The biggest branding benefit of all

The deal itself is a classic licensing arrangement, in that extremely large amounts of money are changing hands for apparently no tangible assets. Nestlé will pay Starbucks just over £5bn to enable it to exclusively sell the Starbucks brand of coffee beans, capsules and ground coffee products around the world. That money is, without question, the greatest benefit of brand equity. It’s 100% marginal income and comes without any expectation that Starbucks will provide any form of product to aid Nestlé in its business.

And that is just for starters, Starbucks will then receive a fixed proportion of Nestlé’s sales of Starbucks coffee in the form of quarterly licensing income. While no-one but the top brass will know the final levy, it is almost certainly going to be 3% of retail price. So, for every £8 bag of Starbucks coffee that Tesco sells next year, 100% of it will come from Nestlé but 24p from each sale will go to Starbucks.

And that money, at 100% gross margin, soon adds up. I’ve worked for fashion brands where the licensing income is, wait for it, a nine-figure number. That’s a lot of money for doing nothing and all of it goes to the bottom line. Too many marketers poo-poo licensing as a bad branding move. I defy them to turn down millions in pure profit every year.

For many brands, licensing is an integral part of their success. Brands like Michael Kors ($150m in licensing income last year), FIFA ($205m) and Disney ($3.3bn) …wait was that billion? Yup, Google it, you want to talk core competence? Ask Disney about how well it franchises. The movies are just ads, the money is in the Captain America frisbees and Wookiee-flavoured instant coffee additives.

Sourced through Scoop.it from: www.marketingweek.com