s great to see how companies (like Max’s) innovate in the worst economic times.

According to Max’s commercials and its Web site, customers can enjoy watching full length films (action, comedies or dramas) on movie theater sized screens, accompanied by “phenomenal sounds systems.”

There are two major reasons why I believe this creative benefit will become a hit with Gold’s Gym customers:

1.) It takes your mind off of exercising – Let’s face it. For most people, exercising by oneself is a boring, monotonous activity. Whether it is running on a treadmill, pedaling away on an exercise bike or lifting weights, we all want the time to go by faster and we long for something that can take our mind off of the actual exercise being conducted. That’s why we listen to iPods, watch TV screens at home and at gyms and even read magazines if appropriate.

People will come in droves and spend far more time in the gym if they are able to allow their minds to truly wander as they sink into a good Woody Allen comedy or Bruce Willis “Die Hard” flick. It may take longer for them to get their normal work out done (because they might get lost in the movie of the day.) But, that never hurt anyone.

2.) Dark workout rooms will draw in a whole new crowd - There is an entirely different, untapped market of people who are intimidated by working out in front of others. Because of this, they stay away from public gyms. I know quite a few people who fit this description. They love working out and would prefer to have a personal trainer or the plethora of machines and weights that are available at gyms, but will not go for fear of “the unknown.”

In this case, “the unknown” is the anxiety-ridden fright that people will laugh at them during work outs, or the trainer won’t be nice, or the machines will be just too hard to figure out (yes, I’ve heard that one).

These dark, theater-like rooms will provide complete anonymity and cover for so many would be gym users. This will certainly raise the number of new gym memberships and bring in more $$$ to the bottom line.

In times like these, companies must innovate to compete. Those that continue to offer the “same old thing,” or are just too panicked to be able to look up and see that their customers/clients need something more, just may not survive. Good for Max. His gym is one step ahead of the rest.