UK: LICENSED TO THRILL.

Licensing used to involve peripheral concerns flogging naff goods. But businesses are now clamouring to boost brand awareness by licensing smart products, writes Alan Mitchell.

It's a big occasion at Covent Garden: Wagner's Ring Cycle is in progress. Halfway through the five-and-a-half-hour marathon, exhausted opera buffs crowd through the foyer to sip champagne and wolf down prawn sandwiches. Lounging on the stairs is a trendy young man, feet outstretched.

Everyone can see the name emblazoned across his heavy-duty construction worker's boots: Caterpillar.

That little vignette is drawn from life. A few years ago, it would have been unthinkable for anyone to enter the hallowed portal of the Royal Opera House in the work clothes of the working classes. Today it's the height of chic. Caterpillar is used to being big in motorway construction and mining. Now, boasts a member of staff at its UK marketing outfit, Overland Shoes, it is also one of Britain's 'leading footwear brands'.

Caterpillar is one of a growing band of manufacturing companies to have climbed on the licensing bandwagon set in motion by the film, fashion and entertainment industries. Harley Davidson's portfolio of licensed products ranges from guitars to hip sunglasses and shaving foam. Land Rover's two-year-old licensing programme offers bicycles and all-terrain push-chairs, among other products. A small range still, but it's on 'a dramatic upward curve', says Andrew McRob of Rover's licensing agency, Design Rights International.

For companies such as these, licensing kills several birds with one stone.

Top of the agenda is heightened awareness of the brand and its qualities.

Caterpillar's range of 4,000 bags, watches, toys, footwear and clothing is carefully chosen to convey values like rugged-ness, durability and performance, says brand equity manager Lois Boaz, from the company's home in Peoria, Illinois. 'We are reaching not only Caterpillar operators and customers but potential employees and investors.'

Second, licensing does not merely pay for itself, it can be extremely profitable. Harley Davidson's licensing division generates 20% of the company's turnover. Caterpillar's merchandise contributes $150 million worth of sales. Then there are more subtle reasons for licensing, like trademark protection. If you don't exploit your trademark somebody else might. If Land Rover, say, is registered only as a vehicle mark, someone else could start selling Land Rover clothes. But to register in a category you have to prove you are using it.

Manufacturers are realising that many customers don't buy a product, they buy a lifestyle. By enlarging the brand to take in other items, companies give customers what they like to call a total brand experience. 'People who have a Harley Davidson tend to want a lot of Harley Davidson gear,' says that company's spokesman, Jeremy Pick. Indeed Harley has been selling leather jackets and boots since 1910. 'We want to be a part of customers' lives,' says Land Rover's McRob. If you can't afford to buy a Range Rover, a Rover branded product lets you buy a little bit of the brand. 'It's an opportunity to broaden the customer base. It creates an early entry point. You want to capture consumers early and keep them until they can buy the product.'

Licensing has its downside. Christian Dior, who after the war pioneered the diffusion of designer names beyond the ultra-rich, reaped hardly any of the financial benefits because it didn't understand mass retailing.

By 1983 it was generating licensed sales of Fr3.7 billion but its own royalties were only Fr122 million - just 3%. And licensing nearly killed Gucci. In a fit of greed during the '70s, Gucci slapped its name on 10,000 lines making the to-die-for brand less than exclusive and as such a laughing stock.

In some businesses, though, licensing is no longer the icing on the cake, it's the bread and butter. Time Warner's new release Space Jam (at your cinema soon) is said to be the first Hollywood film made for the promotion of licensed merchandise sales. The film is little more than a one-and-a-half-hour paid-for commercial for the toys.

This could be a step towards an even bigger shift. Brands and marketing have traditionally been 'downstream' processes. The manufacturing plant lay at the heart of the business. But in some quarters, such as Virgin group, the relationship is being turned on its head. The question now is not 'what do we make?' but 'what is my brand and what can I sell that fits its values?'. Licensing is replacing manufacturing as the core business.

If that's the case, manufacturing might as well be outsourced.