Best business practices involving KOLs in Vietnam

August 22, 2023 | 18:37
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For businesses wishing to evolve and market to the current and next generation of consumers, understanding the impact of key opinion leaders (KOLs) is crucial for sustained future success. Nguyen Pham The Lan, lawyer at Dentons LuatViet, observes how businesses that are slow to adapt to this new influence in consumer behaviour are at severe risk of falling behind.

A KOL is defined as an organisation or person who has specialised knowledge, expertise, or influence in their field or profession. When used in everyday conversation, the association is that of a celebrity, whether it being a film actress, a musician, or a streamer on digital media platforms and the like.

Best business practices involving KOLs in Vietnam
Nguyen Pham The Lan, lawyer at Dentons LuatViet

Many businesses recently have employed KOLs to promote their products or services to potential customers. Since it is a relatively new business practice, there is still a lot of uncertainty around contracting and working with KOLs.

KOLs must understand that their influence on their fans is the main driver of their ability to make money. Nearly all businesses establish themselves as LLC or JSC for liability protection and enterprise flexibility. Most contracts I have reviewed have KOLs signing the contract as an individual person, not as a business entity.

A business-minded person should always separate their business identity and personal identity. Moreover, establishing the KOL brand as a business entity allows the KOL to scale up in the future if they have early success.

Definition and understanding

Most KOL contracts fall into three categories: project-based, definite term, and indefinite term contracts. A project-based contract begins and ends with the start and finish of the project. A definite term contract has a beginning and end date. An indefinite term contract has a beginning date, but no end date.

Both the definite and indefinite term contracts should have additional project-based contract addendums that define and detail the scope of work as an integral part of the contract.

Upon review of many contracts throughout the years, the legal and financial obligations of both parties are not always clear. Many contracts have vague references to campaigns, promotions, and projects that the parties will engage together in. A contract should have clear obligations, the length of time for each proposed project, the resources allocated, the budget, who has approval discretion, and so forth.

Vague scope of work in the contracts are acceptable only if there are more specific project-based addendums to be added at a later date with specific reference to it.

Some of the biggest issues I have seen between the parties are about exclusivity of the product and ownership of intellectual property. Parties are usually not on the same page about how exclusivity applies, and have not carefully thought about the reach of the exclusivity and ownership rights. Contracts need to clearly define the rights to which platform, types of media, content, product, etc. when discussing non-competes, exclusivity, and intellectual property rights.

Often, a party requests the KOL to engage in a non-compete or exclusive agreement with them whereby they cannot sign with any other competitors, even after the contract term expires. I have even seen management contracts that effectively give one party direct access to all the KOL’s social media profiles, with the right to register and own all additional social media profiles of KOLs in perpetuity.

I have also seen production contracts in which the production company retains the intellectual property rights to all products that use the name, image, and likeness of the KOLs permanently after the end of the term of the contract between the parties. Simply, KOLs should always seek counsel to fully understand what rights they are conferring to the other party. Conferring too much away may hinder future growth, flexibility, and earning potential.

I have seen A-list celebrities sign predatory contracts at the beginning of their careers when they do not have proper counsel to advise them. Many new and fresh KOLs believe that any financial and commercial support are good deals, but if KOLs believe in themselves, they should not handcuff themselves and should be in control of their own destiny.

I have also seen many KOLs refuse to sign a contract if there are too many requirements and rights to be conferred, and many businesses are also willing to take a risk and permit them to sign a favourable contract.

But what happens when the parties disagree on something? Sometimes, both parties view signing contracts as a mere business formality, but never are the parties ever fully in agreement on their intentions and understandings. Once there is a disagreement, both parties understand what rights and obligations are in the contract and it will lead to a more amicable discussion to resolve any disagreement.

If such disagreement cannot be resolved between the two parties, there should always be a dispute resolution option for the parties to avail themselves too. It is best to figure out how to solve a potential issue in the contract, before it becomes an unsolvable bigger issue in the future.

Reputation and fit matter

There can be a generational gap between marketing executives and KOLs. Marketing executives tend to be, though not always, of the millennial generation or Generation X. Both generations are often confused and do not fully understand Generation Z. However, Generation Z is the biggest generation in Vietnam by population and must be understood as the consumer class of the future.

Consider a Gen-Z KOL who engages in humour that does not make much sense to older generations. The business may not fully understand what is going on and, depending on the terms and conditions of the contract, may have the right to prohibit the Gen-Z KOL from publicising such content.

On the other hand, consider a business that adheres to old-fashioned and dated social beliefs and attitudes. A Gen-Z KOL usually should not choose to be associated with that company because the fan base may be alienated. Basically, both KOLs and businesses can have their reputations severely damaged by being associated with each other if they do not have common ground and a suitable fit for each other.

KOLs must be careful who they contract with, and vice versa. A bad fit will ruin reputations and affect future earning possibilities. An aspiring KOL must always consider suitability, fit, and the message they want to spread instead of only choosing based on the opportunity that pays the most.

Furthermore, the industry size is minimal, and reputation matters. A KOL who is difficult to work with, or a business that offers predatory contracts, becomes known rapidly. People talk and it is in the interest of both parties to work collaboratively and professionally.

A business contract should be mutually beneficial for both parties. Both parties in a KOL contract should always aim to have mutual incentives aligned. An extra incentive such as a bonus for the number of views or likes on a platform will create motivation for both parties to perform with best and maximum efforts. I have not seen many contracts that contain creative incentive structures. Incentive structures will also allow both parties to grow and succeed together.

Growth and success are what both KOL and businesses are after. Both parties must work together, align interests, understand their rights and obligations with one another, and operate their businesses professionally and competently to achieve optimal growth and success.

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