Licensing Advice from Chris Muggleton

Welcome to the Chris Muggleton Licensing Advice section, where we will be covering a range of topics throughout the year. If you have a specific question please e-mail us through the Contact Us page.

Promotional Commitment(Posted: 27-11-2009)

By Chris Muggleton

Hello!

After hearing recently that Elizabeth Hurley had launched her own line of branded Beef Jerky (Yeap it really is true, go to her website ¹ and you will discover more under “Guilt Free Snacks”), I thought it might be appropriate to comment on how far you can extend a Brand - but hey ho back to the task in hand.

This month we will discuss the issue of Promotional Commitment.

So what is it? In short it is the Licensee agreeing to spend specific amounts in promoting the Licensed Articles. The amount of expenditure, how it is calculated and what type of promotional activity is included depends on the specific License Agreement.

Broadly speaking Promotional Commitment is set and administered in one of two ways:

i) It is the Licensee’s responsibility to spend a percentage of total sales e.g. 2% over the life time of the Agreement, or

ii) Each quarter the Licensee pays directly to the Licensor a percentage of total sales, so as to contribute to a global promotional expenditure or central fund. 

Obviously there are pros and cons with each type. For example with a central fund the Licensor can purchase greater exposure and monitor the type of expenditure. The drawback being that the majority of Licensees view this as an indirect way of raising royalty rates.

 It is imperative that any Promotional Commitment clause clearly incorporates the following:

·          How the expenditure is to be calculated and monitored. Where it is the Licensee’s responsibility to promote its Licensed Articles, the Licensor may request regular updates on the level of spend and promotional activity, e.g on a quarterly or six monthly basis.

·          Clearly define the type of expenditure that is permitted. For example, Advertising, public relations programs, prior approved contests and games, trade shows, catalogue trade activities, etc.

·          Stipulate the financial ramifications should the Licensee fail to meet the designated Commitment.  Normally the Licensor will require the Licensee to pay any shortfall directly to the Licensor.

As ever there are a number of steps that Licensors and Licensees can each do.

For Licensors, we would advise the following:

·          Establish a procedure for collection and monitoring, much like those in place for Royalty Declarations

·          Review all expenditure to ensure that it is calculated correctly and is permitted as per the License Agreement.

·          Keep the Licensee informed and aware of all promotional campaigns; provide plenty of notice so that Licensed Product is available in Store to be purchased.

For Licensees, we would advise the following:

·          Ensure that expenditure incurred will contribute to the Licensee’s promotional commitment

·          Keep accurate records and receipts and provide a logical rational where any large item of expenditure is to be allocated across many Licensed Properties i.e. a Stand at a Trade Show.

·          Obtain the Licensor’s permission, if required, prior to commitment to any Expenditure.

·          Declare/update the Licensor on a regular basis or as required by the Licensee Agreement.

As ever do feel free to get in touch should you require any further explanation. I can be reached at chris@licensingadvice.com

Chris

^1. Please do finish this article before hitting the search engines for Ms Hurley’s website.