Luxury brand licensing: Competition and reference group effects

• 成果类型: Article
• 署名作者: Arifoglu, Kenan; Tang, Christopher S.
• 署名单位: University of London; University College London; University of California System; University of California Los Angeles; University of London; University College London
• 刊物名称: PRODUCTION AND OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1059-1478
• DOI: 10.1111/poms.14032
• 发表日期: 2023
• 页码: 3227-3245
• 关键词: competition; Fixed fee; licensing contract; reference groups; royalty fee

摘要

Theoretical research in marketing has traditionally focused on centralized brand-extension strategies where a brand expands its product offerings by controlling the design, production, marketing, and sales of new products in-house. However, luxury brands frequently use brand licensing as a decentralized brand-extension strategy under which a brand licenses its brand name to an external licensee that designs, produces, and sells the new product. Licensing is a time-efficient and cost-effective brand-extension strategy for luxury brands to reach out to their aspirational, low-end consumers (followers) who value a brand more when more high-end consumers (snobs) purchase the brand's primary product (i.e., positive popularity effect). On the other hand, over-licensing might dilute the brand for snobs who value brand exclusivity (i.e., negative popularity effect). We develop a game-theoretic model to study luxury brand licensing in a decentralized setting by incorporating these two countervailing forces. First, in the monopoly setting (a benchmark), we find that the monopoly brand should license only when the negative popularity effect is not too high, and it should prefer royalty licensing over fixed-fee licensing when the negative popularity effect is intermediate. Second, to explicate our analysis, we study the duopoly setting under fixed-fee contracts. In contrast to the monopoly setting, we find that fixed-fee licensing can soften price competition between brands so that licensing is always profitable for both brands under competition. Interestingly, in equilibrium under fixed-fee contracts, competing brands face a prisoner's dilemma and both brands prefer not to license in some cases, even though both would be better off if they could commit to fixed-fee licensing. Finally, we expand our analysis of the duopoly model by incorporating royalty licensing in addition to fixed-fee licensing. We find that, in contrast to fixed-fee licensing, royalty licensing can intensify price competition so that both brands have to lower their prices. Consequently, when the positive popularity effect is sufficiently strong, fixed-fee licensing dominates royalty licensing. We also show that, under competition, luxury brands should adopt royalty licensing contracts only when the follower market is large and positive and negative popularity effects are small enough.