Complete Guide to Luxury Brand Licensing: Strategies, Benefits, and Trends

Licensing is a well-established part of brand strategy in the luxury market, and it plays an important role for many popular brands. From expanding your market and exposing you to expertise and innovation to increasing brand visibility and awareness, luxury brand licensing has a lot to offer.

You can learn more about what brand licensing is in our in-depth guide. But, in this article, we’re talking all things luxury. So stick around to learn about the importance of brand licensing, the strategies you can use when licensing your brand, and the problems you may come up against.

What is luxury brand licensing?

This type of licensing is when a brand leases its trademark, brand identity, and intellectual property to another company so it can produce and sell products using its name. This can be on short- or long-term agreements.

You often see luxury fashion brands licensing their brand name to companies selling fragrances, accessories, and homeware. The licensor (the brand offering the license) will control how its brand is represented by the licensee (the company buying the license). It will earn money either from a lump sum for the license, royalties, or both.

Not only is licensing another money maker for brands, it expands their customer base, product range, and market share. Plus, they don’t have to take on the cost of product development and manufacturing, either.

The difference between licensing and franchising, and licensing and collaboration

There’s a lot of jargon involved with licensing, so let’s unpack some of it below.

Licensing and franchising

Franchising generally means a brand shares its trademark, branding, products, and processes with a franchisee. The franchisee can then run a branch themselves. This is very common in the hospitality industry, where a brand will have thousands of franchised restaurants or other venues across the country.

However, it’s less common within luxury because of their need to maintain strict quality control. This even boils down to where a franchise might open up. If a luxury store opens in a location that doesn’t match its reputation, it can damage its image. Many brands open up franchises in desirable European and American cities like London, Milan, Paris, and New York. China is also a huge hub for brands wanting to expand their reach.

However, this doesn’t mean that no luxury brands have franchises. Prada, Hermes, and Ralph Lauren all have franchises in limited locations. Even the historically license-free Chanel signed an agreement in the end. But, the need to control the impression the brand makes to keep its allure and aspirational aura means franchising isn’t a very common choice.

Licensing and collaboration

Collaboration is an industry-standard now, when it was once a rare event that not many brands attempted. Collaboration is when a brand teams up with a celebrity, artist, or another brand to create limited-edition products. It creates excitement around their brand but maintains that all-important exclusivity. It can also help brands stay relevant in a time when the relevance of luxury itself is being debated, and highlight sustainable business practices or support for social causes. For instance, many brands that have started cosmetics lines tout their diverse shade ranges to showcase inclusive values.

The importance of licensing for luxury brands

Brands can enjoy many benefits from licensing, including:

Brand extension

Brands selling luxury goods naturally aim to serve a small and affluent customer niche. However, investors and shareholders will eventually want the business to grow into new product categories to reach new customers.

So, expanding into new areas of the market means more eyes on your brand, enhancing your brand awareness and visibility — essential in a crowded and competitive marketplace. Using your existing brand prestige to lift up new products in new markets is an excellent way of broadening your horizons. But, be careful that the directions you expand into make sense.

Revenue generation

Licensing is an excellent way to broaden your reach and boost your income without having to worry about making or distributing your products. Generally, licensors make money from one big upfront license fee payment, royalties from the revenue of licensed products, or a combination of the two. It’s a very profitable arrangement, too. Tom Ford saw a large part of its $1.5 billion sales in 2021 driven by its beauty and fragrance offerings — not by its fashion collections.

Innovation

Granting the use of your brand to new and exciting licensees means you can test the water with new products without sinking money into a product launch. It also means you can benefit from your licensee’s expertise in their area. For instance, while you may know all there is to know about creating luxury clothing, the process of making luxury accessories or high-end watches may not be part of your day-to-day. Licensing reduces some of the risk of adding a new product to your portfolio, but it certainly isn’t risk-free.

A luxury licensing success story: Dior

Now we know how valuable licensing can be, let’s look at luxury licensing done right.

Dior built its name on beautifully feminine clothing with sculptural lines to lift people away from the depths of World War 2. Its founder Christian Dior was also an innovator who drew the blueprint for modern luxury fashion licensing, having brought in fragrances, stockings, and other accessible product lines to his brand in the 1940s.

Then, a licensing deal with another European giant, Safilo, saw it drum up around 200 million Euro’s worth of sunglass sales. And so, it brought in a hugely profitable era that lasted over 20 years. When Safilo’s license expired in 2020, eyewear expert LVMH took the reigns.

Safilo drove innovation in materials, design, and lens treatments. It also created sunglasses that were equally as desirable as the brand’s clothing and accessories. It also put sunglasses front and centre in marketing, promoting equity amongst Dior’s product lines. Its campaigns didn’t suggest that sunglasses were just another half-remembered addition to its portfolio: Dior sunglasses were an essential part of the package. Pair this with celebrity endorsements, and Dior was onto a winner. Over the course of the agreement, Safilo sold over 30 million Dior eyewear pieces.

Since then, an LVMH company, Thélios, has taken on the production for Dior’s iconic eyewear ranges. Plus, the designs are coming directly from Paris — very in keeping with the Dior brand.

To dive into more examples of brand licensing, read more here.

Licensing strategies

Let’s look into the strategies you can employ to get licensing right for your brand.

Choosing the right partners

High-end brands put a lot of work into building their reputation. To make high-quality products that people will pay a premium for, huge amounts of resources have gone into product development and manufacturing. Plus, there is often a historical legacy to uphold with older brands that have stood the test of time.

So, there’s a lot at stake when considering licensing a brand, and you don’t want to throw that all away with a poorly-considered licensing partner. You need to find a partner that you know will uphold your brand’s standards.

You need to be certain that the licensee shares your brand values and will be aligned with your goals over the course of your relationship. You also need to feel secure that they use business and manufacturing processes that won’t damage your reputation, especially with consumers putting more and more stock in ethical practices.

Overall, you need to trust that the licensee connects with and truly understands your brand, and will work with you — not against you — for a mutually fruitful future.

Evaluating new markets and products

Conducting a detailed analysis of the market is important when exploring where to expand and what products to add to your lineup.

Analysing consumer demographics, purchasing behaviours, and market trends can guide you to a market that will entice existing and new consumers. It can also show you which products may align well with your values and identity, and gathering consumer feedback can give you some valuable insights.

You should also see what has gone before and assess your competitors’ performance after licensing agreements have gone ahead. That way, you can better identify gaps in the market once you have a full understanding of your competitors’ positioning and market share.

Maintaining brand integrity

You can ensure that the essence of your brand is intact and enhanced through your licensing by:

• Employing strict quality control: Ensure your standards are reflected in your licensed products by providing robust guidelines on materials, craftsmanship, and manufacturing processes so you know no subpar products go out with your name attached.
• Being crystal clear in your licensing agreement: Lay out your terms and the limitations of the license clearly, and you’ll have a better grasp on the quality of your licensed products. Doing this will avoid misalignment between you, the licensor, and the licensee.
• Closely monitoring the performance of all licensed goods: Use consumer feedback, market reception, and financial reports to see how well your licensed products are performing.
• Align your marketing output: Maintaining consistency in your marketing and messaging across all licensed products will bring cohesion to your offering.
• Plan for your way out: Make sure you have a damage control plan if licensed products don’t live up to your standards. The faster you can address problems, the less damage your brand will sustain.

Challenges in luxury brand licensing

The course of brand licensing, luxury or not, doesn’t always run smoothly, so let’s look into some common licensing challenges and how to mitigate them.

Poor quality products

Consumers of luxury goods are discerning, and both loyal customers and new devotees will expect a high level of quality. Putting a premium price tag on a product that doesn’t evoke a sense of prestige in the buyer isn’t enough, and every part of your product and your brand must work together to create a sense of desire, indulgence, and quality. You want your craftsmanship, heritage, and expertise to shine through every new product you put your brand name to.

So, your quality control and partner research must be tight and thorough to ensure you don’t lend your brand to poor quality products. If you do, you’ll risk undermining your position as a high-end luxury retailer and damaging your credibility and consumer trust.

This also extends to where your products are sold. Poorly maintained shop displays or advertising can cheapen your product and mar your brand image, which are both serious drawbacks. And, having your luxury products in stores known for ultra-affordable goods, like Costco or Walmart, might not be the best choice when the experience of buying your products feeds into the status of the product itself.

Diminishing your sense of exclusivity

Through fine or rare materials, beautiful craftsmanship and carefully curated marketing, prestigious brands perch themselves at the top of the market to differentiate themselves from everyone else below.

There is an aspirational quality to a this type of brand that can’t be stretched too thinly across different markets. If you’re known for stunning jewellery, also pumping out clothing, accessories, fragrances, homeware, and more can make it seem like you’re a brand that caters to everyone.

Managing brand dilution

Simply put, brand extension carries the risk of brand dilution. The more products a brand licensor adds its name to, the higher the risk that consumers will:

• stop seeing your brand as unique
• become confused about what you offer
• feel the luxury allure is lost as a brand becomes more accessible
• feel as though you are making decisions for financial gain over consumer satisfaction

The risk of damaging your brand equity and trust is quite high, so any licensed products you approve must make sense for your brand. For instance, there is a logical link between luxury clothing brands like Burberry, Chanel, and Gucci licensing their brands to Luxottica for eyewear lines. However, it would make less sense for these brands to expand into technology or food.

To manage this risk, brands need to be as discerning as their customers in which markets they expand into and why. Which product could you add to your portfolio that will align with their expectations of you and enhance their experience of your brand?

Maintaining brand integrity

People must believe that your expansion from one market to another is authentic — it has to make sense for your brand to move in a new direction and enter new markets.

For instance, Gucci licensed its brand to fragrances made by Coty, one of the world’s largest fragrance companies. This has meant that people who cannot afford the world-famous Gucci handbags may have a shot at still investing in and enjoying the Gucci brand with a more accessible product. It brings a largely unattainable brand to more people — without sacrificing the exclusivity of the product it built its reputation on.

Plus, other high-end brands like Ralph Lauren, Versace, and many, many more, have all made successful expansions from clothing to fragrances, making it seem like a natural progression in consumers’ eyes.

Strategies for overcoming licensing challenges

Overcoming licensing challenges means combining strategic planning, brand management, and great communication. Below, we lay out some top tips for successful licensing.

Research, research, research

You can’t go into a licensing agreement without having done some in-depth research. Look into your partner’s reputation, values, business practices, suppliers, and financial stability before leasing your brand. Get a thorough understanding of your new market, what drives the brands and consumers in that market, and what your financial future might look like.

Bolster your brand guidelines

As brand owners, having watertight brand guidelines means your licensees will know exactly how and how not to use your logo and other design elements. You can run educational sessions to immerse new licensees in your history, values, and goals, and stick with them throughout the process to guide marketing and messaging output.

Limit your licensing

Testing out a partnership with a short-term license is a lower-risk option than going all in with a long-term lease straight away. You can also consider organising exclusive license agreements for specific product types to control how your brand is being represented across markets. It’s also essential that your license agreements are legally sound and protect your brand, too.

Evaluate regularly

Before you sign off on a new licensing agreement, decide on the key performance indicators you’ll be measuring throughout the agreement. That way, you’ll know what you want success to look like, and will know exactly what’s contributing to your wins and losses. Check in with your consumers to align your output with their expectations, and be prepared to act quickly if things aren’t going to plan.

The takeaway

Licensing is a powerful and transformative strategy for growth in the world of luxury brands. You can extend to new markets, products, and customers. You can boost your revenue, and tap into the expertise of licensing companies that take on the cost of manufacturing and distribution for you.

However, a great licensing agreement needs the perfect partner. Choose licensees that align with your brand values, understand your goals, and work to the same impeccable standards as you. Then, your brand can navigate new markets with less risk of diluting your brand or sacrificing exclusivity.

Ultimately, the key to effective luxury brand licensing lies in a commitment to your brand’s integrity. With thorough research, a deep understanding of your audience, market, and competitors, and respect for your brand’s heritage, you can boost your brand’s position in a fiercely competitive marketplace.

Want the expert touch for your brand?

At Studio Noel, we understand how important a great licensing strategy is for the future of your brand. Whether you’re looking to expand your consumer base, innovate a new line of products, or refresh your brand guidelines to set you on the path to success, we’re here to help. We’d love to hear from you, so drop us a line.