Product Category Management Susan Smith & Jennifer Blackmon Auburn University

Derek Lochbaum Penn State University

Product Category Management • Concept – A licensing strategy to ensure maximum market coverage across product categories, distribution channels, and geographic territories through the selection of licensees that best match the licensor’s individual market needs.

• Process – Unique strategy for each university

The Benefits • Licensees – Less competition within each distribution channel – Assurance of University support for marketing cooperation (on campus and off campus) – Longer-term license agreements (PSU) – Protection of innovative ideas – encourage R&D

• University – Opportunity to enhance brand image and help to improve product segmentation across retail channels – Improved relationships with licensees – Reduced administrative burden (PSU) – Long-term health of product category – Understanding of your market

Product Category Management • Segmenting products across retail channels – Restricted Channel - Internal Consumption – Campus/Local Channel – Mass Channel – Mid-Tier/Better Channel – Direct Channel – Related Retail Channel

A Tale of Two Hats Purchased Two Hats – One from a Mass Retailer and one from a Mid-Tier Retailer

Primary Logo in Raised Embroidery

A Tale of Two Hats Colored Eyelets

Colored Eyelets

Regular Brim

Sandwich Brim

A Tale of Two Hats One cap had an additional embroidery hit on the right side of the cap

A Tale of Two Hats

Both had embroidery across the enclosure on the back of the cap

Comparison

Primary Penn State Logo Raised Embroidery White Eyelets Back Strap Embroidery 100% Wool Sold at Mid-Tier

Primary Penn State Logo Raised Embroidery White Eyelets Back Strap Embroidery 100% Brushed Cotton Sold at Mass + Sandwich Brim + Additional Logo on Side

Comparison

$20 Retail Price

$5 Retail Price

Approx. $8.00 Wholesale

Approx. $2.50 Wholesale

$0.64 royalty

$0.20 royalty

What Brand Messages are We Sending?

• There is no product differentiation across retail channels (Mass vs. Mid-Tier/Better). • There is little incentive for non-Mass licensees & retailers to invest in innovative products. • The impression that we believe university brands are immune to the changing market dynamics

Market Comparison: MLB vs. College Retail Distribution Channels Better Channel All headwear materials and styles permitted

No on-field MLB Authentic may be sold to the Mid-Tier Channel No authentic-style designs No wool/wool-blend caps No closed back caps

All headwear styles and materials allowed Mid-Tier Channel

Mass Channel

All headwear styles and materials allowed

All headwear styles and materials allowed

Penn State Headwear Process

Penn State PCM Process • Our Process… – Analyzed product category data • 80 % of Penn State’s headwear royalties were from 9 of 63 licensees – Analyzed our local market • Met with local retailers to explain the process and obtain information on their headwear suppliers – Analyzed products currently being sold • The Tale of Two Hats – Analyzed the political landscape in the local community and prepared for potential negative feedback

Penn State Headwear Process Requested proposals from current PSU licensees • Required a proposal for each distribution channel • Restricted licensees submitted less extensive proposals • RFP required information on Company History, Manufacturing, Distribution, Product Development, Product Quality, Pricing, Marketing, and Financial Projections • Financial guidelines: – 10% royalty rate – minimum royalty per unit of $.50/unit – minimum cumulative royalty guarantee of $10,000 per year

• Licensees submitted physical samples of existing headwear styles and designs currently in production for the University.

Penn State Headwear Process • Criteria for Reviewing proposals • Ability to differentiate headwear products, designs, and materials for each distribution channel • Product quality – embroidery, design, materials, creativity, etc • Ability to expand the geographic distribution of Penn State headwear • Financial proposal • Other factors – brand name, workplace code compliance, royalty payment history, contract compliance history, and marketing & promotional capabilities

Penn State Headwear Process • The Results – Licensee interest was strong in 3 of the 6 distribution channels – Campus, Mass, Mid-tier/Better – 37 of 63 licensees did not submit a proposal – Guarantees were standardized among licensees – Developed Mass differentiation standards • No fitted/closed-back caps; no wool or wool-blend – Further discussions with licensees under consideration were held – Agreements began January 1, 2004.

Auburn University PCM Process

Auburn University PCM Process Our Process… – Objectives • Gather information from Auburn’s base of licensees to determine quality of product, primary distribution channels, primary retailers, licensee product lines by distribution channel • Understand on which products are licensees focusing • Understand price points

– Goals: • Eliminate licensee or eliminate product categories that licensee is not maximizing • Establish a more distinguishable difference in product offerings across distribution channels • Establish a minimum royalty – if needed • Determine what product categories/retail channels are not being maximized • Determine how AU can assist licensees

Auburn University PCM Process – Chose a conservative approach to PCM • Survey licensees • Decision implemented at contract renewal • Review licensee performance on annual basis • Slow process – Analyzed product category data • 80% of Auburn’s headwear royalties were from 12 of 53 licensees • 80% of Auburn’s t-shirt royalties were from 17 of 89 licensees – Analyzed our local market • Met with local retailers to explain the process • Retailer survey to obtain information on their top suppliers

Auburn University PCM Process Sent survey to all licensees in product category – Started with headwear, but requested information on all products – Pros & Cons • Survey required information such as: – Retail accounts and $ volume with each account – Brands and labels by channel – Market factors limiting sales – What can AU do to assist – List of sales reps – Company information – How licensee differentiates its product across channels – Product price points • Licensees submitted physical samples of existing product styles and designs currently in production for the University.

Auburn University PCM Process 7 licensees did not return the survey • CLC sent follow-up notices to licensee • Stopped approving artwork until survey was returned • Those that did not return the survey where canceled for headwear • Set-up spread sheets to analyze data • Met with CLC to review information History with Auburn University; Relationships with local retailers; Product quality; Ability to differentiate product; designs, and materials for each distribution channel; Ability to expand market for Auburn product; Royalties paid in past and potential for future; AU wanted coverage for all retail channels; Administrative issues (contract compliance, timely reporting, etc)

Auburn University PCM Process The Results… – Developed Mass differentiation standards • Team color hats only (no fashion or tonal), no wool or wool blends, no fitted/flex fit, no felt applique, no more than three logo hits, no vintage logos

– Developed “below mass” standards • In addition to the above, no raised embroidery, no more than two hits, white, khaki and navy headwear only

– Eliminated 16 licensees completely and limited others to certain channels – Established minimum royalty - $.35

Auburn University PCM Process What we learned... – – – – –

This is an on going project Where our product is being sold Where we have opportunities to impact our program How we can help licensees How licensees are using our logos

Conclusion • Individual University approach • 15 month lead time allows for common expiration dates or develop a plan for managing process at contract renewal • Identify criteria for the category that are important to your particular program • Request detailed proposals from all licensees with current rights in a category • Proposal review – Licensing Director, University Committee, and/or agency reviews all written proposals – Obtain feedback from retail buyers (national and local) – Conference calls or meetings with those licensees under final consideration

• Final decisions are made by the University and licensees are notified

Conclusion • Sports licensed brands trade across all channels. • Proper channel differentiation is needed. • The sports licensed business is presently strong – NBA, MLB, NFL are leading the way – College and NHL are benefiting from the “up” trend

• Leagues are becoming more valuable to retailers • College products are becoming a commodity • Goal is to improve the quality of collegiate brands through proper category management.

For more information: Derek Lochbaum Penn State University 108 Procurement Services Building University Park, PA 16801 814-865-3905 [email protected]

Susan Smith Auburn University 6 Samford Hall Auburn, AL 36849 334-844-5180 [email protected] Jennifer Blackmon 334-844-5975 [email protected]