Luxury licensing has suffered from a bad reputation after being overused back in the 20th century. Specifically, luxury brand names often were linked to substandard, poor quality products. Quality is a traditional cornerstone of the luxury brand platform and the old ways of licensing frequently violated those principles.
Besides quality issues, luxury brand licensing led to ubiquity: too many brand extensions showing up in too many incompatible retail spaces where the exclusivity of the brand was threatened. Exclusivity and rarity being another critical value for a luxury brand.
Licensing is often the strategic path that luxury brands take to go from just being a product brand to a lifestyle brand. But critical to the success of that endeavor is maintaining the true authenticity of the brand and what it stands for, not just stamping a logo or affixing the name on the label. Sadly Michael Kors and Ralph Lauren have both committed these sins against the integrity of their respective brands and are doing penance for it now by massively shuttering stores, cutting SKUs and exiting distribution deals.
On the other hand, a well-executed luxury brand licensing program can take the brand into appropriate new categories where it has no expertise, open new distribution channels that would otherwise not be available to it and reach promising new customers. That’s the thinking behind Tiffany & Company’s recent deal with Coty Inc. for a branded fragrance. How else would Tiffany find its way into Sephora or Ulta?
With an eye toward the recently released Tiffany perfume, available now in Tiffany & Co. stores and select department stores with a worldwide rollout set for October, I interviewed licensing expert Ira Mayer, for 25 years publisher and executive editor of The Licensing Letter, to talk about the Tiffany-Coty fragrance deal and by example what it reveals about how to craft successful luxury brand licensing partnerships.
“Tiffany is an interesting case,” Mayer said. “With the recent stories of the company’s performance and on-going turmoil, I am not sure whether Tiffany has thought through all the details so that the brand equity is enhanced. The ultimate question is: Does the brand extension appeal to new audiences who will turn to shop the core brand – which is typically the goal of licensing a luxe brand – or is it pure financial opportunism?” Tiffany refused to comment for this story.
In Mayer’s work advising licensors (owners of properties and brands suitable for licensing) and licensees (manufacturers and services providers seeking to affiliate with licensors) to evaluate their opportunities in today’s marketplace, he identified five keys that can mean success for luxury brand licensing, or if handled incorrectly, to dismal failure. It starts with assessing the competitive landscape to find the white space where new licensed products can thrive.
Fill a gap in the marketplace
“Over the years I expanded from my origins covering the entertainment industry to sports, corporate brands, fashion, and other areas. No matter the brand, it always comes down to what the competition is doing and how do you find the white space,” Mayer explains.
For Tiffany, perfume is white space in its portfolio, having discontinued its previous fragrance licensing arrangement with Chanel, when it shuttered its Fragrance Exclusive division in 2006. Through the 80s and 90s, Chanel produced a variety of scents for men and women under the Tiffany brand. The initial Tiffany signature fragrance is crafted for women.
The ultimate question, Mayer says is, “Who do you have to knock off the shelf to get on, whether that is a physical or online shelf. Online in theory is unlimited, but the reality is you still need to be high enough in the ranking in order to get attention.”
Tiffany perfume enters a crowded competitive marketplace. A recent A.T. Kearney report on the fragrance market details just how hard it is for a new brand to gain traction. In 2015 some 100 new fragrances were introduced in the market, requiring a “heavy investment in marketing amounting to about 20% of sales,” Kearney reports, but not one of them broke into the industry’s top five. It took most brands more than a decade to reach that level.
Compounding the difficulty of a new fragrance like Tiffany to break through is the strangle hold that established fragrances have on the market. Kearney’s study reveals that consumers’ number one reason to purchase perfume is to replenish their stock of a favorite fragrance.
Pick the right partner
In selecting the right licensing partner, Mayer stresses the need for the licensee to be fully aligned with the brand in the program’s overall goals and objectives. In Coty, Tiffany has a partner that is firmly entrenched in the high-end perfume market. In fact, its “Daisy Dream by Marc Jacobs” scent, introduced in 2007, is the only relatively new entrant that broke into the top five list in 2015.
That said, with such an extensive portfolio in Coty’s bag, will Coty give Tiffany the heavy-lifting required to break through, when other established brands are delivering results to its bottom line? Mayer notes that in fiscal 2017, the Coty license is not expected to contribute any earnings to Tiffany & Co.
Limit luxe licenses by channel or stores to avoid ubiquity
As for luxury brand licensing, Mayer notes, it is really no different from any other licensing arrangement, except for the extra attention required to maintain distribution leverage, product quality control and heightened image and design. Today, he asserts, there are more sophisticated and effective ways of protecting the brand than there were back in the Star Wars licensing era – the late 1970s and 80s.
“Licensing came into a new era back then and yes, many companies were licensing everybody and everything, which became a huge problem for some brands and properties. But today the idea of exclusivity has come to the fore. Luxury brands can limit the channels and stores in which licensed products are sold,” Mayer explains.
This could well become a sticking point for Tiffany working with Coty. While Tiffany can control the presentation in its own boutiques, Coty with its extensive distribution network can’t be expected to pay the same level of attention.
Speaking about another Tiffany license, that in eyewear with Luxottica, Mayer says, when it was being heavily promoted by Macy’s, in a co-located Sunglass Hut (also owned by Luxottica) store-in-a-store, “I saw a display where the classic Tiffany Blue label in the window had fallen off the display and stayed that way for several weeks until the window was changed. And the cardboard standup in the store was scoffed, torn and badly beaten up. I don’t think that is the image that Tiffany wants to project,” Mayer notes.
The very real danger is that such a careless retail presentation can damage the Tiffany brand, rather than enhance it. “Does Tiffany eyewear in Walmart or Costco really improve the brand’s status among luxe shoppers?” Mayer asks. “Of course, luxe shoppers go to Walmart and Costco, but do they want to buy Tiffany there?”
Maintain brand authenticity and integrity
Licensing gives luxury brands an opportunity to expand into new categories where their special design sensibility is essential, as Michael Kors has done in fashion accessories. “Michael Kors clothing, for the most part, is not licensed. But the shoes and handbags, where the company makes the bulk of its money, along with jewelry and watches, fragrances and beauty and eyewear, is all licensed. The result: Michael Kors goes from a clothing designer to a lifestyle brand,” Ira says. But as Kors current struggles testify, the further the brand strays from its core competencies (i.e. design) the greater threat to the essential authenticity and integrity of the brand.
In designing the perfume bottle and packaging, in its signature Tiffany Blue Box, Tiffany has paid careful attention to transmitting the brand’s design DNA. Its glass bottle is inspired by Tiffany’s most iconic diamond cuts, the company reports, reflecting the cut of its famous 128.54-carat Tiffany Diamond, with the shoulders and caps of the bottle mirroring the Lucida-cut used in its engagement rings. Tiffany Blue accents the collar and the perfume is tinted in delicate blue to further enhance the bottle design.
One of the beauty industry’s “not so secret” secrets is that the cost of the bottle and its packaging far exceeds the actual cost of the perfume in the bottle, what the consumer is ostensibly buying. Forbes.com contributor Barbara Thau reported that only about 2% of what a consumer pays for a luxury perfume is attributed to the juice. The rest goes for the bottle, packaging, marketing, sales commissions, licensing fees, manufacturer’s and retailer’s profits and overhead. So at $130 for a 2.5 ounce Tiffany bottle, people are actually paying only $2.60 for the predominantly iris floral scent.
Make sure licensee and licensor’s goals are fully aligned
This is the most important key to a successful luxury brand licensing deal: Making sure everyone is fully aligned behind the overall goals of the program. Mayer speculates that the recent Tiffany-Coty licensing deal, along with its other licensing efforts with Luxottica for eyewear and previously for watches, is most likely intended to extend the Tiffany brand into a lifestyle brand. It’s not such a stretch for Tiffany to go from jewelry to watches and eyewear, but fragrance is more of reach.
“Both partners in a licensing deal need to understand upfront what the goals are relative to the core brand, which retail channels are right to accomplish those goals, and manage the details so that the brand equity is enhanced,” Mayer says.
Regarding Tiffany’s launch into fragrance, Mayer says, “My take is that Tiffany isn’t clear about what it wants from licensing – brand recognition, wider audience, greater distribution. It is one thing for a mass-brand like Nike to want to be ubiquitous and a ‘lifestyle brand.’ But Tiffany’s image is more rarefied.”
And in that move toward becoming a “lifestyle brand,” Tiffany may find its Achilles heel. Increasingly American consumers are pushing back, rather than embracing, brands that aspire to become their “lifestyle.” As Michael Kors and Ralph Lauren are finding out, luxury consumers today don’t want to be a walking advertisement for a brand, nor do they want to adopt Michael’s or Ralph’s lifestyle. They want their own and no particular brand is needed to reinforce their identify, signify their status or give meaning in their lifestyle.
The danger for luxury brands in lifestyle marketing, as a recent report from McKinsey & Company says, is by straying too far from a brand’s roots, “they will be reduced to little more than faded labels.” Becoming a lifestyle brand may be what Tiffany aspires to, but as the McKinsey report asserts, “Lifestyle is the result of what we do, not the purpose.”
In closing, Ira Mayer says there is significantly greater flexibility today for luxury brands to structure licensing agreements to take advantage of emerging opportunities, test new product lines and expand distribution through new partnership agreements. But just because it is easier to do licensing today, that doesn’t mean it is necessarily easier to be successful at it.
“The key in a successful licensing program is to build in the right kind of safeguards and oversight, which is much easier today thanks to technology. Brands need to work with licensees to ensure they maintain the brand’s integrity and authenticity, then move forward in a strategically planned manner. But as I said earlier, the bottom line is, who am I going to push off the shelf to get my goods on?” Mayer concludes.