Brand Leveraging – New Income Streams In A Lukewarm Economy

Article by Robert W. Zelnick and Michelle C. Burke

Do you know what Nivea, the hand and body lotion company, and Caterpillar, the maker of giant earthmoving machines, have in common? Both were included in the 2002 list of The World’s 100 Most Valuable Brands, as compiled by brand consultancy, Interbrand, and published by BusinessWeek last summer. Both Nivea and Caterpillar were celebrated as brands that enjoyed marked increase in value, in part through successful brand extensions or brand leveraging. Nivea took a focused approach and cultivated a portfolio of dozens of products in the personal care and grooming areas from its core stable of skin-care products. Caterpillar, on the other hand, took its industrial brand into consumer categories such as footwear and apparel. The strategies reflect both companies’ determination to create new opportunities and new revenue streams from existing brands.

Can brand leveraging work for your company? Many companies, particularly those in the B2B world, consider the value of branding and brand leveraging as a realistic opportunity only for consumer products companies. However, as Caterpillar and other B2B companies have discovered, brands are financial assets that can contribute significantly to the bottom line creating valuable new revenue streams and broader marketing opportunities. In some cases, profits and sales from the "extended" products or services can significantly exceed the profits of a company’s core business.

What is a brand? In marketing terms, a brand is more than a single trademark such as a product name, corporate logo or tagline. Rather, it is the embodiment of a host of associations and perceptions that customers, investors and the general public experience when they encounter a company and its products in the marketplace. Most marketing experts agree that a brand is a promise, representing to purchasers an assurance of an expected level of quality and service.

While exploring leveraging possibilities is often a wise choice, brand leveraging is not without legal pitfalls. For example, only legally protectable (and protected) trademarks should be considered candidates for leveraging. In order to continue to enjoy broad legal protection, a brand must be used properly by its owner and protected against abuse by others. Moreover, the various strategies for leveraging brands, as described below, must be structured so that the brand necessarily continues to exercise careful control over the use of its trademarks.

The strongest form of legal protection for trademarks is registration. In many countries, in fact, only registered trademarks can be protected against infringement. In the U.S., protection is afforded both through federal registration and under common law, the latter of which does not require registration. There are important benefits of federal registration, and any trademark that is being considered for brand leveraging should be federally registered, if possible.

If a trademark is already registered for a company’s core goods or services, a trademark search should still be conducted to determine whether the mark is available for use on additional goods and services. The search should include both federal registrations and common law sources to determine whether the same or a similar mark has been used in local markets without the benefit of federal registration.

In addition to having distinctive and protectable trademarks, a company should have an active trademark enforcement program. A trademark that has been actively "policed" is more valuable than one that has been weakened through lack of enforcement. A well-managed trademark protection program often begins with a compliance manual drafted with the assistance of trademark counsel and the company’s advertising agency. In addition, strategies should be developed to monitor improper usage or potential infringement of the mark by competitors or others.

Some of the opportunities for brand leveraging include joint ventures, strategic alliances (teaming, strategic partnering, alliances, cross-licensing, co-branding), franchising and trademark licensing (merchandising).

Joint Ventures are typically structured as a partnership or as a newly formed and co-owned corporation where two or more parties are brought together to achieve a series of strategic and financial objectives on a short-term or a long-term basis. Each participant makes its respective contribution of skills, abilities and resources. Often, the names of joint ventures, or the names for the products offered by joint ventures, are derived from individual corporate or brand names. In some cases, one of the participants may license its mark to the joint venture. In 2000, for example, Dean Foods Company, a processor and distributor of regionally branded and private-label dairy products, formed a joint venture with Land O’Lakes, Inc., a producer-owned cooperative, to market and license certain dairy products to leverage the LAND O’LAKES brand name nationally. In a similar way, Starbucks Corp., which has been very successful in its brand leveraging efforts, has entered into a joint venture with PepsiCo Inc. to produce and market its FRAPPUCINO brand ready-to-drink coffee beverages and another with Dreyer’s Grand Ice Cream Inc. to produce coffee-flavored ice cream.

Strategic Alliance is a term used to refer to any number of increasingly common collaborative working relationships where no formal joint venture entity is formed but where two independent companies become interdependent through mutual objectives, mutual strategy, mutual risk and mutual reward. The various relationships are commonly referred to as teaming, strategic partnering, alliances, cross licensing or co-branding. Starbucks, again, is in collaboration with Kraft Foods through which it has become the largest supplier in the premium coffee category. Harley-Davidson, Inc., another successful brand leverager, is part of a strategic alliance with U.S. Bancorp, under which U.S. Bank operates Harley-Davidson Financial Services’ affinity card program – the HARLEYDAVIDSON ® CHROME VISA®. Nike Inc., which has traditionally licensed its mark to apparel manufacturers, teamed with Dynastream Innovations Inc. to create a device that attaches to shoelaces to measure running speed and distance on unmarked courses, offered under the NIKE mark. Finally, ValueVision International, Inc., a national home shopping network, announced an agreement under which it will team with NBC for the ShopNBC home shopping network and ShopNBC.com companion Internet site.

Co-branding involves two established brand names combining in order to bring added value, economies of scale and customer recognition to each product. Examples of co-branding include ingredient co-branding, where the strength of one brand appears as an ingredient to enhance sales and crossconsumer loyalty (e.g., POST RAISIN BRAN using SUN-MAID raisins in its cereal); implied endorsement co-branding, where the co-branded name or logo is used to build consumer recognition even if there is no actual ingredient used in the product (e.g., JOHN DEERE on the back of a FLORSHEIM boot, DORITOS® PIZZA CRAVER tortilla chips which features PIZZA HUT’s logo on the packaging); actual composite co-branding, where the co-branded product uses a branded pairing of popular manufacturing techniques or processes (e.g., TIMBERLAND boots with GORE-TEX fabric, DELL or GATEWAY computers labeled with INTEL® INSIDE or MICROSOFT® Windows®; and designer-driven cobranded products, where certain manufacturers have co-branded with well known designers to increase consumer loyalty and brand awareness (e.g., the EDDIE BAUER edition of the FORD EXPLORER).

Franchising is a popular expansion strategy, especially for businesses that cannot afford to finance internal growth. There is a host of legal and business prerequisites that must be satisfied before any company can seriously consider franchising as a method for rapid expansion. In addition, the offer and sale of a franchise in the U.S. is carefully regulated at both the federal and state level.

Licensing is a contractual method of developing and exploiting a brand by transferring rights of use to third parties without the transfer of ownership. From a legal perspective, licensing involves complex issues of contract, tax, antitrust, international, tort and intellectual property law. From a business perspective, licensing involves a weighing of the economic and strategic advantages of licensing against other methods of bringing the product or service to the marketplace, such as direct sales, distributorships or franchises. Significantly, trademark owners must be very careful not to grant too many licenses too quickly. The financial rewards of a flow of royalty income from hundreds of different manufacturers can be quite seductive, but must be weighed against the possible loss of quality control and dilution of the trademark. Harley-Davidson is an example of a company that has carefully expanded its brand to a wide variety of products, from apparel to toys and games, and has enhanced the value of its brand in doing so.

Because brand leveraging presents attractive economic opportunities, trademark rights can be among a company’s most valuable – yet often unmined – assets in today’s competitive marketplace. The goodwill and customer recognition that trademarks represent have tremendous economic value and are therefore worth the effort and expense to register and protect them, both as enduring corporate assets and as a solid platform for strategic and creative growth.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.