Branding is big business, and joining two brands is fast becoming one of the hottest trends.
For instance, Chevrolet has licensed its prized Corvette name to a cologne maker, a vacuum cleaner company and even a boat manufacturer. The Jeep trademark appears on everything from clothing to outdoor equipment.
In fact, License magazine reports that retail sales for automotive licensed goods have grown from $2.3 billion in 1998 to $4.4 billion last year. Sales of all licensed goods, including nonautomotive products, went from $131 billion to more than $143 billion during the same period. (See table below.)
Automakers make money in licensing by charging a half percent to 15 percent royalty fee on the wholesale price of the product with its trademark on it. Of the $4.4 billion in automotive licensed goods last year, nearly $3 billion came primarily from the sale of toy cars. Sales of motorsports products raked in $742 million.
'Licensing is hot in all categories, but automotive is really growing, particularly with the increased interest in NASCAR,' says Amy McMillan Tambini, assistant editor of License.
Executives who cut the licensing deals for automakers say General Motors shook up the licensing industry by demanding sales-based royalties from makers of model cars in the early 1990s. Prior to that time, says Gene Reamer, GM's trademark licensing manager, GM collected a flat fee from toy makers that made their cars. Some of the automakers were getting nothing.
In 1990, GM hired Equity Management Inc. of San Diego, which recommended that instead of a flat fee, toy makers should pay GM 6 percent to 7 percent of the price of each car it sold to a retailer.
'Now every single toy manufacturer has to pay,' says Dana Smith, executive vice president of sales for Equity Management Inc.
Sales of GM's licensed products have grown about 20 percent in each of the past four years, to $1.5 billion last year. Mercedes-Benz went from practically nothing to $110 million in licensed merchandise in the last five years.
Now others want a piece of the growing licensing empire. 'We're talking to a number of different people throughout the categories,' says Steve Sturm, vice president of marketing for Toyota Motor Sales U.S.A. Inc., who adds he is considering co-branding ventures throughout the division's lineup.
Adds Gary Tucker, vice president of sport-utility marketing and product planning for American Isuzu Motors Inc.: 'We have not been aggressive in the (licensing) arena, but we are investigating that whole lifestyle marketing concept.'
Other brands follow Chevy's lead
Pre-schoolers don't have drivers' licenses yet, but Chevrolet is hoping to build brand loyalty with their set when its Fischer-Price Silverado truck - big enough for kids to ride on - debuts in May. The toy deal is the latest in General Motors' effort to beef up its licensing business.
'We've seen double-digit growth each year in the licensing business since 1990, and there is no reason we shouldn't grow at that rate in the next five years,' says Reamer. While Chevrolet has been the most aggressive with licensing, Reamer said the other GM brands are coming on board. Take its AC Delco Division, which recently introduced its first aftermarket enhanced audio system to car stereo retailers. The division also plans to introduce a line of garage door openers and extension cords. GM also is contemplating a line of Goodwrench personal tools.
What's the connection? What do screwdrivers, cologne, extension cords, guitars and boats have to do with selling cars and trucks?
'Brand extension allows you to reach a broader segment of society than traditional licensed products; the people who wear caps and T-shirts with your name on them are already enthusiasts to your brand,' Reamer says.
Dana Smith, executive vice president of sales for Equity Management Inc., a San Diego company that cuts licensing deals for GM brands, said licensing also helps maintain the character of the brand.
'The revenue generated by licensing isn't as important as reinforcing the brand equity of Chevrolet. It's all added market value,' Smith says.
On almost all of the licensing agreements it holds, GM receives between 0.5 percent and 15 percent of the wholesale price of the licensed product. GM has a few contracts under which it receives a flat fee.
Reamer says the average percentage for apparel and toy cars is 6 to 7 percent. Low-priced items such as food receive only a half-percent royalty. Small accessories with high volumes and a low price, such as key chains, garner a 15 percent royalty. On a co-branded product, such as the Warner Bros. Chevrolet Venture, GM pays a per-vehicle royalty to Warner Bros. The Corvette boat, which retails between $40,000 and $50,000, receives a royalty similar to clothing and toys.
One of the biggest opportunities for growth is in licensed apparel, according to Reamer. That might explain why Chevrolet is seeking a company to produce a new line of men's clothing called Chevrolet America. If successful, a line of women's clothing will be offered as well. Reynspooner, a premier apparel maker that has done work for Chevrolet, will begin offering Hawaiian-style shirts with Oldsmobiles, Pontiacs, GMCs and Buicks on them at upscale stores such as Nordstrom.
Another big licensing opportunity for GM is the Hummer brand name. Reamer says he has some ideas, including linking Hummer with outdoor companies. 'It has great equity and great image,' he says.
The king of co-branding
If licensing agreements were trees, Ford would own the forest when it comes to co-branding vehicles.
Sony Focus, Eddie Bauer Expedition, Harley-Davidson F-series. The automaker has a bevy of co-branded products in its stable, and its global marketing chief said the automaker has plans for more.
'You are going to see a lot more of these highly selective co-branding ventures like the Kona Focus we showed (the press) in Los Angeles recently with the Kona bikes,' says Jim Schroer, vice president of global marketing for Ford Motor Co.
Look for Ford to link up with more outdoor companies with its 'No Boundaries' sport-utility marketing campaign and to do a better job of leveraging its racing programs, Schroer says. Ford has consolidated all of its racing logos into one to give the company a seamless look with licensed racing products and promotions.
When Ford signs an agreement to use another company's name - such as Sony or Eddie Bauer - on its products, it pays the company a fee. In reverse, if a company wants to use Ford's name on its products, the company pays Ford.
'The hotter we build our brands, the more people want to be associated with us,' Schroer says.
'There's a benefit that goes both ways. On the Eddie Bauer deal, they get a lot of benefit being associated with the number-one selling sport-utility vehicles in the world. They are fortunate that we pay them so much. They get some free, good exposure through it,' Schroer explains.
If the price of the licensing agreement is high, the payer benefits from the relationship more than the payee. If the price is low or nonexistent, both companies benefit from the relationship. 'The numbers between Harley and Ford are very small,' says Schroer, adding that the licensing fee Ford must pay Harley is in the 'single-digit millions.'
'Harley benefits from being associated with F-series, and Ford benefits from Harley's image,' he said.
Ford also makes 'several million' selling its own name to everyone from toy car manufacturers and apparel makers. These companies retail $500 million worth of goods with Ford logos, according to Schroer. Since the company began to show hints of its new 2001 Thunderbird - a car reminiscent of the 1950s classic two-seater - Ford has been inundated with requests for licensing rights.
'We (the licensing group) are taking a look right now to see if we need to make a significant expansion of that group,' says Schroer, who is using Harley as a model for merchandising its licensed products.
'What used to be an interesting little sidelight inside the company has become a central piece of our entire marketing and world-class brand effort.'
Little guys can play, too
The business of licensing isn't just for the big boys. Several niche players are riding the licensing agreement wave as well.
Lore McKenna, national advertising and public relations manager of American Suzuki Motor Corp., says, 'Talk inside of Suzuki suggests (co-branding a vehicle) is an interesting concept, and it's something that we can look forward to in the future.'
Kia Motors America Inc. sells such things as hats, T-shirts, key chains, hot sauce, yo-yos and boxer shorts through dealers and a new Web site, www.kia.com.
'It's not a moneymaker for Kia,' says Stuart Manis, national manager, training incentives and exhibits. 'We just want to get our name out there. 'Some people are still asking, 'What in the heck is a Kia? Hopefully, they won't be saying that anymore with this program.'