If you thought Pokmon cards and Teletubby dolls were eating into your child's college savings, wait until Harry Potter hits the store shelves.
In the pipeline: Harry Potter action figures (Mattel), hand-held electronics and candy (Hasbro), and a child's umbrella with magical lights and secret compartments (Totes Isotoner).
Things will really heat up once the little sorcerer goes Hollywood (the Time Warner movie is slated to open November 2001). Parents should brace themselves for Potter games, raincoats, T-shirts, underwear, sheets, furniture, and toothpaste.
Don't blame Harry or the kids.
Every year, thousands of companies lure adults to open their wallets and purses for products with names and logos they can't do without.
At least three-quarters of the Fortune 500 companies operate a licensing program. Last year, licensed products rang up $95 billion in retail sales in the United States.
Overseas sales brought in an estimated $50 billion more - and are growing fast, according to the International Licensing Industry Merchandisers' Association.
"You are acquiring something that's going to help you stand out in the marketplace," says Charles Riotto, president of the New York-based trade group. "There can be 100 different watches out there, but if you have the one with Tiger Woods's face on it ... it's going to give you a leg up."
Done successfully, brands like Nike and Mercedes command hefty premiums in the marketplace. Their names represent something consumers want.
"People are not buying products today," says Marc Gobe, president of dg* New York, a brand-identity consulting firm with offices in New York, Paris, and Tokyo. "People are buying emotions. People are buying the value inherent in the brand."
Consider what the name Harley-Davidson means. Sure, it's a Milwaukee company that makes motorcycles. But it's more than that. Thanks to licensing agreements, consumers snap up Harley apparel, play Harley electronic games, even patronize Harley-Davidson cafes.
"The symbolism is sort of that 'free-thinking me' that hasn't totally conformed," says Louis Sawyer, director of strategic marketing for Sawyer Riley Compton, an Atlanta-based advertising and public-relations agency focused on brand strategy. "The Harley clothes can represent that, whether you own a Harley or not."
Sometimes, companies extend their brand names by moving into new businesses. Honda, for example, has capitalized on its reputation for quality in cars and motorcycles to expand into lawn mowers. Other companies license manufacturers to use their name on certain products.
For example, consumers may think Polo Ralph Lauren makes fine-quality men's shirts. Actually, the New York-based company doesn't manufacture anything at all. Instead, it uses contract manufacturers as well as licenses in Asia and the United States to make everything from apparel to perfume and even home furnishings. Its brand names include Polo, Lauren, Chaps, and Club Monaco.
The strategy can mean extraordinary profits, but also carries big risks. Plaster your name on a poor-quality product, and your reputation can suffer. Disney recalled some 1,300 Mickey Mouse waffle irons last year because of potential fire and electrocution hazards.
In December, Burger King recalled more than 25 million Pokmon balls included in its kids' meals because young children might have choked on them.
And if assuring the continued quality of outside products bearing one's name can be tough, over-exposure can be hazardous. While Ralph Lauren carefully managed its brands, some experts say Pierre Cardin overextended itself.
"Both are designers, both were highly respected, but today Ralph Lauren is a very quality, prestigious brand and Pierre Cardin is not," says Mr. Gobe of dg* New York. "Pierre Cardin luggage? I thought it was a stretch.... Even though they were doing some good business, the perception of quality of the brand did not last."
Some brand names are easier to spread than others. Those tied to particular products have the hardest time moving into new lines.
"Gore-Tex is a brand that almost everybody recognizes," says Mr. Sawyer of Sawyer Riley Compton. But hardly anyone knows the company that makes the water- and wind-proof material, W.L. Gore & Associates. So when the Elkton, Md., firm, found it could use its technology to make a high-end dental floss, the company faced a quandary.
Gore-Tex floss "just didn't make a lick of sense," Sawyer says. So the company had to create a new brand - Glide - which has now captured a big share of the flossing market.
Celebrities have a much easier time moving their names around. Michael Jordan is estimated to earn up to $40 million a year endorsing everything from Nike shoes to Rayovac batteries to MCI WorldCom long-distance service. Arnold Palmer has taken his championship reputation on the golf course and turned it into a brand that now adorns home furnishings - even wallpaper.
"Arnold Palmer stands for a lot more than just golf," says Jeffrey Ceppos, managing director of licensing for Arnold Palmer Enterprises, based in Cleveland.
"He's a father, grandfather. He's a very successful businessman.... All those things have added up to integrity," Mr. Ceppos adds.
So when his company pitched the idea of moving the Palmer name into home furnishings and accessories in the mid-1990s, Lexington Home Brands jumped at the chance.
The business has been so successful that the Lexington, N.C., company plans this fall to expand substantially its Palmer Home Collection of living room, dining room, bedroom, and home-office pieces.
Licensing "is a fantastic way to get your brand name out," says Mr. Riotto of the licensing trade group. "You can almost look at it as a different form of advertising, but one that doesn't cost anything."
Now that's the kind of magic even Harry Potter could appreciate.
(c) Copyright 2000. The Christian Science Publishing Society