20 Oct 2014
Developing Business in China Through Licensing
Jacqueline Vong, Vice-president of Marketing and Licensing of King Bee Toys, has many years of experience in merchandise licensing. She believes that licensing will not only add a higher perceived value to products, but that licensees can also capitalise on the established brand awareness of the licensors in order to break into markets more easily. Speaking to Pansy Yau, Deputy Director of Research, HKTDC, Jacqueline explained the advantages of licensing and illustrated how best to make use of it when developing toy business in China.
King Bee Toys’ parent company, Wong Hau Plastic Works & Trading has been established in Hong Kong for more than 60 years. For most of that time, it specialised in manufacturing a variety of OEM toys for export purposes. In view of the strong potential for toys in China, the company set up a wholly-owned subsidiary in China three years ago with a view to selling into the domestic market, as well as maintaining its OEM activities.
Very much aware that it requires a huge effort for an entirely new company to achieve success in the mainland toy market, King Bee chose to fast track its initiative by working with a number of top tier property licensors - notably Mattel and Hasbro. This allowed King Bee to ‘piggyback’ on the established brand awareness of these global players, as well as their marketing support. This saw it produce and distribute secondary category licensed products throughout China
According to Jacqueline, in the case of significant global players, such as Mattel and Hasbro, that have a high profile annual marketing campaign for a license, licensees can leverage on that campaign when developing their own products and sales in the market place.
Licensees can use the overall marketing theme when creating products. For example, should Mattel adopt a rock star theme for its current Barbie promotion, the licensee can then develop ancillary products, such as musical instruments and stage costumes.
The licensee can also leverage on the overall theme when pitching at distribution and retail levels. If Mattel is doing something like a rock star show in marketing, the licensee can offer a line extension in their secondary license categories, such as supplementary microphones and costumes. As the line extension will give the rock star show greater impact and appeal, a retailer may be tempted to also stock the extension items at the campaign.
While there are significant advantages when it comes to using licensing in developing business in China, getting a license contract for top tier properties is far from easy. According to Jacqueline, it is first necessary to convince the licensor of your distribution capacity in China. She says:”You need to show how many channels you sell to, which channels you use, and how you are going to expand those channels year after year. You have to factor all of these as part of the forecast in your proposal.” With growing awareness of these requirements, this is one area that licensors are really focusing on.
Secondly, the category should be in line with the overall brand values of the license, and the design or products need to demonstrate a degree of differentiation in terms of innovation or concept that is not currently available in China. Alternatively, the licensee can seek to demonstrate the way in which it can develop and enhance an existing property in the market.
Thirdly, it is very important that the licensee is able to exercise high levels of quality control when it comes to manufacturing, as well as being able to properly manage the supply chain. In the case of King Bee Toys, it first started the licensing business three years ago. The business has trebled in size over that time, and has incorporated a number of major new developments, including establishing an outright contract in Toys R Us. This, in itself, has proved to be a success story that can be pitched to licensors.
As well as the reassurances a licensee needs to offer a licensor, there are also a number of areas of probity on the part of the licensor to be considered. The licensing fees of top tier properties can be hugely expensive so, before signing any licensing contract, a licensee should evaluate the protection provided by the licensor with regard to related counterfeit or illicit items available on the market.
The licensee also requires a degree of agreed support from the licensor. This should include regular updates to any style guide as well as support within the China market for holding seminars or summits among the various licensees. The latter initiative is important in terms of facilitating communication between related licensees in order to achieve a useful synergy when pitching to retailers.
It is also important to assess the potential and likelihood of any market infrastructure developments, such as the launch of a license-related theme park, a move that would inevitably raise the profile of any relevant license property.
Finally, it is also important that the licensors have a real understanding of the local market. This allows for the development of localised products, such as the “Fan Bingbing” Barbie Doll, as well as the implementation of localised marketing schemes.