Pokémon, Nintendo and the perils of brand licensing

I don’t need to introduce you to Pokémon GO. There’s no way you won’t have heard this global phenomenon. Hundreds of gamers have swarmed Central Park in New York, battled their Pokémon at iconic landmarks and have even been urged by police not to play the augmented reality mobile game while driving. It’s a craze that’s taken the world by storm and it’s another feather in the cap of the Pokémon brand.

Pokémon GO was estimated to be generating $2.5 million a day during the first two weeks after its launch – and that figure is no doubt higher now as Poké-fever takes hold. It’s little wonder investors added $11 billion to Nintendo’s market value in the wake of its success. But while many of us continue to associate Pokémon with the equally popular Nintendo Game Boy titles of 20 years ago, when excited investors realised that it was in fact Niantic Labs, a company spun off from Google less than a year ago, that developed the hit game, Nintendo’s stock plummeted.

The misunderstanding highlights the potential for confusion over the ownership of brands and, conversely, the power of being associated with other brands and brand assets.

Silent (but successful) partners

It is true that Nintendo has a stake in the Pokémon brand. It is one third of the Pokémon Company, alongside Japanese duo Game Freak and Creatures. While Nintendo is an iconic global brand with 126 years of history, Game Freak and Creatures are less known, having been founded 27 and 20 years ago respectively. But Game Freak developed the wildly popular Pokémon Game Boy games and Creatures manufactured the once-ubiquitous Pokémon playing cards.

Despite this, it’s Nintendo that is synonymous with Pokémon thanks to its portable games console. This association has ultimately proved fruitful for the Japanese juggernaut – despite the 17% dip in share price after investors realised the error of their ways, Nintendo is still trading at nearly double its share price of a month ago.

Risk and reward

The Pokémon Company was set up in 1998 specifically to license the Pokémon brand to third parties globally. It’s a successful example of companies “loaning” their intangible brand assets to other companies, extending the reach of that brand and generating revenue for the licenser and licensee in the process.

Brand licensing happens all the time – and it’s big business. Global retail sales of brand-licensed merchandise topped $241.5 billion in in 2014, with rights holders netting $13.4 billion. Polaroid is an example of a big brand that is leasing its name to numerous third parties as it branches out into new areas. Having made its name as an innovator in photography in the mid-twentieth century, the company fell on hard times, as Lawrence has already chronicled. Its pivot to become an intellectual property licenser has seen it lease its name to a number of products, from smartphones and TVs to clothing and even stationery. The strategy is paying dividends; global revenue from Polaroid-licensed products now sits at $600 million annually. It’s a marked contrast from filing for bankruptcy in 2008.

But like anything in branding and communications, licensing is not without risk. Brand licensing is invisible to the regular consumer – they only see the licensed asset. Placing your brand asset or identity in the hands of a third party can be dangerous – and history is littered with brand licensing horror stories.

For every successful licensing foray like Angry Birds or Star Wars (or both brands together, in fact), there’s a Levi’s or Vespa that has an adverse effect. When Levi’s licensed its brand to a set of suits, dubbed “Levi Tailored Classics”, the products clashed with the company’s rough and ready brand identity and ultimately failed. And two years ago, when vehicle manufacturer Piaggio licensed its Vespa brand to fragrance manufacturer and serial licensee Coty, the scooter’s identity didn't mesh with the product that was on the market bearing its name – and while sales aren’t disclosed yet, the negative association could damage the brand and people’s perception of Vespa’s quality.

For Nintendo, on this occasion, the consequences of its licensing decision were financial. But the firm has notoriously struggled to crack the $100 billion mobile gaming market so far, despite its pedigree. The fact that a six year-old startup with just $25 million of funding behind it went on to create the most popular game of 2016 – using a brand synonymous with Nintendo no less – could well serve as a knock-out blow to its reputation.

Drew no longer works at The Frameworks


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