How to Conduct Due Diligence on Prospective Licensees

Pete Canalichio describes what goes into a reference check regarding a manufacturer from a brand owner (licensor) and retail buyer’s perspective. This video illustrates Step 4 of Pete’s 8-Step Brand Licensing Process [Scouting For Playmakers – Segment 2]. You can view more of my videos on the Brand Licensing Process on my YouTube channel or on my videos page.

Transcript:

Hi. I’m Pete Canalichio, and welcome to the brand licensing pre-launch. You may recall on video number three, Hugh Simpson and I talked about what we call scouting for playmakers, and the first part of that scouting for playmakers is actually prospecting licensees. Once you have those licensees that you’ve acquired by doing your store walks or going to your trade shows, the next thing to do is determine whether or not they’re going to make the cut, and that’s what we’re calling the due diligence process. And the due diligence process involves a number of things, but I’m going to talk about one area in particular today, which is what we call reference checks. And there’s two kinds of reference checks that we typically make when we’re looking at a particular company who wants the licensed brand. The first one is speaking to their other licensors, in other words, who else they’re licensing their brand with and talking to them about things like product quality, product development, what’s their sales and distribution capabilities, how well they market the product. They’re servicing things like their payment history, business planning, and forecasting, and finally, just customer service procedures and capabilities. So you can get a tremendous glimpse into the effectiveness of that prospective company in licensing your brand by talking to someone else whose brand has been licensed by that company and learning how well they’re performing in all those areas I just talked about. After we’ve done that, and you’ve been blown away with the success that you’ve heard about this particular prospective licensee from the licensors that you’ve checked with, the next thing you want to do is talk to buyers. That’s right. Go to the retailers themselves and talk to the buyers or actually buying product from that company and ask them questions like what’s the product quality, how do they maintain their service levels, what do they do around the areas of pricing, how well are they around the area of category leadership. In other words, are they a category captain, or are they mostly a follower? And then you can look at things like product innovation and finally their warrant in returns policies. Between talking to other licensors and talking to the retailers, you can get a tremendous glimpse into the quality of the program you can expect from your prospective licensee for your own brand. Thank you very much, and we look forward to the next video.