Mo st Com mon P i t fa l l s L ic e ns e e s

Should Watch Out For

PETECANALICHIO

PART 1

Over the past fifteen years, I have seen many licensing deals go south because one of the parties fell into a pitfall that could have been avoided.

BITING OFF MORE THAN YOU CAN CHEW

Licensors interested in licensing a category to a prospective licensee

will ask the licensee for sales projections by region and by channel

along with a sales plan.

In trying to "win" the license, the prospective licensee will often provide the licensor with a

“best case scenario” instead of a more realistic case.

The licensor will use projections to develop minimum sales targets and royalties, which

will become part of the contract agreement.

Licensees can get into trouble when they agree to just about "any" terms in order to get the license.

The licensee often ends up accepting sales targets they may not be able to achieve, which

ultimately will result in a breach of contract.

GETTING IN OVER YOUR HEAD

While negotiating their license, prospective licensees often try to secure

multiple regions or channels as part of the deal.

This may be because the licensee really believes it can take full advantage of all of the rights offered and sell its product into

each of the channels or regions.

In reality, the company often has only one opportunity to sell the branded merchandise to

a specific retailer; when the licensee fails to meet its sales and royalty targets and may

request royalty relief.

This usually leads the licensor to ask the licensee to demonstrate how they are

maximizing their rights.

When the licensee is not prepared to do so, not only will they not get the royalty relief they

are asking for, they may be required to develop a comprehensive plan on how they

intend to fully exploit their license.

If the licensee is unwilling or unable to develop the plan or invest in the license, they may lose rights to certain channels or regions.

CREATING UNREALISTIC EXPECTATIONS

Licensees may not fully understand the true strength of the brand whose license they just

acquired.

The licensee may overestimate the power of the brand believing the brand alone on their product

will result in acquiring new clients or larger programs with existing clients.

Even if the licensee has invested in product development and built the essence of the

brand into their product, they may not win new business immediately.

A license works best when a great product is combined with a great brand to solve an unmet

consumer need.

Even with the world's greatest brands, there are no immediate guarantees but if the licensee and licensor continue to work together, they likely will achieve positive results over time.

Have you or someone you’ve known made any of these mistakes? If so, what

was the situation and what was the outcome? Are there any other pitfalls

you’ve experienced you care to share?

PETECANALICHIO

PeteCanalichio.com/fast-track

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