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 Master’s Degree programme Second Cycle (D.M. 270/2004) in Economia e Gestione delle Aziende curriculum in International Management Final Thesis Strategic Trends in Brand Licensing in the Eyewear Industry Supervisor Ch. Prof. Leonardo Buzzavo Graduand Roberta Cocchiglia Matriculation Number 832574 Academic Year 2014 / 2015 2
INDEX INTRODUCTION………………………………………………………………………………………………………………7 SECTION 1………………………………………………………………………………………………………………………9 CHAPTER 1. What is a Brand?………………………………………………………………………………………...11 1.1. Brand definition………………………………………………………………………......................................12 1.1.1. The meaning of the word “brand”………………………………………………….................12 1.1.2. Brand dimensions…………………………………………………………………………………….17 1.2. History of the concept…………………………………………………………………………………………21 1.3. Types of Brands………………………………………………………………………......................................27 1.3.1. Classification…………………………………………………...……………………………………….27 1.3.2. How Brands can evolve…………………………………………………..………………………...31 CHAPTER 2. Brand licensing…………………………………………………………………………………………..33 2.1. Licensing as a strategy…………………………………………………………………….…………………..34 2.1.1. Defining licensing strategy……………………………………………….……………………….34 2.1.2. Why pursuing Brand licensing……………………………………………….………………….36 2.1.3. New trends shaping licensing……………………………………………….…………………...40 2.2. Licensing as an industry………………………………………………………………….…………………..42 2.2.1. Structure of the industry……………………………………………….………………………….42 2.2.2. Performance of the industry……………………………………………….…………………….46 3
SECTION 2…………………………………………………………………………………………………………………….51 CHAPTER 3. The scoping perimeter……………………………………………………………….……………….53 3.1. The eyewear industry…………………………………………………………………….……………………54 3.1.1. Industry analysis……………………………………………….……………………………………..54 3.1.2. A market for Brands……………………………………………….………………………………...57 3.2. Safilo Group………………………………………………………………….…………………………………….59 3.2.1. Company profile and structure……………………………………………….…………………59 3.2.2. Business model and strategy……………………………………………………………………..62 3.3. Fashion Groups………………………………………………………………….………………………………..64 3.3.1. MaxMara Fashion Group……………………………………………….…………………………..64 3.3.2. Kering……………………………………………………………………………………………………...66 3.3.2. Moët Hennessy Louis Vuitton …………………………………………………………………...69 CHAPTER 4. The evolution of licensing in the eyewear industry………………………………………73 4.1. Three main trends…………………………………………………………………….………………………...74 4.1.1. More adoption……………………………….………………………………………………………...74 4.1.2. More proactive, strategic and tailored……………………………………………….………80 4.1.3 More emphasis on performances……………………………………………….……………..85 4.2. Reasons of the evolution………………………………………………………………….………………….88 4.2.1. Reinforce brand identity……………………………….…………………………………………..88 4.2.2. Competition……………………………………………………………………………………………..90 CHAPTER 5. The future of licensing………………………………………………………………………………..95 5.1. A new revolution…………………………………………………………………….…………………………..96 5.1.1. The case……………………………….…………………………………………………………………..96 5.1.2. Why pursuing internalization……………………………………………….…………………..97 4
5.2. Possible consequences………………………………………………………………….…………………….98 5.2.1. A new strategic opportunity……………………………….……………………………………..98 5.2.2. Considerations……………………………………………….………………………………………101 CONCLUSION………………………………………………………………………………………………………………103 INDEX OF FIGURE………………………………………………………………………………………………………..105 REFERENCES………………………………………………………………………………………………………………107 5
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INTRODUCTION This dissertation aims at discussing the main trends shaping the licensing industry and its strategy through the analysis of relevant literature and a specific case in the eyewear industry. In fact, the research, information and analysis derive from a personal seven-­‐
months working experience in the licensing and marketing department at Safilo Group, located in Padova, Italy. In the first section, the main concepts of “brand” and “licensing” are identified and presented through literature reviews. The meanings of the word “brand” are defined through the analysis and definitions provided by scholars and an historical evolution of this concept shows how, from ancient times, we have arrived to the modern idea of Brand. Furthermore, different types of Brands are identified, categorized and presented, and finally another fundamental notion then follows: the concept of Brand licensing, from two different perspectives. On one side, licensing is intended and explained as a strategy. In literature it is described as a tool to sustain brands extension, as a marketing technique and as a commercial activity. We identify and present the motivations behind this strategy and the trends that are shaping its structure. On the other side, licensing is intended as an industry. We explain the structure of the industry, showing all property and product types that shaped it. Then data and statistics are presented to understand the performance. The second section of this thesis concerns the specific case study, with the information and data collected during the personal working experience. In the first chapter of this section, we present Safilo and other Fashion Groups, describing their main characteristics, figures and business structures. Thanks to the literature reviews conducted in the first section, three main trends in licensing are identified in the Company object of the case study. The first trend specifies how more and more companies are adopting and reinforcing licensing agreements. A second one follows: licensing is becoming more proactive, strategic and tailored. Finally, a third trend highlights that licensing is emphasizing product and process quality. Therefore we analyze how licensing strategy has changed during the years and which tools were used by players to implement and integrate this strategy. 7
The research aims at defining how these trends are concretely characterizing the eyewear industry and the main purpose is to show how, through the years, licensing strategy has evolved from a secondary tool of marketing to an integrated strategy for companies and the reasons behind these changes are highlighted. The last section of this dissertation presents the latest events that have characterized licensing in the eyewear industry. The case of Kering Group, which decided to internalize its eyewear licenses, could be a revolution that may change the rules of the game in the industry. It is not possible to predict the future and how licensing will evolve in the eyewear business, but in the last chapter we present assumptions and thoughts about possible consequences of this new strategic actions. 8
SECTION 1 The first section of this dissertation aims at defining and presenting the main concepts on which the research proposed in the second part is based on. This section supports further researches and analysis by providing, through literature reviews, explanations about two main concepts: brand and licensing. First of all, the first chapter defines the meanings of the word “brand”, identified through the analysis and definitions provided by scholars. An historical evolution of this concept is developed to show how, from ancient time, we have arrived to the modern idea of Brand. In addition, all the different types of Brands are identified, categorized and presented, following studies conducted by authors. The second chapter presents another fundamental notion for the development of this dissertation: the concept of Brand licensing from two different perspectives. On one side, licensing is intended and explained as a strategy. In literature it is described as a tool to sustain brands’ extension, as a marketing technique and as a commercial activity. Motivations to pursue this strategy and trends that are shaping its structure are identified and presented. On the other side, licensing is intended as an industry. The structure of the industry is built, studying all property and product types that composed it. Than data and statistics are presented to understand the performance of this specific industry. 9
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CHAPTER 1 WHAT IS A BRAND? This first chapter aims at creating the basis of this dissertation, by analyzing the concept of brand and all the characteristics and dimensions that exists behind it. The first paragraph shows how “brand” is a complex concept and phenomenon. Many definitions explain its meaning and many dimensions characterize its structure. Debates and discussions are still conducted by scholars and nowadays they have not yet reached an agreed-­‐upon explanation. Here the word “brand” is expressed through the definitions and analysis that experts promote in literature. The second paragraph presents an historical evolution of the concept of brand. It analyzes its role in three main ages: ancient time, industrial revolutions years and modern time. This historical review helps to understand why, still nowadays, we have many definitions and why scholars don’t reach a common definition and conclusion for this concept. The historical evolutions brought to the complex concept of Brand as intended today. The third paragraph defines the differences among types of Brands. There exists many types of Brands and scholars offer various classifications. Five types of Brands are defined and placed within specific area of a map, which is constructed upon two main variables: scope and benefits of brands. Brands can move within this map, because they live in dynamic contexts and they evolve in time and space. Brands tend toward a specific direction and place within the map, without remaining “stuck in the middle”. 11
1.1.
Brand definition In literature, many definitions and meanings of the word “brand” do exist. Debates and discussions are still conducted by scholars. It seems to be a very complex phenomenon, upon which, still nowadays, an agreed solution is not reached. In this section the word “brand” is expressed through the definitions that experts promote in literature. All the definitions are categorized, following the structured proposed by de Chernatony and Riley (1998), with the purpose of organizing, in a clear way, this massive presence of definitions. It is not possible to understand the meanings of Brand, without taking in consideration its dimensions. For this reason, in the second part of this section, three main elements are identified and analyzed: Brand image, loyalty and dimension. 1.1.1 The meaning of the word “brand” Brand is a word that “has multiple meanings” and the “lack of any clear definition presents significant problem” (Avis, 2009). Many scholars and professionals contributed at defining this word up to the point in which Saviolo and Marazza (2012) explain the role of the word “brand” as an engine of meanings. For the purpose of this dissertation, the definition proposed by de Chernatony and Riley (1998) is considered. The two authors classified, in twelve categories, the broad range of brand definitions presented in the literature. Brand is perceived as: a logo, a legal instrument, a company, a shorthand, a risk reducer, an identity system, an image in consumers’ minds, a value system, a personality, a relationship, adding value and an evolving entity. These twelve themes represent a perfect categorization and a way to structure the definitions developed in literature through time. •
Brand as a logo The American Marketing Association (AMA) defines the word “brand” as “"Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers”. This definition equals the meaning of the word “trademark” defined by the Business Dictionary as a “distinctive design, graphics, logo, symbols, words, or any combination thereof that uniquely identifies a firm and/or its goods or services, guarantees the item's genuineness, and gives it owner the legal rights 12
to prevent the trademark's unauthorized use”. As Tybout and Carpenter (2010) note, on this basic level, a brand is just a name/symbol/mark, associated with a product or service, which buyers attached psychological meanings. For the purpose of this dissertation, this definition is basic and simple. It should be considered as a starting point to define the whole concept. •
Brand as a legal instrument As de Chernatony and Riley suggest “branding represents an investment and consequently firms seeks ownership of title, as protection against imitations”. A Brand becomes a symbol of ownership and a strategy to protect products and services from infringement. •
Brand as a company In a world that is more and more competitive, a company, immediately recognizable through its Brand, possesses a relevant and winning competitive advantage. Adopting the Brand as an identity card for the company, product lines and portfolios become “an extension of the corporate personality” (de Chernatony and Riley, 1998) and identity. This creates many advantages to the company. One of the most important is the image of coherence and concreteness offered to all its stakeholders. •
Brand as a shorthand This category presents the Brand as a “shorthand device of functional and emotional characteristics, enabling rapid recall of information in memory and speedier purchase decisions” (de Chernatony and Riley, 1998). It means that, in front of a shelf with a variety of Brands well placed, consumers are more willing to choose the Brand that recalls positive emotions and memories in their minds. 13
•
Brand as a risk reducer This concept of Brand is easier to understand. When buying products, consumers are making a sort of investment and they evaluate pro and cons of the purchase. By acting as a guarantee of quality, a Brand reduces performance risk. •
Brand as an identity system The French scholar Jean-­‐Noel Kapferer (1992), developing the so-­‐called Brand Identity Prism, presented the Brand as a structure of six interrelated aspects: personality, culture, self-­‐image, reflection, relation and physique. This interpretation is opposite with respect to the definition of “brand as a logo”. A Brand is not only a logo/symbol/trademark but it is the sum of all the above realities, which only come to life when the Brands connect with their consumers. •
Brand as an image in consumers’ mind The concept of “brand” is strictly related with the interaction between consumers and Brands. As introduced in previous definition, all the characteristics and dimensions of a Brand come to life when consumers interact with Brands. Consumers create their own perception of a Brand. As a personal interpretation, by defining a brand in this way, it seems that a Brand has many identities, in line with the multiple and distinctive interpretations that each consumer can have about it. •
Brand as a value system For this category, as well as for the previous ones, consumers have a central role in the perception and definition of “brand”. Chernatony and Riley refer to the studies conducted by scholars, such as Clark (1987) and Sheth (1991), to identify five consumption values. Functional value (utility level of a product), social value (the willingness to reach social acceptance), emotional value (choosing upon feelings), epistemic value (novelty behaviors) and conditional value (circumstances depending on the situation) create this system of values adopted to describe a brand. These elements are crucial for consumer behavior, influencing the purchasing choice 14
and showing that “decisions are made with the aim of satisfying specific consumers values” (Chernatony and Riley) •
Brand as a personality “Brand as a personality” suggests that there is something more behind the pure functional utility of the Brand. The American Marketing Association (AMA) defines personality as “the psychological nature of a particular brand as intended by its sellers”. As a consequence, Brand personality is a competitive tool. Exploiting the personality of their Brand, companies are able to differentiate their offers and avoid emulation from competitors. Most of the time, it is easy to replicate a product but it is difficult to infringe the personality of a Brand, built by its consumers. •
Brand as a relationship Once a Brand possesses a personality, it has the possibility to build a relationship with consumers. As Kapferer (1992) notes, if a Brand can be personified, consumers would not just perceive it, but would also have a relationship with it. •
Brand as adding value Jean-­‐Noel Kapferer explains how Brand adds intangible value to the existing sum of tangible attributes of a product. “Adding value” means differentiate the Brand, providing something more and achieving competitive advantages. In some ways, this category can find correspondence with the concept of Brand personality. It is easier to replicate the pure functional and tangible attributes of products but it is difficult to replicate the intangible ones. •
Brand as an evolving entity As mentioned by Chernatony and Riley, considering the analysis made by Goodyear, the above eleven categories can be summarized with the concept of “Brand as an evolving entity”. It is a chronological categorization that explains the evolution of this concept. 15
A Brand evolves from unbranded commodity to reference where name is used as identification (Brand as a logo). Then the Brand becomes the identification of a company and its corporate’s value. Then, the Brand acquires its personality, offering emotional appeals and creating a relationship with its consumers. This concept of “evolving entity” describes the process that transform a product into a Brand. Figure 1.1: Twelve categories to define the word “brand” '()(&
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Source: Own elaboration To conclude this section, it is fundamental to have in mind the clear distinction between a product and a brand. This distinction is well explained by Stephen King (2004), who writes: “Product is something that is made in a factory; a brand is something that is bought by a customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless”. 16
1.1.2 Brand dimensions It is not possible to understand the meanings of Brand, without taking in consideration its dimensions. Brandy Equity is the sum of these dimensions. According to the explanation provided by Tresca (2006), Brand Equity is reached when a product, which offers positive experiences, generates constant purchases that, through time, become remarkable financial performances. Tresca identifies the Brand Equity as the sum of three different concepts, which refer to distinct economic areas: finance, marketing and production. From a financial perspective the Brand Equity is “the total value of a Brand as a separable asset” (Avis, 2009). From a marketing perspective it is “the strength of consumers attachment to the brand” (Avis, 2009), while from a production perspective it represents “the description of the association and beliefs about a brand held by consumers” (Avis, 2009). These three points of view represent respectively: Brand Value, Brand Loyalty and Brand Imagine. By summing these values we obtain the Brand Equity. BRAND EQUITY = BRAND VALUE + BRAND LOYALTY + BRAND IMAGE As observable in the above function, two main dimensions compose Brand Equity. An accounting dimension, represented by Brand Value, reflects the firm-­‐centric perspective. A consumer dimension, represented by Brand Loyalty and Imagine, represents the consumer-­‐
centric perspective. 1. BRAND IMAGE Brand image is the starting point of this three-­‐variables equation that generates to Brand Equity. It is also the first dimension of a consumer-­‐centric perspective. Tresca identifies six main attributes that contribute in the construction of Brand Image: Brand awareness, reputation, differentiation, energy, relevance and extension. 17
Brand awareness is reached when consumers are able to identify, recognize and recall a Brand. “Awareness can affect perceptions and attitudes” and even “it can be a driver of brand choice and even loyalty” (Aaker, 1996) Brand reputation is defined by Tresca as the percentage of consumers that posses a positive opinion about the Brand. Brand differentiation underlines the unique characteristics and specific attributes that create Brand’s personality, differentiating it from other Brands. The French scholar Kapferer specifies how personality can be realized, for example, by using specific style of writing, design feature and color schemes. Brand energy defines the ability of having and maintaining a winning image on market. Brands need to be competitive and up-­‐to-­‐date, otherwise the risk of being cut out from the market increases. Brand relevance involves “making competitors irrelevant by developing offerings so innovative that they contain “must haves” that define a new category or subcategory. The defining “must haves” can include characteristics such as personality, organizational values, social programs, self-­‐expressive benefits, or community benefits. However, each “must have” needs to be so appealing to a segment that an offering that lacks that characteristic will not be considered” (Aaker, 2012). Brand extension identifies the possibility of a Brand to extend its product offering to other categories of goods and services that are different from the core business. Leveraging consolidated brand equity attempts to avoid the risk associated with establishing a complete new Brand because the existing one is extend to new categories of products. 2. BRAND LOYALTY David A. Aaker (1991) defines brand loyalty as “a measure of the attachment that a customer has to a brand. It reflects how likely a customer will switch to another brand, especially when that brand makes a change, either in price or in product features”. Aaker, in his “Brand loyalty pyramid”, highlights five consumers’ behaviors that help to understand the meaning of loyalty. These five behaviors, ranging from “not loyal” behavior to “very loyal”, are: switcher, habitual buyers, satisfied buyers, brand likers and committed buyers. 18
Switchers represent the “not loyal” buyers. They easily move from one brand to another, depending on the advantages that they can gain. To avoid switchers and to reach habitual buyers, a company should focus on the awareness, of this type of consumers, respect to the specific brand name. Habitual buyers are the ones that buy a Brand “out of habit” (Aaker). At this level of the pyramid, consumers still change easily to another brand, if necessary. As Aeker suggests, marketing effort should increase the “threshold between the brand and other brands, which will create opportunities to make a consumer more loyal”. Satisfied buyers are not keen to change brand. This decision is taken because of waste of time, financial expenses and concessions to quality which consumers can incur in by moving to other brands. Brand likers are true brand enthusiasts. Their preferences are based on emotional benefits coming from certain positive associations or experience to a specific Brand. For committed buyers, a Brand plays a specific role in their lifes because it is close to personal values. They are proud users of a Brand (Aaker). Companies usually pay back this attachment thought activities as reward programs, loyalty cards or preferential treatment. 3. BRAND VALUE The above two concepts of image and loyalty describe the intangible dimensions of a Brand. There is a moment when this intangible assets turn to be tangible and consumer dimension meets financial dimension of Brand Equity. Brand value “is the ability of brands to deliver profits. A brand has no financial value unless it can deliver profits” (Kapferer, 2008). Kapferer explains that, despite all the social, psychological and philosophical definitions, historically brands were created for business purposes and are managed with a view to producing profit. 19
Figure 1.2: The dimensions of Brand Equity !"#$%&&'(#)*&
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1.2 History of the concept Previous paragraph shows how “Brand” is a complex concept and phenomenon. Many definitions explain its meaning and many dimensions characterize it. In this paragraph, an historical evolution of brand concept is presented, analyzing its role in three main ages: ancient time, industrial revolutions years and modern time. This historical review will help to understand why, still nowadays, we have many definitions and why scholars don’t reach a common conclusion and definition for this concept. The historical evolutions brought to the complex concept of Brand, as intended today. In his paperwork, Andrea Semprini (1996) identifies the first forms of branding in the ancient history, when a basic structure of production and supply activities were born. In ancient times, artisans were used to sign their vases, with symbolic engravings or geometric figures. The word “brand” derives from the Old Norse (ancient German language) and it means: to burn, mark and sign objects with fire to identify them. The purpose, behind this action, was to differentiate products from the ones produced by other artisans and to identify the production of one shop, respect to another. The reason why behind this action was not the competition against other producers, but simply the identification of products. Semprini thinks that these ancient forms of branding put the basis of four characteristics of the modern concept of Brand. 1. Branding to identify In ancient time materials, techniques and styles of production were the same for all the shops and thus it was required to identify the final product of each shop. This was essential, especially when the goods were commercialized all together in the same market place. The Brand was necessary to identify the origin of a product and understand who made a specific vases and in which shop. 21
2. Branding to differentiate Linked with the previous point, branding meant also “to differentiate”. The final production was standardized, due to the same materials, techniques and styles of production adopted by artisans. Differentiating the production, through marks and signs, was fundamental to distinguish product A from product B. 3. Branding to own Put a sign on the final product was perceived as a way to obtain legal rights over the commodity. This action was required especially when commercial transactions were more complex and dynamic, including third parties, who bought the items to sell them again, generating buying-­‐selling activities. Maintaining the legal right, until the product met the final consumers, was essential. 4. Branding to qualify It is during this historical period that the Brand (the Mark) became an instrument to identify good or bad quality products. During the buying-­‐selling activities, marks on goods allowed merchants and even final consumers, to understand advantages or disadvantages linked with certain products. This simplifies the trade activities because the players involved in the process knew the intrinsic characteristics of the items. In addition, the brand conferred certain qualities that didn’t belong to the product itself, but that came out from the production and trade activities. A reputation around the meaning of a specific symbol was created. During the industrial revolutions, from the second half of XIX century to the end of the First World War, the modern concept of Brand was born. Semprini (1996), in his dissertation, identifies five main factors that contributed to the creation of the modern concept of brand. 22
1. The mass production “Mass production” identifies the techniques of producing a large quantity of objects, at low cost, through a systematic organization of men and machines (Ricci, 2011). The craftsman productions were substituted with industrial and systematic productions of goods. When this process reached large scale, the need to identify and distinguish a product with a mark became more and more important. 2. The standardization of production As a consequence of mass production, goods became more and more standardized and the products produced had the same characteristics (S. Ricci 2011). The homogeneity in product demand facilitated the adoption of mass and standardized production. This phenomenon was initially observed in the textile industry, where, as Semprini observes, the steam machine transformed the handicraft into industrialized items. 3. The obscurity of trade Semprini underlines how, before industrialization, the trade activity was based on direct interactions of two main characters: the producer/trader and the consumers. With the industrial production, this relationship was dismissed. The product needed to make its value known, without the interaction of its producer. For this purpose the Brand was perceived as a useful instrument to identify, with a single sign, all the primary characteristics and qualities of an object. The brand tells directly to the consumers all the values of the product. 4. The complexity of distribution channel During the industrial revolution, the distribution channels become more and more complex. Once the production process was completed, the final product left the factory but it didn’t go directly to consumers. Third party interaction was required. Starting from the industrial revolutions, customers bought the same product in 23
different places (malls) and, at the same time, in a unique place they bought many different products. 5. The lack of consumers’ education The industrial production increased the products offering available on the market. Consumers met slightly different products from the one they were used to or even complete new products. Consumers needed to learn more about new products and the brand was a useful tool to inform and educate them. The industrial revolutions put the basis for the creation of modern Brand, but, only in the 20s’ of last century, the Brand was considered a commercial phenomenon. Semprini identifies two main aspects that contributed to the evolution of this concept: the “mass production” and the “mass consumption”. According to the Encyclopedia Britannica, where in 1926, the concept firstly appeared, Mass production is defined as the application of principals such as “specialization, division of labor and standardization of parts of the manufactured good”. This production process “attain high rates of output at low unit cost, with lower costs expected as volume rises”. Mass consumption is defined as a new phenomenon that, born in US after the economic crisis of 30s’, characterized all the economies in the second after-­‐war. It can be defined as a phenomenon “where not a few individuals, nor a thin upper class, but the majority of families enjoys the benefits of increased productivity and constantly expands their range of consumer goods”. Especially after the Second World War, firms were affected by constant increased of demand for differentiated goods and by strong competition. Consumers were no more satisfied with standardized goods and Brands became the key to differentiate the products and to compete against commercial enemies. In this economic environment, where Brands became more and more predominant in the society, Semprini underlines some new peculiarities of this “new market of Brands”: 24
1. The importance of innovation Consumers should perceive the differences in quality and value of goods, and the differences between branded products and “anonymous products”. For this purpose, research and development become key elements to develop high quality Brands. 2. The development of communication Communication activities helped to develop the identity and personality of brands. These activities include advertising, packaging, promotion, special activities inside the point of sales etc. 3. The role of consumers The role of consumers changed with the concept of brands. Nowadays consumers are perceived as key elements in the success of Brands. They are subjected to analysis to identify and understand their preferences, their opinions and their expectations. 4. The change of firm’s management Semprini observes, through ages, a shift from the products to the Brands, from the factories to firms and from industrial economies to commercial cultures. With the development of the Brand concept, also firms changed their structures and their components. New functions were developed: marketing, communication, market analysis (etc.) and new roles born: the Brand Manager. More and more firms are built around the management of Brands. 25
Figure 1.3: Historical evolution of Brand’s characteristics !"#$%&'(()'*"+,-%"./0'&1-0$,"-2'-3'4%/25''
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Each of these three historical periods put the basis to create the main aspects that nowadays characterize the concept of Brand. In ancient time, archaic forms of branding were adopted to identify, own, differentiate and qualify goods. During the Industrial Revolutions, branding became a way to contrast mass and standardized production, the complexity of trade and the lack of buyers’ knowledge. From the 20s’ of last century, branding started to acquire more and more power and key successful factors were (and are still today): innovation, communication, the role of consumers and the new form of management. 26
1.3 Types of Brand Previous two paragraphs present and define brand concept and its historical evolution. This last section of first chapter specifies the differences among types of Brands. There exists many types of Brands and scholars offer various classifications. The one proposed by Saviolo and Marazza (2012) is presented and analyzed in this paragraph. The two authors place five types of Brands within specific areas of a map, constructed upon two main variables: scope and benefits of brands. The last section examines how Brands can move within this map. Because they live in dynamic contexts, they evolve in time and space. Brands tend toward a specific direction and place, without remaining “stuck in the middle”. 1.3.1 Classification Saviolo and Marazza (2012) classify brands by taking in consideration two variables: competitive scope and types of benefits. The scope is defined as the number of market segments served by Brands (Saviolo & Marazza, 2013). According to the definition provided by Investopedia, markets segment is described as people sharing one or more characteristics: age, gender, price position, lifestyles etc. Each market segment is unique, presents common needs and has similar response. The scope of a Brand ranges from narrow to broad scope. When a Brand focuses on a singles market segment (i.e. a single product, consumer etc.), it has a narrow scope and it is defined as mono-­‐target Brand. By adding segments to its portfolio, it increases its scope (correlated targets) up to the point in which it reaches a broad scope. Here, a Brand serves uncorrelated segments with a wide range of products/services and it is defined as uncorrelated-­‐targets Brand. The type of benefits is explained according to the structure offered by Aaker. The author suggests three types of benefits: functional, emotional and social. Functional benefits refer to characteristics of Brands in term of functionality and usefulness. They are related with the ability of Brands to satisfy their duties and functions. For this reasons, functional benefits belong to all Brands: all Brands need to be functional. 27
Emotional benefits refer “to the ability of the brands to make the buyer or user feel something during the purchase process or user experience“ (Aaker, 2008). They identify the feelings that consumers have when buying a specific Brand. This type of benefits is characterized by a certain amount of subjectivity. Emotional benefits range from auto-­‐
directed benefits, designed for personal satisfaction and pleasure, to hetero-­‐directed benefits, which express the personality of consumers in social context. Social benefits allow a person to express the membership to specific lifestyle and community. As Aaker suggests (2008), a Brand becomes a driver to have friends and colleagues. Many Brands have the capacity and power to participate and even drive, social life of people. Figure 1.4: Brands map: the variables !"#$%!&'()*%&
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Source: Saviolo S & Marazza A. (2012) Lifestyle Brands. A guide to aspirational marketing The above chart shows how, by crossing the two variables, a major area of brands positioning is determined. The X-­‐axis defines the “benefits” that, as explained above, ranges from auto-­‐directed emotional benefits to social benefits, passing from hetero-­‐directed emotional benefits. They Y-­‐axis defined the “scope”: mono-­‐target, correlated targets and uncorrelated targets. 28
Moving along the axes, five types of Brands can be defined: Authority, Solution, Icon, Cult and Lifestyle Brands. 1. AUTHORITY BRANDS Authority Brands have mono-­‐target scope, meaning that they serve a narrow market segment, offering auto-­‐direct emotional benefits. Brands, positioned in this area, are authorities and leaders in their segments. Saviolo and Marazza (2012) suggest that this area is the starting point toward developing into other types of brands. Typically Brands origin from a niche where they have developed product/service and know-­‐how, becoming a recognized leader for that specific category. From this authority position, they move to other areas of the map, developing new product offerings, targeting new consumers etc. 2. SOLUTION BRANDS As for Authority Brands, Solution Brands offer auto-­‐direct emotional benefits but unlike them, they target broad market segments, serving different consumers through a wider selection of product and service categories. 3. ICON BRANDS Iconic Brands serve uncorrelated targets while hetero-­‐directed emotional benefits. Saviolo and Marazza define Iconic Brands as the “carriers of universal values and stories that they express through a range of products characterized by instantly recognizable and iconic codes”. For example, fashion brands are considered Icon Brands when they are able to overcome the boundaries of pure fashion, by offering iconic elements that make “them successful over time in product, communications and in-­‐store activities” (ex. Tiffany and Co., Chanel etc.) Because icons are timeless, their values and perception will last forever. 29
4. CULT BRANDS Cult Brands are related to a single category or a specific market segment and offer social benefits to specific groups of consumers that share certain values and passions. Cult Brands, unlike Authority Brands, don’t base their strength on the promotion of a single product experience but on the ability to create a sense of belonging through their adoption (Saviolo and Marazza, 2012). 5. LIFESTYLE BRANDS Lifestyle Brands are able to generate social benefits while maintaining and targeting uncorrelated categories. These Brands promote an ideology, dictate rules and indicate specific ways of life. According to the two professors of Bocconi University, Lifestyle Brands are able to combine social benefits with the ability to extend to more than one product category and go behind their core business. These Brands are able to express and define a specific point of view, promote attitude and opinion and inspire consumers. Figure 1.5: Brands map: five types of Brands !"#$%!&'()*%&
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Source: Saviolo S & Marazza A. (2012) Lifestyle Brands. A guide to aspirational marketing 30
1.3.2 How Brands can evolve As mentioned in previous paragraphs, Brands can move from one position to another within the map. Saviolo and Marazza (2012) assume that a shift of Brands in possible, through the different territories of the map, over time and across countries and culture. This is due to the fact that Brands live in dynamic contexts that allow them to evolve in time and space. As anticipated above, Authority Brand position can be considered as the starting point. Brands consolidate their product/service offering, becoming recognized leaders in their core business. A Brand doesn’t necessarily follow a specific direction in evolving through the territories of the map. Both vertical and circular paths in the map are possible. Moreover, the two authors suggest the possibility for Brands to cover different positions within the map at the same time. This depends on the perception that consumers, from different countries and culture, have about a specific Brand. It is crucial that Brands tend towards a unique direction and a specific place within the map, without remaining “stuck in the middle”. This is the only way to remain competitive and not to be cut out of the market. “Many successful brands fail to anchor themselves to a sustainable way of generating symbolic value for the consumer, remaining at the short-­‐term phenomenon” (Saviolo & Marazza, 2012). For example, this happens to Brands that remain victims of “fashion effect”. Their success is linked to single seasonal collections and temporary appreciation of consumers. They are not able to built strong brand awareness and thus strong brand equity. 31
32
CHAPTER 2 BRAND LICENSING This second chapter aims at presenting another fundamental notion for the development of this dissertation. It presents the concept of Brand licensing from two different perspectives. In the first paragraph, licensing is meant and explained as a strategy. In literature it is described as a tool to support brand extension, as a marketing technique and as a commercial activity. But why should a company pursue this strategy? The answer to this question comes from the identification of all the possible motivations that push companies to pursue this strategic behavior. As it emerges from analysis conducted by scholars, licensing has not yet finished to transform its structure. Still nowadays, it is facing changes that are pushing it towards a new era. New trends are identified and explained to understand where the licensing strategy is directed. In the second paragraph, licensing is presented as an industry. Licensing has strongly increased and consolidated through these years, becoming a real business, to the point that we can describe and discussed about it as an industry. More brands owners license and more companies enter the market as licensees for specific product categories. The structure of the industry is built, studying all property and product types that composed it. From this analysis a map of the industry is constructed. To complete the research, data and statistics are presented to understand the performance of this industry. 33
1.1 Licensing as a strategy Many companies, with consolidated Brand Equity, are motived to extend their brands beyond their core business activities. Usually pursuing this action internally is costly, risky and it requires capabilities that companies may not possess. Licensing becomes a useful tool to overcome these obstacles. In this section, licensing is first of all intended and explained as a strategy. Scholars define licensing as a tool to sustain brands’ extension, as a marketing technique and as a commercial activity. A pure definition is not enough to understand this concept. For this reason, motivations that push companies to pursue this strategic behavior are identified through the analysis offered by Feldman. Licensing has not yet finished to change and transform its structure. Still nowadays, it is facing revolutions that are pushing it towards a new era. New trends are identified and explained to understand where the licensing strategy is directed. 1.1.1 Defining licensing strategy As introduced in the previous chapter, “Brands and brand management play critical roles in determining a firm's long-­‐term performance” (Colucci et Al., 2008). Companies are motivated to extend their Brands within and beyond their original product categories and core business, leveraging on their consolidated Brand Equity. Extending a Brand using internal development requires resources, competences and know-­‐
how, which may be difficult and costly to acquire for companies. This obstacle can be overcome by licensing Brands. As Colucci et Al. (2008) explain “the use of licensing to sustain prestige and functional brands’ extension into new product categories is widespread”. Albanese (2001) defines licensing as “a marketing technique whose role within the communication strategy of many companies has evolved enormously in recent years”. Moreover he describes licensing as “a commercial activity that involves the temporary transfer to a third party of the right to use a name, image, brand or logo which as been officially registered and which is protected by the law. Upon compensation payment of a royalty, this right can be ceded to product manufacturers, service companies or firms 34
whishing to use it for advertising and promotional activities”. As understandable from the above definitions, two players are involved in this action: the licensor, the one granting the license, and the licensee, the one managing the license. Depending on the nature of the agreement, a firm acquires the rights to another organization’s brand against royalties. “The contracts between parties might differ in term of content (production or production and marketing) duration (from months to decades) and cost allocation between the licensee and the licensor” (Colucci et Al., 2008). Before and after having defined the agreement, both licensors and licensees have specific expectations about licensing and how this strategic activity should be conducted. In his article of 2010 Daye identifies some of the most common expectations that both players can have. The author suggests that, on one side, licensors expect a commitment from licensees to invest in the category they license. Investing means an engagement from licensees “to understand the essence of the brand” and thus reproducing this intrinsic nature on licensed products. In this way, a coherent link between licensed products and licensors’ core business is constructed and it will help “to connect with the consumers both functionally and emotionally” (Daye, 2010). Obviously licensors expect all the obligations of the agreement to be respected from licensee. This can include also commercializing products in authorized channels and meeting or (better) exceeding the projected sales targets. On the other side, Daye highlights how licensees expect the acquired license to provide sales growth, which might come from existing channels or from the opportunity to enter new ones. Moreover licensees hope to face positive attitudes from licensors that “will allow them to move quickly to take advantage of opportunities that present themselves” without wasting time, efforts and money to receive approval from licensors. During the years licensing has evolved, moving from an underestimated strategy to a powerful tool to boost the business. 35
Albanese (2001) identifies the first form of licensing in the early years of XX century, involving famous cartoons characters of that time (Buster Brown, Mickey Mouse and Snoopy). But in the 70’s, the real “licensing boom” took place in term of growth and professional, conceptual and geographical evolutions. Both Albanese (2001) and Bertolini (2012) highlight the fact that, in the last thirty years, licensing strategy has grown internationally, influencing different sectors and countries. As motioned above, characters and entertainment industries are the areas where licensing strategy is mostly adopted. It follows industries such as sport, fashion and arts. 1.1.2 Why pursuing Brand Licensing Licensing Industry Merchandisers’ Association (LIMA) suggests that “when well-­‐executed, a strong licensing relationship brings benefits to all parties to the deal. Each of those parties has its own goals and aims that ultimately adds value to the final product or service.” As a consequence, the main questions that come to mind when discussing about licensing are: why should a company peruse this strategy? What are the reasons why behind the adoption of this marketing tool? What are the goals and aims of each player? Albanese (2001) explains how licensing has become, for many companies, “an efficient marketing tools which allows them to strengthen the overall image of their product/service and reach segments that they would never be able to reach otherwise…It is an opportunity to position a Brand in otherwise unreachable market segments”. Following the categorization proposed by Feldman, three major economic areas are identified to classify all possible motivations behind the adoption of this strategy: marketing, financial and strategic motivations. 1. Marketing motivations For Licensors and according to Feldman, increasing brand awareness is one of the main motivations. As defined in previous chapter, Brand awareness is reached when consumers are able to identify, recognize and recall a Brand. Awareness affects perceptions and attitudes toward a Brand and even driver of brand choice and loyalty. Through licensing, it is possible to reach greater awareness by expanding the presence 36
of the Brand in new distribution channels, targeting new consumers, differentiating the Brand from competitors and increasing advertising levels. This latter opportunity is given by the fact that advertises and promotions of the licensed Brand are developed with the budget of the licensee, without impacting the budget of licensor. For Licensee, as expresses by LIMA, the primary marketing motivation is gaining the consumer awareness and marketing benefit of a well-­‐known Brand. For product manufacturers or service providers of licensed Brands, the most obvious benefit is the marketing power that products/services bring with them. An established Brand, exploiting the awareness and loyalty of existing consumers, will offer immediate advantages to the new licensed product in term of sales and growth. Easier than the same product offered with a new brand not recognized by markets. 2. Financial motivations For Licensor, the first financial motivation, identified by Feldman, is: “make money”. There are no doubts that companies pursue licensing for monetary purposes. As explained by Bertolini (2012) licensing is a “marketing tool that becomes an efficient asset to create and increase value”. A second motivation is the possibility to “grow the business”. Licensors has the opportunity via licensing to expand into new business sectors and areas, characterized by stronger margins than the core business. A third motivation is the possibility to “boost stock price”. By extending the presence of the Brand and creating more connection with new consumers, retailers and businesses, the market valuation of the Brand increases, providing advantages both for licensor and licensee. For Licensee, it can take strong investments (in term of finance, time and effort) to build a new Brand “from scratch”, while licensing represents a way to save money. Manufacturers take advantages of already existing brand awareness. 3. Strategic motivations For Licensor, Feldman identifies licensing as primary useful tool to reduce barriers to entry. When moving into new market segments and businesses, barriers to entry can be 37
very high and overcoming those can prove challenging for companies. They can face expenses in term of efforts, money and time. With this perspective firms need to evaluate risks, financial commitments and possible return they can incur in. Strategic alliances, such as licensing, help companies to reduce both costs and risks and, at the same time, overcome the barriers to entry. Another motivation is that a successful brand extension via licensing increases the barriers to entry because a winning alliance between licensor and licensee generates strong competitive presence in that specific sector, building barriers for other companies. Licensing becomes a good way to test relationship between both players. As Feldman (2010) explains “well-­‐matched licensing partnership tend to evolve into more comprehensive relationship…with licensor and licensee sharing important information about each other’s business” and “licensing paves the way for future alliance”. For many companies licensing is a strategic tool to remain focused on the core business that is in line with the corporate and strategic directions. Licensing helps Brands’ owner to develop manufacturing, marketing and financial knowledge in areas that are sometimes totally outside their core ones. A last motivation to adopt licensing is the possibility to expand in new territories. Licensing is a quick and easy strategy to enter in new geographic areas. Bertolini (2012) explains that, due to globalization, licensing becomes more and more international. Licensors gain the possibility to see their properties in different markets all over the world. Without investment, licensors have the possibility to expand their Brands in different geographical areas, overcoming legal, political, cultural and social barriers that they could have met by perusing and individual extension. For Licensee, one of the main strategic motivations is the possibility to enhance authenticity and credibility. Leveraging on strong, famous and high quality Brands help manufacturer to increase their perception on the market because its company is associated with those specific successful Brands. 38
Figure 2.1: Motivations to pursue licensing !"-./0'112'3)*"+$*")#,'*)'4./,.0'&"%0#,"#-'''
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Source: Own elaboration In the above analysis, all the motivations and thus the advantages of licensing are presented. This strategy extends Brands’ presence in new product categories, distribution channels and new geographical domains. It supports business growth in term of financial gains and increased consumer targeting. But licensing may face also disadvantages. Brand management is a complicate activity that brings many threats and challenges. It needs to promote messages and concepts that are consistent and integrated within the company and with its core strategy. The risk of inconsistency strongly increases as soon as brand management is transferred to other companies. Albanese (2001) explains that if the licensee, enjoying the right to attach the Brand of the licensor to its articles uses low-­‐quality product or is involved in some form of scandal, the brand image will suffer. This type of damage is difficult to correct since it was not caused directly by Brand’s owner. Another difficulty, which companies may incur in, is the right choice of both partners and merchandise categories. Especially the latter must have a close affinity with the Brand and its related values. Colucci et Al. (2008) identify other disadvantages and risks of licensing. Licensed brand extension may dilute the Brand’s name and incongruent extension might have negative consequence on consumers’ perception. Negative associations might arise 39
from stretching the brand into new and different product categories that are not aligned with the core values of the licensor, or from the reduction of the firm's control over the brand management under a licensing contract. Moreover, licensing a brand creates an inter-­‐
firm relationship that often exposes the licensor to the risk of opportunistic behavior. 1.1.3 New trends shaping licensing As mentioned above, first forms of licensing were born in the early years of XX century, but only in the 70’s, the real “licensing boom” took place. In the last thirty years, licensing strategy has grown internationally, influencing different sectors and countries. Still nowadays, licensing is facing many changes that are pushing it toward a new era. Allan Feldman (2010) identifies trends that are now shaping this business tool. 1. Licensing programs are becoming more strategic and tailored. Feldman mentions how in past years, brand licensing was perceived as function of promotional activates and as a secondary branches of marketing departments. For these reasons, initially many Brands were given away “for free”, especially for apparel and toys product categories. Many of these licensed Brands incurred in opportunistic behaviors of licensees, which exploit them up to the point in which many of those brands were damaged. Feldman (2010) underlines how “licensing is becoming a more pro-­‐active, strategy-­‐
driven business” and “for a program to be successful in the long-­‐term, targeted categories must make unique sense for the brand”. This means that first of all, licensing requires the identification of the correct category to apply brand extension. After having identified it, the product requires to have a strong affinity with the Brand in order to build coherence and consistency with brand owners. 2. Licensing is facing professional development. Licensing is becoming more and more part of the corporate life and it is receiving the attention of higher management levels. Feldman (2010) notes that inside companies true licensing professionals are taking charge and they are positioned in top management ranks. He highlights that major corporations are creating new chief 40
licensing officer position. They often direct licensing activities in all areas related with the licensed brand. This is strictly related with previous point. Licensing is involving more and more strategic issues and thus professionals, who are required to conduct the business. 3. Licensing is more and more a competitive weapon. Licensing is used as a competitive advantage in different forms. As discussed in previous paragraph, one motivation that pushes companies toward licensing is the possibility to increase barriers to entry a specific market. In these ways companies prevent competitors by getting into attractive new business before them. Another motivation is the possibility to differentiate production and thus differentiate the Brand on respect to the others. It means also building superiority and building consumers impressions. 4. Licensing is emphasizing product quality The importance of quality control on licensed products and process is strongly increasing. Feldman underlines that new clauses have been included in licensing agreements, such as licensees’ obligation to inform brand owners. This obligation represents for brand owners a strategic tool to audit the processes and activities conducted by licensees. Not only from a qualitative perspective but also from a quantitative one. More and more it is asked to licensees to share financial and sales information with the licensors. In this way it acquires more strategic notion about the performance of its license brand. 41
1.2 Licensing as an industry As understandable from previous paragraph, licensing strategy has been consolidating through these years, becoming a real business. More brands owners license and more companies enter the market as licensees for specific product categories. This strong consolidation of the strategy allows at defining and discussing about licensing also as an industry. Price Waterhouse Coopers (PWC) in collaboration with International Licensing Industry and Merchandisers’ Associations (LIMA) conducted a survey that highlights the most important characteristics of this industry. In the specific, the survey analyses the Italian licensing industry that present similar structures and trends of the global licensing industry. For the purpose of this dissertation, the specific analysis of Italian industry was preferred. The first section presents the structure of this industry, analyzing al property and product types that composed it. The second section aims at presenting data and statistics that are characterizing this industry and its performances. 1.2.1 Structure of the industry To analyze and map the structure of licensing industry, property types and product types, which characterized this industry, are identified. In the survey, property types are defined as “forms of intellectual property which can be merchandised or licensed to other companies” (Italian Licensing Industry Survey 2012). These property types can be identifies with those industries that pursue more licensing. Product types “are the products sold which use property types. Hence they can range from t-­‐shirts and bags to food and beverage” (Italian Licensing Industry Survey 2012). In accordance with what emerged in previous paragraphs and as Figure 2.2 shows, property types that characterized licensing industry are: characters/entertainment, celebrities, fashion, sport, art, corporate and brand names. 42
§
Characters and entertainment Characters and entertainment licensing present properties coming from movies, television shows, videogames and online entertainment. According to LIMA, it is the most recognized licensing business by the general public. Don’t forget that this was the first sector seeing the adoption of licensing strategy in the early years of XX century. Mickey Mouse, Snoopy and Buster Brown were the first characters to be licensed. As Figure 2.2 shows, these categories (names or image from entertainment or media services) are licensed to create a wide range of product types such as: accessories, apparel, food, personal care products, publishing, video, toys and merchandising. Always in reference with the definition provided by LIMA, these product types are mostly addressed to child target but it is increasing also the attention toward adult target, leveraging on the so called “nostalgia factors”. §
Fashion “The licensing of designer fashion names and brands into product categories such as apparel, fashion accessories, health/beauty products and home goods” (LIMA). During a licensing agreement, designers/fashion-­‐houses are responsible for providing inspiration and design direction, while the production and distribution of the product are in the hands of licensees. As LIMA highlights, most of the time fashion licensing is invisible to consumers, who don’t even consider that a licensee is making the products that carry the designer’s name. In this case, the licensing program is well executed because the brand owner is able to maintain strict control over design, quality, and the licensee manufactures. The Brand image is maintained coherent within all product categories. As understood in the first chapter, quality and design play key role for many Bands, especially in the fashion industry. They drive consumers’ perception and thus revenues and success. This strategy is mainly used by designer and fashion house to extend their Brand toward product categories that can be both distinct or in line with the core business. These products types could be: outwear or intimate apparel, accessories (belt, headwear, eyewear, watches, bags, shoes) beauty products (fragrances, cosmetics) home fashion and even toys. 43
§
Sport Lagro & Rampinini (2012) refers to sport licensing as a global business, due to the popularity of sports all over the world. The two authors of the survey relate this property types to individual athletes, associations or leagues. The product types generated vary from accessories to apparel, from food to personal care, from publishing to general merchandising and toys. According to LIMA Licensing, the sport industry is growing very fast, becoming one of the four main revenues producer in the licensing industry. The licensed product offering varies from apparel, house accessories to food and beverage. §
Art LIMA defines the art licensing as relatively small compared to the above major categories of licensed properties. But this property types is increasing its importance in the worldwide licensing industry, thanks to the ability to target specific niches, year-­‐
round profit potential and moderate costs in which it incur. Art licensing includes everything from individual artists to well-­‐established businesses that create art and design. Their works are specifically licensed to decorate a wide range of products, including prints, home décor, housewares, home textiles, publishing, apparel and general merchandising. §
Corporate Name It refers to the licensing of a company name, logo or brand. It “is one of the fast growing segment in licensing business” (LIMA). It allows strategic, marketing and financial advantages for both parties. It is also one of the sectors that offer wide spread of product categories: accessories, apparel, food and beverage, household goods, publishing, toys and merchandising. In its survey PWC suggests: “for such companies, licensing and royalty revenues are not the core business element… they are able to take advantage of opportunities through licensing products”. 44
Figure 2.2: Map of licensing industry .&&())/%0!
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1.2.2 Performance of the industry The journalist Galvan, basing her article on data and statistics published by EMP Communication Inc., presents a picture of the value of licensing industry. According to the latest data that refers to 2011 performances, the global value of licensing product was around $149.8 Billion. The value of licensing product refers to revenues obtained through the sales of products realized though licensed Brands. The largest market in licensing industry in USA that accounts for around 62% of global value, gaining $ 92.87 Billion. Europe follows accounting for the 22% of this pie with a value of around $ 32.9 Billion. Western countries still dominate the market, even if emerging economies are more and more present in this market. Feldman (2010) presents, in his article, this phenomenon as one of the ten main trends that are characterizing and shaping the licensing industry. The author highlights that China is “emerging as the world’s faster growing market for licensed goods”. This phenomenon not only is related to the general economic growth experienced by the country but also with the type of consumer that is rising. As suggested by Feldman, Chinese consumers are more willing to pay premium for branded goods, on respect to western consumers. Among emerging economies, also Brazil, Russia and India are experiencing growth in branded licensed product sales. Going back to the analysis of industry performances, Italian value of licensing product sales is around $4.5/5 Billion and it accounts for 15% percent of the total European values that is around $ 32.9 Billion. Italy gains the forth place in European market preceded by Germany ($ 5.8 Billion), France ($ 6.5 Billion) and UK at the first place ($ 7 Billion) 46
Figure 2.3: Value of licensing industry !"#$
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Source: Own elaboration (Data from: “Italia al quarto posto nel mercato del licensing”, January 2014) In previous paragraph “Structure of the industry”, different property types and product types are analyzed. It seems useful to understand the weight of this property and product types in licensing industry. According to the data published by Galvan, at the international level the two main property types that generate the higher returns are “fashion” and “characters/entertainment”. In Europe, on average, “fashion” accounts for the 29.8% of revenues, while “characters/entertainment” accounts for the 22.3%. The performances of Italian market are above the European performance. In Italy “fashion” generates the 33.3% of revenues while “characters/entertainment” generates the 23.2%. The performances of Italian licensing market (European market in general) are almost aligned with what the US market is facing. LIMA identifies “Characters” and “Corporate names” and “fashion” as the property types that largely contribute to market performances. 47
With regard to product types, the Italian market presents good performances of categories such as apparel, accessories and toys. They are the key product types of the country. Food and beverage, publishing, health and personal care and household goods follow them. According to the results emerging from the “Italian Licensing Industry Survey 2012”, apparel, accessories and merchandising are the three product types that are experiences growing in the latest years. In the next chapters a focus on licensed fashion brands in the eyewear industry is developed. As a consequence, it is interesting to present an insight on “fashion” property type and how weight its specific product types. From “Figure 2.2: Map of licensing industry”, it emerges that product types for fashion are: apparel, accessories, toys, home-­‐
fashion and beauty and personal care products. According to the dat a collected and analyzed in the “Italian Licensing Industry Survey 2012”, fashion property type is sold mostly through accessories and apparel that account respectively for the 54% and 44%. Figure 2.4: Product types in Fashion property type !,,-&#.(
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Companies, participating to the survey contacted by Lagro and Rampinini (2012), provide their personal view and opinion about changes and trends that are shaping their industry. They notice that, despite the economic crisis, new companies and industries are entering the market. This can be mainly connected with what described in previous paragraphs. Licensing is a useful tools and strategy that, if performed correctly, will provide numerous advantages to both parties involved (licensor and licensee). It will provide marketing, financial and strategic advantages. The other trend highlights is that long-­‐term agreements, which are increasing in numbers among licensors and licensee, will enable to receive higher level of royalties. This trend is probably due to the fact that creating long-­‐term agreements reinforces the relationship between parties, granting better and more solid results. This observation is in line with the result emerging in the Italian market. According to the latest new from LIMA, in the Italian markets the value for royalties as increased from 350 Million Euro in 2011 to 450 Million Euro in 2013. 49
50
SECTION 2 The second section of this dissertation aims at presenting the results of the research conducted during a personal 7-­‐months working experience in the licensing and marketing department at Safilo Group. This section is supported by the concepts presented and analyzed in the previous two chapters. Chapter 3 presents the landscape of the research. The eyewear industry represents an optimal landscape to concretely study the trends that are shaping and characterizing licensing strategy. Financial performances, drivers of the demand and main actors are analyzed to provide a complete picture of the research. It follows a presentation of the two main players of the analysis: Safilo Group, as licensee, and Fashion Groups, as licensors. Chapter 4 aims at understanding the new strategic directions that companies are undertaking in the eyewear industry. Three fundamental trends are identified from literature and starting from those, many questions raise in mind to analyze the specific case of the eyewear industry. The chapter demonstrates how licensing strategy has changed in the years and what tools the players have used to implement and integrate this strategy. The description follows of the reasons behind these changes. In the last chapter of this dissertation, a latest historical event for licensing and eyewear is presented. The case of Kering Eyewear is presented and consider as a possible starting point for evolutions that would change the rules of the game in the industry. Some possible explanations are also presented. 51
52
CHAPTER 3 THE SCOPING PERIMETER The dissertation focuses on the analysis of licensing strategy in the eyewear industry. As a consequence, the first step to proceed consists in the analysis of this industry. The aim of this paragraph is to present the landscape of the research. The first paragraph describes the structure of the eyewear industry, which represents an optimal landscape to study concretely the trends that are shaping and characterizing licensing strategy. Financial performances, drivers of the demand and main actors are analyzed to provide a complete picture of stage of the research. From the analysis, it emerges how Brands have critical roles in this industry, due to the fact that specialists in the eyewear industry design, manufacture and distribute their own Brands, as well as licensed Brands. For this reason, a specific analysis is dedicated to the market structure of Brands inside the eyewear industry. The second and third paragraphs present the two main players of the analysis: Safilo Group, as licensee, and Fashion Groups, as licensors. Safilo is one of the major companies of this industry, while MaxMara Fashion Groups, Kering and Moët Hennessy Louis Vuitton represent the leading groups that are dominating the industry, owning a portfolio of prestigious Brands, well known and appreciated all over the world. Profiles and structures of these companies are presented to understand the main features and elements of the organizations. A focus is dedicated also to the Brands that are licensed to Safilo by major Fashion Houses. 53
3.1 The eyewear industry The eyewear industry represents a perfect landscape to study concretely the trends that are shaping licensing strategy. The industry is analyzed presenting its structure, the factors that drive the demand for optical frames and sunglasses and the leading companies of this sector. As emerged in the previous chapter, in the majority of the cases, Fashion Houses license their Brands to produce accessories, which include also eyewear. Because Brands have relevant roles in this industry, it is possible to create a segmentation of the market in order to categorize them. 3.1.1 Industry analysis The eyewear industry refers to the design, production and distribution of optical frames and sunglasses. Different factors drive the demand of the above two market segments, as highlighted in the analysis conducted in 2012 by Databank. On one side, the optical frame segment presents constant growth due to the increased number of optical diseases and the increased attention to prevent those. The causes of this can be found in lifestyle changes and increased life expectancy that are characterizing our generations. In recent years the optical segment is also experiencing a “fashion factor” that influence positively the overall performances of the market segment. The product is becoming more and more a fashion accessory, rather then a medical instrument. On the other side, the sunglasses segment is characterized by seasonality and unpredictability. Seasonality refers to the fact that sunglasses sales experience better performance during summertime, while unpredictability suggests that the success of sunglasses collections are strictly related with fashion trends that are often unpredictable. Regarding the performance of this industry, market sources estimate the global value of the market to be around $36 Billion with an expected growth up to $56 Billion in 2020. According to data provided by Safilo Group, the wholesale market, that in 2014 accounted for €16 Billion ($17.7 Billion), grew at about 3-­‐4% over the past three years and it is expected to reach a value of €20 Billion ($22.2 Billion) in 2020. The CEOs of eyewear leading companies identify the factors that are driving the positive performances of this industry. They present demographic changes as primary motivation. 54
An increasing middle class all over the world is interested in eyewear accessories, while higher rate of education and longer life expectancy are increasing the demand for optical frames. A second motivation is the international expansion that the biggest players are experiencing in emerging countries (Brazil, India, Russia etc.) and this boosts the performances of the overall industry. A third highlighted motivation refers to new distribution channels, emerged in last years, which influence the growth of this market. Among them, digital channels create further opportunities to grow in this sector. The eyewear industry presents few large companies and hundreds of small firms. Five major specialists are dominating the market, designing, developing, manufacturing and distributing their own Brands, as well as licensed Brands, obtained through deals with famous Fashion Houses. •
Luxottica, founded in 1961 by Leonardo Del Vecchio, has been the leader of the market for more than fifty years. It presents a portfolio of Brands that includes both property and licensed Brands. Property Brands include Ray-­‐Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples, Alain Mikli and Arnette. Among licensed brands it is possible to find names as: Giorgio Armani, Burberry, Bvlgari, Chanel, Coach, Dolce&Gabbana, DKNY, Michael Kors, Paul Smith, Ralph Lauren, Prada, Starck Eyes, Tiffany, Tory Burch and Versace. In 2014, the company generates over €7.6 Billion ($8.4 Billion) that comes for 57% from retail and for 43% from wholesales. •
Safilo Group, founded in 1934 by Guglielmo Tabacchi, designs, produces and distributes eyewear products under license agreements as well as under its own brand names. Property Brands are Safilo, Carrera, Polaroid, Smith Optics and Oxido. Licensed Brands are: Bobbi Brown, Hugo Boss, Celine, Dior, Fendi, Fossil, Gucci, Jimmy Choo, Juicy Cuture, Kate Spade, Marc Jacobs, MaxMara, Max&Co, Pierre Cardin and Tommy Hilfiger. In 2014, the sales reported by the company were around €1.17 Billion ($1.29 Billion) experiencing an annual growth of 5% respect to previous year. In September 2015, Safilo have announced two new licensing agreements signed with Elie Saab and Havaianas. 55
•
Marchon is a US company founded in 1983. It manufactures and distributes eyewear under licensed Brands such as Calvin Klein, Chloe’, Lacoste, Karle Lagerfeld, Nike, Salvatore Ferragamo, Valentino e Nine West. The US company possesses Brands as Airlock, Marchon NYC, Flexon, Kiss&Kill, Tres Jolie, Tanos e Ventana. In 2014, the company generates around €1 Billion ($1.11 Billion) •
De Rigo brothers founded the company in 1978 as a small artisan company with only few workers. Nowadays the company produce eyewear collections under the name of famous licensed Brands as Blumarine, Chopard, Furla, Tous, MomoDesign, Carolina Herrera, Escada, Lanvin, Orla Kiely, 1000Miglia, Fila, Loewe, Zadig&Voltaire and house Brands as Police, Lozza and Sting. The company closed 2014 financial year with around €375.5 Million ($416.8 Million). Recently, De Rigo vision is expanding its business by signing new licensing agreements with famous Brands. In June 2015, the company signed a new agreement with Nina Ricci and the agreement has become effective in September with the launch of the first collection. In July, De Rigo and Trussardi signed a new collaboration for the design, production and distribution of eyewear collections of the Italian brand. The latest news confirms that in September a new agreement was signed also with the British brand Dunhill. •
Marcolin, founded in 1961 by Giovanni Marcolin Coffen, presents a portfolio of Brands that includes Agnona, Balenciaga, Catherine Deneuve, Diesel, Dsquaed2, Emilio Pucci, Ermenegildo Zegna, Gant, Guess, Harley Davidson, Just Cavalli, Mont Blanc, Swarovski, Timberland, Tod’s, Tom Ford and Web Eyewear. In 2014, the sales reported was around €362.1 Million ($401 Million). In September 2015, the company signed a new five-­‐years licensing agreement with Moncler. 56
3.1.2 A market for Brands Brands have critical roles in this industry. As mentioned above, specialists in the eyewear industry design, manufacture and distribute their own Brands, as well as licensed Brands. Brands, which enter this market, are different among each other in term of price range, target consumer and distribution channels. It seems useful to understand how their presence in the market can be organized and to do this the segmentation structured by Safilo Group is presented and analyzed. Figure 3.1: Market structure for Brands Source: www.safilogroup.com The above figure presents many variables that need to be considered. Starting from left, the type of product and the relevant price are considered. A product can be “mass produced”, offered at low price (€30) or “crafted” and thus a very exclusive and handmade product, offered at higher price (also above €300). Proceeding in this analysis, the market has been segmented along a vector of “consumer expectation”. It identifies consumer preferences that go from “detached” to “fashion 57
addicted”. On one side, detached experience is typical of those consumers that perceive the eyewear as essential to correct optical diseases or useful to satisfy a specific need (ex. to practice outdoor sports). On the other side, an addicted consumer is someone attracted by brands name and he/she uses eyewear products to be different and stand out. The eyewear is perceived as an essential accessory that completes the look. On the right side of the picture, the variable “distribution” is considered, from mass to exclusive distribution. By crossing these variables, five main categories of Brands are identified: mass/cool, sport and outdoor, contemporary fashion and lifestyle, fashion luxury and atelier Brands. §
Mass/cool Brands present mass-­‐produced products and mass distribution that allow to offer the product on the market at a price below €100. Consumers attracted by this type of brands are active, compliant and sometimes also addicted. §
Sport and outdoors Brands are addressed to consumers that are more detached toward Brands. This type of consumers considers more important the technical features of the eyewear rather than the fashion name on it. For the technicality of products consumer are willing to go to specialized stores and pay a price even above €300. §
Contemporary fashion and lifestyle Brands are new categories emerging in latest years. Fashion and luxury products attract more and more consumers but not all of them have the same purchase power. This new segment presents Brands with fashion and luxury style products but they are offered at affordable price. §
Fashion luxury Brands present exclusive, hand-­‐made and crafted products for which consumers are willing to pay premium price. The distribution of these Brands is more selected and exclusive in order to distinguish and make a Brand unique. §
Atelier Brands can be considered the top among Brands. They are exclusive and unique in all their aspects: production process, distribution channels adopted and price. 58
3.2 Safilo Group As emerged from the previous chapter, when discussing about licensing strategy, two main players are involved: the licensor and the licensee. In the research conducted for this dissertation, Safilo Group plays the role of licensee. Safilo has been a leading company in the eyewear industry for more than eighty years. In this paragraph its profile and structure are presented to understand the main features and elements of the organization, while its strategy and business model are analyzed to understand in which direction the company is moving to. 3.2.1 Company profile and structure Safilo (Societa’ Anonima Fabbrica Italiana Lavorazione Occhiali) was founded in 1934 when Guglielmo Tabacchi acquired the company “Societa’ Anonima Ulisse Cargnel & C.”, the oldest Italian producer for optical lenses and frames. Nowadays, Safilo is the second largest manufacturers of eyewear products worldwide in term of turnover, it is the leader in the high-­‐luxury product segment and it is among the top three manufacturers and producers of sport sunglasses. In the eyewear industry, Safilo was the first company to enter the stock market in 1987. In 2009, HAL Holding N.V. underwrote an investment agreement with Safilo S.p.a and Only 3T and, the same year, the Board of Directors approved a recapitalization plan for the Company. In 2010, Multibrands Italy B.V. (a subsidiary of HAL Holding N.V.) became the reference shareholder of Safilo Group. Today HAL Holding N.V, through its subsidiary Multibrands Italy B.V., owns 41.7% of the Company while Only 3T S.p.a owns 9.1%. The remaining 49.2% of share capital is on the market. Safilo’s portfolio presents 5 property Brands: Safilo, Polaroid, Carrera, Smith and Oxido, and 27 licensed Brands: Dior, Fendi, Gucci, Bobbi Brown, BOSS, BOSS Orange, Céline, Fossil, Givenchy, Jimmy Choo, Juicy Couture, Kate Spade, Marc Jacobs, Marc by Marc Jacobs, Max Mara, Max&Co., Pierre Cardin, Tommy Hilfiger, Banana Republic, J.Lo by Jennifer Lopez, Jack Spade, Liz Claiborne and Saks Fifth Avenue (the last five Brands target only the American market). Today, licensed Brands account for 75% of sales performances while property Brands account for the remaining 25%. 59
The picture below shows how Safilo positions its property and licensed Brands, according to the market segmentation proposed and analyzed in the previous paragraph. Figure 3.2: Market structure for Safilo’s property and licensed Brands Source: www.safilogroup.com As it is possible to observe, the majority of Brands are concentrated in the “contemporary fashion and lifestyle” and “fashion luxury” segments. Safilo concentrates on the production of crafted eyewear products that, as a consequence, are presented to the market with higher prices and through a more exclusive distribution. In line with this picture, Safilo claims to possess “mastering capabilities” as a strong heritage, creative design studios and a “magic process” that allow the company to create innovative and unique products from the point of view of design, structure and materials adopted. Looking now at the structure of the company, Safilo possesses seven factories, three of them in Italy and four International (China, US, Slovenia and Scotland). Through its 31 subsidiaries, 170 independent distributors and 4 centralized distribution centers (located in Padova, Italy, Parsippany,NJ, Denver,CO and Hong Kong) Safilo distributes its products to 130 countries all over the world and through 90,000 points of sales, which include opticians, optometrists, ophthalmologists, three retail chains, department stores and special retailers. 60
It has six design studios, each of them developing specific product lines: two design studios in Padova,Italy with focus on “fashion luxury” brands, the design studio in Portland,OR is in charge of “sports and outdoor” brands, the studio in Milano,Italy designs models for “mass/cool” brands while New York,NY studio focuses on “Lifestyle” brands. The sixth design studio will be open soon in Shanghai, China. Figure 3.3: Safilo profile !
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The above picture summarizes the profile of the company, including also financial performances. It is possible to observe that Safilo is performing well respect to previous years. In 2014, the sales reported by the company were €1,178.7 Million. The 55.4% comes from sunglasses, the 36.6% from optical frames while the remaining 8% from sports accessories. Looking at the performances of each geographical area, in 2014 Europe and Americas had almost the same weight, accounting respectively for the 41.3% and 42% while Asia accounts for the 15% of the sales. 3.2.2 Business model and strategy Safilo presents a wholesale-­‐oriented business model and it directly controls all the activities of the value chains: design, research and development, production, marketing and communication, sales and distribution and logistics. §
Design has a strategic function for Safilo, especially in the development of products positioned in the high-­‐end segment of the market. This first activity of the value chain consists of designing frames and combining colors and materials for the creation of new models. The products are characterized by high degree of complementarity because sunglasses are more linked to fashion trends, while optical model are linked to demographic needs. §
Research and development refers to the creation of new materials, production processes and technologies that are able to increase product performances as resistance and durability. §
Production process is both external and internal. On one side, internal production takes place in one of the four property factories and it begins by scheduling the production plan on a weekly basis, according to the production needs received by the Planning department. During the process, the Purchasing office is responsible for purchasing raw materials such as resin, steel, acetates, metals, lenses and cases. Three main activities bring to the finished product. During “processing phase” the structure of the frame is composed using, as references, prototypes developed by the design team. During “treatments phase”, the frames are painted or treated with various finishes/coatings. In the last “production phase”, the products are assembled and completed with related accessories. 62
On the other side, external production is carried by a limited number of third-­‐party manufacturers, primarily located in Italy, Asia and USA. The decision to assign the production to a contractor is based on parameters related to the quality of the product and special production requirements. §
Marketing and communication activities include both direct activities addressed to consumers and trade marketing activities addressed to the points of sale. All activities and communication materials related to licensed brands are agreed with the licensors. Licensing agreements provide obligations for licensee, which allow licensor to benefit from the advertising and promotional activities that the licensee carries out. An example is the obligation to invest, in communication activities, an amount related to net sales of previous year. §
Sales and distribution are mainly focus on wholesale channels, with a customer base of over 80,000 retail stores in 130 countries. This distribution channel includes opticians, optometrists, ophthalmologists, distribution chains, department stores, specialized retailers and stores of the licensors, duty free and sport shops. §
Logistics is based on the main distribution center located in Padova, Italy. The Group also operates other minor distribution centers, each serving their assigned geographic area. In March 2015, the Board of Directors published the five-­‐year strategic plan that sets the foundations for the creation of a long-­‐term consolidated Company growth. Safilo identifies four strategic pillars that will reinforce its business models. The first strategic pillar is the balance between market segments, property and licensed Brands, geographical areas and distribution channels. The second pillar focuses on “Brand building” through an increased attention at design and commercialization to create a long-­‐term competitive advantage for Brands. The third strategic pillar aims at simplifying production processes, logistic and cost structures through the modernization, standardization and integration of processes. The last pillar looks at diversifying Safilo from the other companies through a business model based on new market segments, sales support, customers support and talent development. 63
3.3 Fashion Groups This paragraph presents three main Fashion Groups and related Fashion Houses that license their Brands to Safilo, for the design, production and distribution of eyewear collection. As a consequence, in the research, Fashion Groups and Houses are intended as licensors. When discussing about fashion Brands, MaxMara Fashion Groups, Kering and LVMH represent the leading Groups that are dominating the industry, owning a portfolio of prestigious Brands, well known and appreciated all over the world. 3.3.1 MaxMara Fashion Group MaxMara Fashion Group (MMFG), founded in 1951, is a private company owned by Maramotti family. It is one of the most famous international fashion groups, born with the idea of creating “haute de gamme” female wearing through industrialized process. Its collections represent the concept of “pret-­‐à-­‐porter”. Starting from the production of coats and tailleur, today all product categories are produced as accessories and complementary tools to complete the look. In 2014, the Fashion Group generated global turnover of around €1.3 Billion. The Group is present in 105 countries worldwide with more than 2,300 mono-­‐brand stores and 10.000 multi-­‐brands points of sales. The Group presents a portfolio of nine Brands: MaxMara (1951), SportMax (1969), Weekend MaxMara, Max&Co (1986), Marelle, iBlues, PennyBlack, Marina Rinaldi (1980) and Persona. MaxMara and Max&Co. are the two Fashion Houses that license their Brands to Safilo for the production of eyewear collections. 64
Figure 3.4: MaxMara Fashion Group profile !"#$#%"$&'()*+&,*'
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MaxMara MaxMara is the main Brand of the MMFG, accounting for the 60% of its turnover, with a wide distribution network: 605 boutiques worldwide. The Brand is a true expression of femininity and timeless elegance. MaxMara products represent modernity, tradition, elegance and simplicity. All these elements are reinterpreted in the eyewear collections, combined with high quality materials and modern design. 65
The first MaxMara eyewear collection, in collaboration with Safilo, was launched in 1998. It is one of the oldest Brands belonging to Safilo’s portfolio. The intent was to convey the image of elegance and finesse that brings inspiration from other product and accessories lines of the Brand. MaxMara eyewear targets modern women, aged between 35 and 60 years, financially independent, that are looking for elegant and sophisticated features with classic details. The price positioning of optical and sun collection ranges from €150 to €200. Safilo places MaxMara among the “fashion luxury” Brands. The products are sold all over the world, with particular reference to the European and the Far East markets. §
Max&Co. Max&Co. is a retail project of MaxMara Fashion Group, targeting fashion-­‐conscious young women, aged between 20 and 35 years. Sun and optical collections, produced by Safilo since 2006, are perceived as fundamental accessories that complete the look. Its eyewear collections are characterized by impeccable and sophisticated design, modern frames, original colors and advanced materials. The Brand belongs to the category of “contemporary fashion and lifestyle” Brands with a price positioning between €99 and €150. 3.3.2 Kering Kering, a family-­‐owned listed company, is considered a worldwide leader for luxury and fashion apparel and accessories. Its strategy primarily focuses at the organic growth of its current Brands, through the entrance in new markets, the reinforcement of their presence in mature markets and the development of distribution networks and channels. Among its portfolio of Brands, the Group presents names as: Gucci, Bottega Veneta, Saint Laurent, Alexander McQueen, McQ, Balenciaga, Brioni, Christopher Kane, Stella McCartney, Tomas Maier, Sergio Rossi, Boucheron, Dodo, Girard-­‐Perregaux, Pomellato, Qeelin, Ulysse Nardin, Puma, Volcom, Cobra, Electric and Tretorn. In 2014 the overall Group generated revenues of €10+ Billion, owning 1186 directly operated stores all over the world. 66
Since 1988, four main Fashion Houses of the Group have licensed their Brands to Safilo for the design, production and distribution of eyewear. Figure 3.5: Kering profile !
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§
Alexander McQueen It is synonymous of modern haute couture, creativity, innovation, tradition and provocation. The eyewear collections, produced by Safilo since 2004, leverage on the alternative DNA of the Brand, with distinct design and directional styling, including iconic details. It is addressed to sophisticated consumers, characterized by trendsetter and fashionable approach. The price ranges from €220 to €300 (and more). Alexander McQueen is placed among the top “fashion luxury” Brands. §
Bottega Veneta Bottega Veneta declared €1,131 Million in revenues for 2014 with accessories accounting for 2% of the turnover. The Brand is synonymous of highest craftsmanship, finest materials and innovative design. The eyewear collection, produced by Safilo since 2003, is consistent with the Brand’s excellent quality. The collections target women and men with high expectations in terms of quality, details and design. The Brand is characterized by the same positioning of Alexander McQueen: the price ranges from €220 to €300 (and more) and Safilo placed it among the top “fashion luxury” Brands. §
Gucci In 2014, Gucci generated €3,497 Million in revenues with around 505 directly operated stores worldwide. The accessories account for the 10% of the overall company’s performance. Gucci is one of the oldest Brands licensed to Safilo, with the first agreement signed in 1988. The Brand represents the excellence of the Italian traditional craftsmanship, combining modernity, technical innovation, past and future. As a consequence the eyewear collection is modern and unconventional, maintaining the elegance and luxury that characterize the Brand, as well as its iconic symbols. The eyewear products, sold worldwide, target men and women with high price positioning that ranges from €200 to more than €300. As Alexander McQuenn and Bottega Veneta, Gucci is among top “fashion luxury” Brands. 68
§
Saint Laurent In 2014, Saint Laurent generates €707 Million in revenues with 128 directly operated stores worldwide. Product category, as accessories, accounts for the 10% of the overall performances. The eyewear collection, on the market since 2001, has strong personality and a distinctive identity. The collection is designed for sophisticated fashion consumers. The Brand can be positioned between two segments: “fashion luxury” and “contemporary luxury”. 3.3.3 Moët Hennessy Louis Vuitton LVMH (Moët Hennessy Louis Vuitton) is considered the worldwide leading Group for luxury products. It possesses 70 prestige Brands that can be grouped in four main areas of business: wines and spirits, fashion goods, perfumes and cosmetics, watches and jewelry and selective retailing. In 2014, the Group generated €30+ Billion and Fashion goods accounts for the 35% and it possesses 3,708 mono-­‐brand stores all over the world. Among fashion Brands, the Group present names as: Berluti, Celine, Dior, Louis Vuitton, Loewe, Loro Piana, Emilio Pucci, Givenchy, Kenzo, Donna Karan, Thomas Pink, Marc Jacobs, Edun and Nicholas Kirkwood. Five major Fashion Houses license their Brands to Safilo with the purpose of designing, producing and distributing eyewear collections. §
Fendi All the distinctive elements of the Italian Brand, as the “savoir faire”, craftsmanship and innovation, are fully transferred in the eyewear collection. Precious materials, refined details, daring color combinations are the key elements. The collaboration between Safilo and Fendi is quite recent. The first agreement was signed in 2014. Safilo placed the Italian Brand among its “fashion luxury” brands with a price position between €250 and €400. The eyewear collection addresses sophisticated, feminine and elegant woman. 69
§
Celine Celine collaborates with Safilo since 2011. The eyewear collection combines the highest quality and research standards with the notoriety of one of the most influent Brands in the market. It is located among the top “fashion luxury” Brands. It is intended for sophisticated modern consumers, looking for both quality and distinctive style. §
Dior Dior, together with Gucci, is one of the best performing Brand in Safilo portfolio. The first collaboration between the two company started in 1996 and the French Brand is positioned between the top “fashion luxury” Brands. The eyewear collections attract consumers thanks to the sophisticated shapes, which are inspired by vintage concepts and the exceptional world of Haute Couture inherent to the brand’s DNA. The collection is mainly aimed at a female consumer aged 25 years or above with high price positioning that can reach €250. §
Givenchy The agreement between Givenchy and Safilo is recent and the first eyewear collection will be on the market in January 2017. The Brand is positioned among the top “fashion luxury”. §
Marc Jacobs The brand is positioned at the high-­‐end of the luxury market. The Marc Jacobs eyewear collection, produced since 2004, presents sophisticated image, underlined by the top quality materials and scrupulous attention to details. The collection targets women and man between 25 and 45 years old and the price positioning ranges from €200 to €310. In 2006, Marc by Marc Jacobs was introduced with the main purpose of covering the other market segment that Marc Jacobs was not able to attract. The new American Brand target young teenagers thought its affordable price position (from €100 to €200) and its unconventional, cutting edge and rebel attitude. 70
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Up to this point, the landscape and the main actors of the research have been presented and analyzed. The figure below summarizes the interaction, in term of licensed Brands, between Fashion Groups and leading companies in the eyewear industry. As it is possible to observe, the majority of Brands, owned by these Groups, are licensed to Safilo for the design, production and distribution of eyewear collections. LVMH licenses seven brands to Safilo, Kering licenses four brands, while MaxMara Fashion Group only two brands. At first sight, it emerges that the brands portfolios of these Fashion Groups have different dimensions and weight for their business. This will bring companies to act in different ways and play different strategies with respect to licensing. In the following chapters, these different attitudes and the relationship between Safilo, Brands and related Fashion Houses is analyzed in more detail to highlight the main trends that are characterizing and shaping this industry. Figure 3.7: Fashion groups’ licensed Brands &'()*+%
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CHAPTER 4 THE EVOLUTION OF LICENSING IN THE EYEWEAR INDUSTRY The first section of this dissertation presents some trends, identified in literature, that are shaping licensing. Starting from those, many questions raise in mind. This chapter aims at understanding the new strategic directions that companies are undertaking in the eyewear industry. The information collected comes from a research and analysis conducted during a personal 7-­‐months working experience in the licensing and marketing department at Safilo Group. The first trend specifies how more and more companies are adopting and reinforcing licensing agreements. But, has Safilo increased the number of licenses in its portfolio? Are these licenses newly introduced or taken from competitors? Have Brands renewed their licensing agreements? A second trend follows: licensing is becoming more proactive, strategic and tailored. As a consequence a question comes to mind: have fashion houses increased their presence and influence in the activity process conducted by Safilo? Finally, a third trend highlights that licensing is emphasizing product and process quality. But, in Safilo, have licensors increased the control over product and process quality? Which tools they adopt to pursue this objective? The first paragraph of this chapter provides answers to the above questions, analyzing how licensing strategy has changed in the years and what tools have been used by players to implement and integrate this strategy. The second paragraph highlights the reasons behind these changes. Why brand licensing in the eyewear industry has grown so rapidly in recent years? What are the motivations that push companies to implement this strategic tool in their business? 73
4.1 Three main trends Not long ago, companies perceived licensing as a secondary activity of their marketing departments. However, in accordance with Allan Feldman (2010) “from its humble beginning, brand licensing is evolving into a big and a serious business”. Things have changed and brand licensing is experiencing evolutions that are renewing its nature. This paragraph shows how three main trends are affecting the eyewear industry and what tools companies adopt to integrate and implement licensing in their business. 4.1.1 More adoption One of the main trends emerged in literature, highlights how licensing is becoming a tool adopted by more and more companies: they see, in this strategy, new opportunities to boost their businesses. Especially in fashion industry, licensing has always been a way to pursue brand extension. As mentioned in previous chapters, this has allowed Fashion Houses to rapidly access new product categories and expand their consolidated names beyond their core businesses. As the journalist Amy Spiezio highlights in her article, licensed eyewear is a key pillar both for companies and for the industry. The previous chapter already shows that leading companies in the eyewear sector combine both property and licensed brands in their offering. The analysis, conducted on Safilo Group and its licensed Brands, specifically highlights that more and more companies have entered the eyewear market by licensing their Brands. Figure 4.1 presents all the Brands that, through the years, were and still today are part of Safilo’s portfolio. As it is possible to observe, all the expired and renewed licensing concessions are placed in a time line and the figure shows which fashion houses licensed their Brands to other companies before or after the collaboration with Safilo. The history of Safilo’s licensed brands started in 1983 when the company obtained its first license: Gianfranco Ferre’. Before 1995 only few companies licensed their Brands to Safilo and they were the most famous and well performing fashion names of those years: Gucci and Polo Ralph Lauren from 1988, Pierre Cardin from 1991, while Diesel and Burberry from 1994. 74
For the next five years and before 2000, only few fashion houses entered the eyewear market by licensing their Brands to Safilo. Among them there were Dior and MaxMara in 1996. The XXI century experiences a boom of companies entering the market by adopting licensing strategy. Between 2000 and 2010, more than a dozen of Fashion Houses licensed their names: Kate Spade and Fossil in 2000, Saint Laurent in 2001, Giorgio Armani in 2002, Bottega Veneta and Stella McCartney in 2003, Boucheron, Alexander McQueen and Marc Jacobs in 2004, Boss and Juicy Cuture in 2005, Max&Co. in 2006 while Jimmy Choo and Balenciaga in 2007. Some Brands enlarged Safilo’s portfolio also after 2010: Tommy Hilfiger in 2000, Celine in 2011, Bobbie Brown in 2013, Fendi in 2014 and the last brand, signing an agreement, was Givenchy starting the new collaboration from next year. It is easily observable that the decade, between 2000 and 2010, represents the golden age, not only for Safilo and its portfolio, but also for the eyewear market as a whole. The sector experienced the entrance, for the first time, of new fashion and luxury brands, enhancing the prestige of the market. Proceeding with this analysis, it is fundamental to underline an important concept that surfaces. Among the twenty-­‐eight major brands that belonged (or still belong today) to Safilo since 1983, only seven of them were previously licensed to other eyewear manufacturers. All the other Brands were newly introduced in the eyewear market. Safilo has always been famous for its portfolio of licensed Brands: they are the strengths of the company accounting today for 75% of the overall performances. Among the Brand that Safilo won from its competitors, it is possible to find Hugo Boss, Celine, Fendi, Givenchy, Giorgio Armani, Tommy and Valentino. Italo Cremona produced since 1972 eyewear collection for Valentino, one of the oldest brands on the market. Boss, from 1995 to 2005, licensed its name to Charmant, a Japanese manufacturer of eyewear products. Fendi entered the market in 2005 but its license previously belonged to Marchon, as well as Givenchy that was formerly licensed to De Rigo from 2001 to 2014. Giorgio Armani, in 1988, was the first Brand signing a licensing agreement with Luxottica, while Viva International launched the first collection of Tommy eyewear in 2003 when the first agreement was signed. 75
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This analysis highlights that licensing in the eyewear industry is a strategy that has been adopted by an increasing number of companies through the years. Even if some brands were previously licensed to other companies, the majority of them enter the market only in recent years. As mentioned, in the decade between 2000 and 2010, the market experienced the introduction of completely new brands. This increased use of licensing can be explained by looking at the changes that have characterized fashion industry and, as a consequence, the eyewear one. On one side, the late entrance in the market is linked with the relative young age of some companies. In many cases, the year of foundation of the maisons is after 1985. For example Max&Co. was founded in 1986, Alexander McQueen in 1992, Kate Spade in 1993 as well as Marc Jacobs, Jimmy Choo in 1996, Juicy Couture in 1997 and Stella McCartney even in 2001. As a consequence, these newborn fashion houses needed to reinforce their names, before expanding beyond their core businesses, and this requires time. As emerged in literature, adopting brand extension toward different product categories required a well-­‐established name to increase the possibility of success. This can be one of the main reasons why some companies enter the eyewear market only in the last decade. On the other side, even if some fashion companies were founded even in the first half of the XX century, they entered the market only in most recent years. Companies as Balenciaga founded in 1914, Bottega Veneta in 1966, Fendi in 1925 and Givenchy in 1952 extended their names to eyewear collections around or after 2000. A possible explanation to this can be the nature of these fashion houses. Balenciaga, Bottega Veneta and Givenchy initially were born as “haute couture maison” offering prestige product categories and targeting specific types of consumers (movie stars, royalties etc.). They were more atelier and niche brands. But once the nature of this fashion houses changed also their attitude toward different markets varied. As emphasized in the article published on the magazine World Trademark Review, licensing in the fashion industry has recently exploded and “trademark owners have become increasingly savvy to the market potential of brand extensions (…) Fashion Brands need always to tell new stories and make new communication”. The journalists underline how “trademark licensing facilitates brand extensions that can ensure that shoppers have ways of consuming brands even when they are not buying into that brand’s core category”. 77
As already mentioned, sunglasses and optical frames are experiencing a “fashion factor” that influence positively the market. The product is becoming more and more a fashion accessory, rather than a medical instrument to prevent and treat diseases. As a consequence, the eyewear industry represents an attractive and risk-­‐averse sectors for luxury and fashion Brands. From one side, scholars underline how more and more companies are adopting licensing strategy, on the other side, they also highlight how licensing agreements have been reinforced in years. Licensors and licensees consolidate their relationship by stipulating new agreements once the old are expired. From the analysis conducted in Safilo, in many cases it is possible to observe how licensing agreements have been renewed several times during the whole period of concessions. MaxMare represents a perfect example to examine this trend. The Italian Fashion House is one of the oldest companies that licensed its Brand to Safilo for the design, production and distribution of its eyewear collections. The first agreement was signed in 1996 and during these twenty years of collaboration, the two companies renewed three times the relationship. The first agreements ended in 2006 and a second one was immediately signed for an additional period of six years. In 2012 a third contract was stipulated with expiration date in 2019. In the figure below it is possible to observe how Alexander McQueen, Hugo Boss, Bottega Veneta, Dior, Fossil, Gucci, Jimmy Choo, Juicy Couture, Kate Spade, Marc Jacobs, Max&Co, Pierre Cardin, Saint Laurent and Tommy Hilfiger are examples of licensors that renewed their agreements with the licensee for at least one more term. It is easily understandable that for the above-­‐mentioned brands, licensing and the partnership with Safilo are winning strategies that need to be confirmed and renewed to maintain the competitive edge. 78
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At first sight, some Brands might represent exceptions to the above discussion. Some of them ended their relationship with Safilo after years of collaboration. Brands, like Balenciaga, Burberry, Diesel, Giorgio Armani, Polo Ralph Lauren, Stella McCarteny and Valentino, didn’t leave this market but they moved their licenses to other eyewear manufacturers as Marcolin and Luxottica. Possible motivations to this action are presented and described also in literature. First of all, as mentioned by Feldman, licensing is “an easy way to test the affinity between partners before getting involved in a deeper relationship that could be difficult to terminate”. Another reason is the fact that more and better licensees characterize this industry. In the specific case of eyewear industry, companies strongly compete to win “the brand game” and obtain the licensees that allow them to gain prestige on the market. 79
4.1.2 More proactive, strategic and tailored A second trend examines how licensing is becoming more proactive, tailored and it is gaining strategic relevance inside companies. As mentioned in the first section of this dissertation, in the past years companies had different approaches with respect to licensing programs. As Feldman (2010) suggests in its paper: “Previously, prospective licensees would knock on a brand owner’s door, requiring permission to license the brand and it would be considered or not. This was primarily opportunistic licensing”. Even if this concept seems basic, it underlines how licensing programs were in the past. In the last years this approach has changed: all the players (licensors and licensees) have understood the importance of developing more strategic and tailored approaches to build successful programs in the long-­‐term. This evolution of licensing took place also in Safilo and the below analysis shows how the Group and its licensors built up new structures. For the development of this analysis, data and information are collected taking in consideration the specific case of MaxMara, but the outcomes of this research can be extended, more or less, to all the other Brands belonging to Safilo portfolio. Figure 4.3 represents how the activities, required to develop a collection, are scheduled during a period of one year. More precisely they identify the actions taken respectively by Safilo, MaxMara or by the collaboration between the two, to develop January eyewear collection. In the figure, the activities newly introduced are identified. Two main groups of activities are required to develop and bring to the market a new collection: the activities concerning the physical creation and production of eyewear models and the marketing activities. As it is possible to observe in the below chart, two new actions have been recently introduced among production activities and one among marketing activities. This trend and the previous described are linked together: the renewed agreements, signed in years, provided opportunities for the introduction of new activities. Taking as reference the case of MaxMara, the fashion house has been able to introduce new activities, through additional clauses in the renewed agreements. The main objective of 80
MaxMara is the possibility to increase its presence and relevance in the production process and marketing activities of eyewear collections. The licensors want to be integrated in the process to be aware and aligned with what happening to its licensed brand. As anticipated, on one side two main activities as been introduced in the production process: the sketches review and the collection approval. The chart below shows how, before the introduction of these activities, Safilo and MaxMara collaborated at the beginning and at the end of the process, respectively during the discussion about the input book and the approval of samples. Between these two activities more than six months run. The new operations introduced allow Safilo and MaxMara to have mid-­‐term meetings to be aligned on the progresses of the collection. For both players they are useful tools to early combine the desire and expectation of the fashion house with what produced by Safilo. On the other side, an activity has been introduced in the marketing process: the marketing campaign. Only in recent years, Safilo and MaxMara jointly execute the marketing campaign, in order to align the communication of eyewear collection with the one for the other product categories. MaxMara and Safilo have started to use the same testimonials for eyewear and the core product categories (coats, dresses, etc.). In addition, MaxMara has started to introduce the eyewear collection in its ready-­‐to-­‐wear campaign, which is the one used to create brochures for boutiques and the digital campaign for the corporate website. In this way all product categories speak the same languages on the market and they tell the same story to consumers. The eyewear collection presents the same DNA and identity of the fashion house. 81
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Figure 4.3: Activities to create a collection Source: Own elaboration 82
It follows a description of the main activities represented in the above figure. On one side, production requires twelve activities for the development of a collection: from the inspiration to the finite product. §
The input book comes from the fashion house and it contains all the guidelines that Safilo needs to follow. The eyewear collection has to be in line with the stylistic development that the fashion house is adopting for the other product categories. In this way sun and optical products have an affinity with the Brand DNA. The input book contains the information regarding: stylistic trends, mood board, inspiration and the file rouge of the new collection. It contains also samples of fabrics, materials and accessories that could inspire the eyewear designer. §
The commercial briefing is developed by the licensing department of Safilo and it is only for internal use. It is an analysis highlighting the current situation of the market: trends affecting the eyewear industry, competitive analysis and information about latest collections performances. The information, emerged from the analysis, are used to structure the new collection in accordance with what required by the external environment. §
The sketches review is an activity recently introduced. It is a mid-­‐term meeting between Safilo and Fashion Houses to align on the first collection drafts developed by designers. It is a tool recently required by licensors. It is a way to coordinate step by step the development of the new release that needs to be perfectly aligned with the core collection of the Brand. §
Design review (DR1) and collection reviews (CR1 and CR2) are internal activities conducted by the licensing department in collaboration with product department. During the design review all the technical drawings are analyzed and a cost of production is estimated. In the case in which this cost is too high on respect to what budgeted by the brand manager, the technical drawing is adjusted and modified to be sure that the profit margin will be met. Collection reviews anticipate and follow the design review with the main purpose of aligning the collections with all the date and 83
input coming from the performances of the collection currently on the market. It is important to highlight that these three activities take place after five/six months from the beginning of the years, when date about the performances of the current collection on the market are available. §
Collection approval, activity recently introduced, aims at identifying the final models that will belong to the release. A number of prototypes are presented to the fashion house that chooses among them the final models that will be produced. For example, for MaxMara collection, Safilo usually develops 36 models and among them 20 will be selected to be in the final collection. §
Once the first slot of production is completed, Safilo proceed with the technical certification sample (TCS), certifying the correct execution of production process: materials adopted, colors, finishing (etc.). Once the samples are certified, they receive the final approval by the Fashion House. On the other side, marketing is supported by five main activities that allow the finite product to reach the market and consumers. §
Advertising models are chosen by the joint collaboration between Safilo and the Brand. Once the models are identified, the Fashion House proceeds with the construction of the advertising campaign in order to have all product categories aligned and speaking the same marketing languages. §
Safilo and MaxMara jointly develop the marketing campaign, determining how to present the collection to the market. They decide together the tools that will be used to create in store visibility: displays, window customizations, special events to promote the collection etc. §
Marketing plan and marketing budget are businesses for Safilo. Depending on the allocated budget, the manager plans all the yearly activities that will sustain the product and the Brand. 84
4.1.3 More emphasis on performances The third and last trend discusses about the relevance that companies are giving to performances of their licensed brands, in term of product and process quality. Allan Feldman (2010) writes: “New clauses have been included in licensing agreements, such as adding licensees’ obligation to inform brand owners”. From the previous section, it emerges how fashion houses are more and more physically involved in the creation process of a collection: they participate in more activities with respect to the past and they have more decisional power in the collection creation. If the previous section highlights the increased presence of companies in the upstream process, this section discusses about the desire of companies to obtain more and more information regarding the downstream performances. Fashion houses aim at having an overall picture of their licensed brands. With the renewals of licensing agreements, fashion houses were able to add clauses, not only regarding the introduction of new activities, but also asking to share more and detailed data. New reporting activities have been introduced to satisfy this requests. The research conducted explains this trend through the analysis of the reports that Safilo shares with licensors during the year. The analysis is presented and summarized in figure 4.4. All reporting activities are listed and grouped according to the types of information shared: sales, distribution, marketing and general information. In addition, the chart presents how many times a year Safilo shares them. As for the previous paragraph, data and information are collected taking in consideration the specific case of MaxMara but the outcomes can be extended also to the other brands. During the years, fashion houses have integrated licensing strategy in their core business by increasing their presence in the activities and by obtaining more information about the performances of their licensed brands. Five reporting activities newly introduced have been identified. Safilo shares two new sale reports: the monthly order report and the closeout report. Before last agreement renewal, Safilo was used to share with MaxMara the sales report, sent each month, where the brand manager summarizes the monthly sales performances 85
for optical and sun models in each business unites: Europe, Asia and America. Another information, usually shared, is the annual report certified by an external auditing agency. On the results, emerging from this report, royalties are calculated. In addition to these, the two above-­‐mentioned reports have been introduced. The order report, sent each month together with the sales report, highlights the order for sun and optical models in each business units. By comparing the two reports, fashion houses and Safilo are able to understand how many pieces are ordered and how many are actually sold to clients. The second report introduced is the closeout sales report, sent once a year. It identifies the models that Safilo offers to the market with a discount. Today, clauses in many agreements impose a maximum quantity of models that can be “on sale”. The main reason behind this is the fact that fashion houses don’t want to lose the exclusivity of their brands and adopting discounts on products can damage the image of luxury and fashion brand. Regarding marketing, Safilo is used to share, once a year, the cost for marketing activities. For all brands, obligations in the agreements exist that impose to spend certain amounts in marketing activities. The amount changes between brands: it can vary from 7% to 10% of the current budget or last year revenues. Together with this, a new marketing report has been introduced: special projects reports. Two times a year, the licensing department and its managers plan and execute in-­‐store events for the promotion of new collections. Usually these events are executed for stores and clients that best performed in the sales of a Brand. First of all the activity is organized in collaboration with the fashion house that approves the overall event organization. Once the event ends, brand managers report to the fashion house its performances: opinion of clients and customers and number of models sold. This information are useful for both players to understand and have a first look on how the brand and in particular the new collection are perceived by clients (opticians) and customers. For many years, Safilo has shared general information about the performances of active collections and the summary reports of the meeting with fashion houses. Two new activities regarding distribution have been introduced only in latest years. Fashion houses are more and more interested on data and information about the distribution of eyewear collection. 86
Doors reports, sent once or twice a years, informed about the performances of doors. They identify clients; more precisely one door corresponds to one shop. In these reports, data about the number of active, inactive and new doors and the rolling (the average number of models sold) for each door is analyzed. The information of current years is compared with previous year performances to observe if the trend is increasing, decreasing or equal. Usually this analysis is conducted for key countries on which, Safilo and fashion houses want to improve the distribution strategy. Discount retail report informed fashion houses about discount retailers where Safilo would like to sell products. As mentioned above, discounting is a tricky topic for fashion houses because they are afraid of losing or diminishing the prestige of their brands. As a consequence they want to approved discounter and the models that will be sold to them. !
Figure 4.4: Reporting activities 0#.&8!)&+5)1!
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4.2 Reasons of the evolution From the previous section, it comes out that brand licensing is experiencing evolutions that are renewing its nature. There are many reasons behind these changes but from the research conducted in Safilo, two main explanations have emerged. This quick and impressive growth of licensing is mainly linked with the purpose of companies to support their brand identity and to contrast competition. 4.2.1 Reinforce brand identity Companies are integrating and strategically supporting licensing to pursue one main objective: reinforcing their brand identity. Taking in consideration the case of MaxMara, some years ago the Italian fashion house experienced a period of struggles and the brand image suffered a lot. With the main desire of restoring that situation, the higher management levels of the company decided to change the direction of their business, including more attention and relevance to their licensed trademarks. To reinforce its image, Maramotti family, owner of MaxMara Fashion Group, asked Safilo to execute three main changes in term of: product, distribution and communication. §
Product Licensing is no more perceived only as a primary tool to make money. Especially for fashion companies, the main purpose is tailoring the product. The licensed product has become a competitive weapon to carry on the brand DNA. For this reason, as previously emerged, fashion houses are more involved in the activities conducted to create eyewear collection. The licensed product has to speak the same language of the brand. All product categories are presented to the market with a unique image and they tell the same story to consumers In the specific case of eyewear, sun and optical frames have become tools to expand the brand because they have the possibility to penetrate the market. They are product more affordable from a price perspective, and thus, by reaching an increased number of consumers, they extend the brand in the market. 88
§
Distribution As highlighted in previous paragraph, fashion houses have increased their attention toward distribution channels. They want their products to be placed in the right points of sale, which increase the prestige of their brands. Distribution channels are perceived as tools to address the product with the correct image toward the correct types of consumers. For this reason, as mentioned above, most of the time discount retailers are badly perceived, especially by fashion houses because they can change the perception of the brand. If a product, which promotes a luxury brand, is sold with discounts, consumer’s perception and reputation about the brand might change and the overall fashion house can suffer for this. With the purpose of increasing brand identity, Safilo and fashion houses are collaborating to built joint business plans with the boutiques. Until now, the potential of mono-­‐brand boutiques was underestimated but it can bring two main advantages. On one side it allows fashion houses to complete the product offering inside their mono-­‐
brand stores, providing costumers with a total look, from head to toe. On the other side, by entering directly in the boutiques, Safilo has the chance to obtain direct profit avoiding cost of distribution, such as the cost of sales force. §
Communication Another tool to reinforce brand identity regards the communication of licensed products. Advertising images on some pages of magazines are no longer sufficient. Special projects and ad hoc activities are required to talk about the product in all its aspects: from technical features to stylistic principals. The purpose is to create, for the first time, a brand building starting from the accessories (eyewear) to address, in a second step, consumers to the brand. No more a one-­‐way road from brand core business to the accessory. But the accessories become tools for consumers to meet and experience the brand, to be later addressed to the core business. An example can describe better this new approach. Twice a year, the licensing department of Safilo organizes the “MaxMara Days”. These special events take place in April and October to promote, respectively, the new summer 89
and winter collections and they are organized in the best performing points of sales. They are special days entirely dedicated at promoting MaxMara eyewear collections. The points of sale are customized and special experiences for customers are organized. Because MaxMara eyewear addresses women, aged from 30 to 60 years, cocktail parties, make-­‐up/air-­‐style activities and collection presentations are conducted. These activities allow clients to meet the brand through its eyewear collection. They are informed about news from fashion house world. Moreover, if a client purchases MaxMara sun or optical models, she receives a voucher to be used in any MaxMara boutiques. In this way, optician clients are addressed to boutiques where they can meet and experience all the other product categories. From the above discussion, it emerges how brands are strongly focus on maintaining and reinforcing their images also by leveraging on their licensed products that becomes competitive tools integrated in their core business. 4.2.2 Competition The other reason why companies are evolving licensing and, linked with the above paragraph, why they are reinforcing brand identity is to contrast competition. As previously emerged, more and more companies entered the eyewear market in years. This not only means that more companies adopt licensing but it highlights how the eyewear market is characterized by strong and high level of competition. In the analysis conducted in Safilo two different types of competition emerged. On one hand, the licensors face the competition represented by different fashion houses that enter the market with their prestigious names. On the other hand, Safilo faces the competition represented by the other eyewear leading companies that obtain the licenses, designing, producing and distributing eyewear collections under prestigious brand names. MaxMara and Max&Co. brands explain this need of contrasting competition. MaxMara targets a specific market segment: women, aged from 30 to 60 years, with a price position of eyewear collection between €150 and €200. 90
As Figure 4.5 shows, the main competitors of MaxMara in the eyewear segment are: Burberry, Ralph Lauren, Versace and Salvatore Ferragamo. They are four strong fashion brands, well known in the market and with consolidated names. The competition is strong and some of these brands were on the market long before the introduction of MaxMara. Versace entered the market in 1978, while Ralph Lauren in 1988. MaxMara signed the first agreement with Safilo in 1996, two years later than the first Burberry eyewear collection and two years before the entrance of Salvatore Ferragamo in the eyewear market. In addition to this, it is fundamental to underline how, today, these brands are designed, produced and distributed by other eyewear companies, which compete against Safilo to obtain more market share. In the specific case: Burberry, Ralph Lauren and Versace license to Luxottica while Salvatore Ferragamo to Marchon. Figure 4.5: MaxMara competition !
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The same happens for Max&Co, which targets young women, aged from 20 to 35 years, with a price position between €99 and €150. Max&Co. has been on the market with Safilo since 2006 and it faces the competition of brands as: Diesel, Guess, Vogue and Liu Jo. The first eyewear collection of Vogue was introduced in 1990 and Luxottica produces it. Diesel entered the market in 1994 and today it collaborates with Marcolin, as well as Guess that presented its first eyewear collection in 2004. Marchon has produced eyewear collection for Liu Jo for two years. Kate Spade, on the market since 2000, is the only brand that can be considered an “internal competitor” because designed and produced by Safilo. Figure 4.6: Max&Co. competition !
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As a consequence, both Safilo and MaxMara Group are fighting an “eyewear war” that requires their collaboration. On one side, Safilo needs to consolidate its licenses to contrast the competition of Luxottica, Marcolin, De Rigo e Marchon and to gain market share. On the other side, MaxMara Group needs its brands to be consolidated also in the eyewear market, in order to reinforce its image by exploiting other product categories different from its core ones. For this reason, both licensors and licensee see the importance of reinforcing the licensing strategy by collaborating and coordinating their actions to built a unique strong brand that can contrast the competition. 93
94
CHAPTER 5 THE FUTURE OF LICENSING Up to this point, licensing is presented as a strategy that is evolving, becoming more strategic and relevant for companies. As emerged from the analysis conducted at Safilo, in the years an increasing number of companies have adopted licensing, tailoring this strategy in accordance with their core businesses and needs. Nowadays, something is changing. In a report published in November 2014 by Exane BNP Paribas, the three authors describe this changing as nothing less than an “eyewear revolution”. They assume that the decision of the French fashion group Kering, to create a new eyewear division, will change the rules of the game in the industry. Starting from this historical event for licensing and eyewear, some questions come to mind: Is the industry facing a revolution? Will the relationship between licensors and licensees change from now on? Will this decision put other licensees under pressure? Will they follow the new strategy of internalization? It is not possible to provide definite answers to these questions, but it is possible to think and assume possible consequences of this strategic action. The first paragraph of this chapter presents the case of Kering, which can be considered as a starting point for these changes. It is important to understand where this transformation came from. Some possible explanations are also presented and analyzed. The second paragraph discusses the possible consequences. In a first step, the specific case of Safilo and eyewear industry is considered and analyzed. While in a second step some personal considerations are presented. 95
5.1 A new revolution From the report published in November 2014 by Exane BNP Paribas, a specific case is presented and analyzed. The paper describes a revolution that will probably change the rules of the game in the eyewear industry. 5.1.1 The case In 2014, a new division of Kering Group was established: Kering Eyewear. The main purpose of the Group is to create a dedicated eyewear company grouping together expertise in design, marketing, production and distribution for the majority of the Group’s brands. According to the corporate website: “The goal of Kering Eyewear is to integrate one of the fastest growing categories within accessories in order to better support the expansion of the Group’s brands in the Eyewear sector, helping them to exploit their full potential.” This has strong consequences for Safilo. By the beginning of 2016, the eyewear collections of Gucci, Bottega Veneta, Saint Laurent and Alexander McQueen will be designed and distributed directly by Kering. For production, a two-­‐years collaboration has been agreed between Safilo and Kering, with the possibility of future renewals. Safilo moves its role from licensor to production partner. To pursue this objective, which means ending the relationship with Safilo two years earlier the contractual agreements and take back the ownership of its brands, Kering Eyewear incurs in substantial costs. The French Group will pay to Safilo €90 Million to terminate the licensing agreement and €50 Million per year for the next two years, as a royalty income. Even if these costs seem high, they are just portions of what Safilo is actually loosing. Last year, Safilo generated €350 Million from the eyewear collections of Gucci, Bottega Veneta, Saint Laurent and Alexander McQueen. These four Brands account for 20% of Safilo’s turnover. This event has already consequences on Safilo’s strategic decisions. The eyewear Group has announced the decision to invest more on property Brands, with the target of valuing them more on respect to the licensing brands. As mentioned in previous chapter, in Safilo today licensing accounts for 75% of the turnover while House Brands accounts for only 25%. 96
In the corporate website, the company announces its new brand strategy: more value on property brands and less “addiction” to licensing. It is fundamental to have the right balance between the two offerings. The establishment of Kering eyewear and the decision to move from licensing to internalization represents a new trend in the eyewear industry. But for many fashion companies, the strategic decision of terminating licensing relationships, to bring in-­‐house certain licenses, have characterized other product categories in recent years. Burberry represents an example of this new strategic direction. Some years ago, it announced that starting from 2013 all its licenses for beauty products would be produced in-­‐house. Another example is represented by Saint Laurent that took back in house many of its licenses. The market is pushing companies to gain total control of their brands. Some companies, still adopting licensing, are trying to have more control over all product categories by increasing their presence and influence during licensing activities. Others prefer to take back their licenses in-­‐house because, as emerged in the article written by Suzy Menkes, “it is impossible to protect the Brand if you have too many licenses”. 5.1.2 Why pursuing internalization As mentioned above, the strategic decision of interrupting licensing agreements to bring in-­‐
house the production of specific product categories has recently characterized fashion companies and their products. A question comes to mind: why companies, in the specific case fashion houses, are approaching this new strategy? What are the reasons behind this? In the previous chapter, it is mentioned that MaxMara suffered a period of struggles in the past years. As well as the Italian fashion house, other luxury and fashion companies perceived a diminished desirability from consumers. This is probably linked with their overexposure or with the fact that many licensees jeopardized the licensed products. As a consequence, many Brands are trying to reposition their names in the high-­‐end and in the luxury segment. 97
As discussed previously, a way to reach this objective is to increase the control over the licensing, making this strategy more proactive and tailored on the needs of licensors. Another solution for companies is represented by the possibility of taking the whole control of the brand brining all the activities in-­‐house: from design to production. In the specific case of the eyewear industry, additional motivations push companies to take whole control of the value chain internalizing activities. First of all, as the journalist Bottelli explains, the main objective is to gain the high margin that sunglasses secure. They are considered the most fashionable accessories and they are more affordable on respect to other products (shoes or bags). A second motivation identified refers to the possibility of gaining total decisional power regarding distribution and price positioning. The relevance of distribution for companies has already been discussed in the previous chapter. The correct distribution strategy allows fashion houses to increase their perceived exclusivity and aligned all the products with the overall corporate strategy. 5.2 Possible consequences The establishment of Kering Eyewear represents an important change for licensing in eyewear industry. Will this decision put other licensees under pressure? Will this event open new opportunities for companies? At the moment it is not possible to provide these questions with definite answers, but it is possible to think and assume possible consequences of this strategic action. 5.2.1 A new strategic opportunity In chapter 3, it emerges that Kering Group is the second world leader for luxury goods after LVMH. The group generated €10 Billion in 2014 and it possesses 16 luxury Brands. As Figure 5.1 presents, 7 of these luxury brands are licensed to produce eyewear collections. Stella McCartney is licensed to Luxottica, Balenciaga to Marcolin and Loewe to De Rigo. As mentioned above, Gucci, Bottega Veneta, Saint Laurent and McQueen are licensed to Safilo until the end of 2015. With the establishment of the new division, the design and distribution of these last four brands are internalized in Kering. 98
Figure 5.1: Fashion groups’ licensed Brands &'()*+%
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Source: Own elaboration Is it possible that in the future other fashion companies or groups will adopt this new strategy? Looking at the above picture, it is possible to observe that another fashion group presents a similar structure of Kering: Moët Hennessy Louis Vuitton (LVMH). This group has all the criteria and elements to replicate the strategic decision undertaken by Kering. From a financial point of view, LVMH performs better than Kering. In 2014 the total turnover was €30.6 Billion and luxury and fashion goods account for 35%. As a consequence LVMH has the capital and resources to initially invest in a new eyewear division. The portfolio is composed of 14 fashion and luxury brands and 7 of them are already licensed to Safilo for the production of eyewear collections. They are all famous and well-­‐established names, performing well in the eyewear segment: Fendi, Celine, Dior (and Dior Homme), Marc Jacobs (and Marc by Marc Jacobs) and Givenchy. According to this data, it seems that LVMH could have a chance to replicate Kering’s business model. 99
The eyewear industry is characterized by high fixed costs that can be managed only with specific volumes of production and not all Brands have the possibility to reach such volumes. LVMH and its licensed brands could have the possibility to reach the quantities required to sustain the business, as it is for Kering. A single brand or even a smaller fashion group has no chance to attain this. Taking in consideration MaxMara Fashion Groups. Respect to the other two groups, Kering and LVMH, it presets lower performances, with “only” €32 Million turnover in 2014. In its portfolio only two brands are licensed to produce eyewear collections and MaxMara and Max&Co. collections don’t produce sufficient volumes to sustain the business without the support of a licensee. Looking at the general turnover and performances of companies/groups, it is possible to understand if they have the possibility to sustain the three main activities of the value chain in the eyewear industry: design, production and distribution. The design of a collection is an activity that can be easily internalized by companies. They have the possibility to exploit their internal designers that are even more aligned with the corporate DNA, on respect to external designers. Production is the critical activity, especially in the eyewear industry where experience and know-­‐how are keys to conduct the process. Two things need to be considered. On one side, it is fundamental to know what is the portion of the collection produced by Safilo’s plants or by external suppliers. If Safilo’s plants produce the eyewear, the company will need Safilo as production partner. If external suppliers produce the eyewear collection, the company will have the possibility to directly create a partnership with these external suppliers, avoiding any collaboration with Safilo. On the other side, a fashion brand needs to figure out if its eyewear collections are characterized and constructed with specific property rights of Safilo (materials such as Optyl, colors or treatment etc.). Also in this case you will need Safilo as production partner. Last activity of the value chain to consider is distribution. As already mentioned, distribution has critical role for fashion companies. Brands are giving increasing attention and relevance to this activity. Safilo has a strong distribution network and a sale force distributed all over the world. For companies will be a challenge to give up this consolidated distribution to create a new one. 100
But fashion companies have boutiques and these mono-­‐brand stores are direct channels for distribution. When discussing about distribution, it is important to consider the central role that a portfolio of brand can have for companies. If a fashion group needs to rebuild a new distribution channel, the biggest and the most attractive is the portfolio of brands, more chances it will have to attract distributors. As a consequence, Kering and LVMH with a portfolio of brand names as Gucci, Bottega Veneta, Saint Laurent, Dior, Celine, Fendi, Marc Jacobs (etc) have more possibility to enter in distribution channels, even without Safilo, with respect to MaxMara Fashion Groups. 5.2.2 Considerations The above discussion shows how the eyewear industry is facing possible new transformations. As analyzed in the previous chapter, licensing and in the specific case the eyewear industry experience a reinforcement of this strategy. The case of Kering Eyewear represents both a stand-­‐alone episode and a new revolution for this sector. In the latter case, the previous paragraph presents possible consequences for the other actors in the eyewear industry and some general considerations emerge. The eyewear industry needs high levels of know-­‐how and experience to conduct the activities of the value chain. Design could be conducted internally and fashion companies could use their internal designer. Distribution, even if more critical, could be internalized as well. In the previous chapters, the importance and relevance of distribution are underlined, but this activity of the value chain could be performed internally without partners. The production phase is the critical one, where the know-­‐how is fundamental: companies are more willing to license their brand names to produce optical and sunglasses models. This emerges also in the analysis of Kering Eyewear. In fact Safilo will still support the newborn division in the production phase for the next years. Even though Kering is opening new opportunities for other companies, it is more difficult that they will replicate its strategy. In other sectors it is easier for companies to take back their licenses because their production doesn’t need specific knowledge. This consideration is sustained by the fact that 101
years ago companies have started to internalize the production of certain product categories (bags, perfumes etc.), previously licensed. An additional consideration has emerged during the analysis: internalization could be conducted only under specific circumstances. These considerations refer to the specific case of eyewear industry, but probably they could be extended also to other industry sectors where licensing is adopted. Taking back licenses in-­‐house is a strategy that could be pursued only by strong fashion groups and not by a single brand, which has less possibility respect to Groups. First of all, big fashion groups have the capital and resources to initially invest in this new strategic action. Kering and LVMH, which present respectively a turnover of €10 Billion and €30 Billion, are more willing to take the risk and the costs of internalization, with respect to a small Group as MaxMara that declared a turnover of €1.3 Billion. Secondly, owning a portfolio of strong Brands, characterized by well-­‐established and recognized names in the market, sustains production and distribution. With a portfolio full of strong brands (Gucci, Saint Laurent, Bottega Veneta, McQueen etc.) a company has more chance to assess distribution and obtain the required volumes of sale and production to sustain the business by itself, without the collaboration with other partners. A single brand or a smaller Group has now chance to be successful in the internalization of categories not linked with their core business, because they don’t possess the above requirements. 102
CONCLUSIONS In this dissertation, the main trends shaping licensing have been introduced and analyzed. Licensing is presented as a strategy that is evolving, becoming more strategic and relevant for companies, whether they are licensors or licensees. As emerged from the analysis, in the years an increasing number of companies have adopted this strategy, especially in the fashion industry, where licensing has always been a way to pursue brand extension, allowing Fashion Houses to rapidly access new product categories and expand their names beyond their core businesses. The case of Safilo Group specifically highlights that licensing in the eyewear industry is a strategy that rapidly grew throughout the years. An evolution in the industry has emerged during the research by analyzing the new structures and activities built up in Safilo: nowadays companies do not simply license their brands but they tailor this strategy in accordance with their core businesses by becoming more proactive. In fact it appears that Fashion Houses are more and more involved and have more decisional power in the creation of a collection. It follows that companies are giving increasing relevance to the performances of their licensed brands in term of product and process quality and they aim at having a larger control of their licensed brands, through reporting activities that have been introduced to share more detailed data. This evolution is renewing the licensing nature and two main characteristics have emerged. On one side brands are strongly focused on maintaining and reinforcing their images also by leveraging on their licensed products that become competitive tools integrated in their core business. On the other side both licensors and licensee see the importance of reinforcing the licensing partnership by collaborating and coordinating their actions to built a unique strong brand that can contrast competition. However, in the last months the eyewear industry has faced a new possible transformation. The case of Kering Eyewear could represent both a stand-­‐alone episode and a revolution for this sector. We feel that, even though Kering is opening a road that could be followed by other companies, it may be difficult that the others could replicate its strategy due to clear 103
resource constraints. In fact it has emerged that internalization, if pursued, would be conducted only under specific circumstances: taking back licenses in-­‐house is a strategy that could be pursued only by strong Fashion Groups and not by a single brand, which has less possibility in terms of capital, resources and dimension of brands portfolio. This consideration refers to the specific case of eyewear industry, but probably it could be extended also to other industries where licensing is adopted. To conclude, it is probable that in the next years licensing will be a strategy that will continue to be adopted and reinforced, despite the internalization process implemented by few large Groups. 104
INDEX OF FIGURE Figure 1.1: Twelve categories to define the word “brand” ……………………………………………….16 Figure 1.2: The dimensions of Brand Equity……………………………………………………………………20 Figure 1.3: Historical evolution of Brand’s characteristics ………………………………………………26 Figure 1.4: Brands map: the variables ……………………………………………………………………………28 Figure 1.5: Brands map: five types of Brands …………………………………………………………………30 Figure 2.1: Motivations to pursue licensing ……………………………………………………………………39 Figure 2.2: Map of licensing industry……………………………………………………………………………...45 Figure 2.3: Value of licensing industry …………………………………………………………………………...47 Figure 2.4: Product types in Fashion property type…………………………………………………………48 Figure 3.1: Market structure for Brands …………………………………………………………………………57 Figure 3.2: Market structure for Safilo’s property and licensed Brands…………….……………...60 Figure 3.3: Safilo profile…………………………………………………………………………………………………61 Figure 3.4: MaxMara Fashion Group profile …………………………………………………………………...65 Figure 3.5: Kering profile ………………………………………………………………………………………………67 Figure 3.6: LVMH profile ……………………………………………………………………………………………….71 Figure 3.7: Fashion groups’ licensed Brands….………………………………………………………………..72 Figure 4.1: Timeline of licensing agreements………………………………………………………………….76 Figure 4.2: Licensing agreements.…………………………………………………………………………………..79 Figure 4.3: Activities to create a collection……………………………………………………………………...82 Figure 4.4: Reporting activities ……………………………………………………………………………………...87 105
Figure 4.5: MaxMara competition ………………………………………………………………………………….91 Figure 4.6: Max&Co. competition..…………………………………………………………………………………..92 Figure 5.1: Fashion groups’ licensed Brands…………………………………………………………………...99 106
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www.safilogroup.com 109