The use of licensing as a marketing and brand extension tool has proliferated over the last 30 years. When well-executed, a strong licensing relationship brings benefits to all parties to the deal – property owners and their agents, licensees and their affiliates, retailers and, ultimately, consumers, Each of those parties has its own goals and aims that ultimately adds value to the final product or service.
To get the strongest outcome, each participant in the licensing process has certain responsibilities to fulfil. Every agreement between the licensing parties is unique in its specifics, so even these responsibilities vary to some extent.
There are many reasons for an intellectual property (IP) owner to grant a license. The most obvious one is to generate revenue from the guarantee and royalty payments. But licensing also can serve a number of other purposes. In some cases, those “other” reasons to license might actually be more important to the licensor than revenue alone:
1) Marketing support for the core business
For a television show, film, children’s book or sports brand, the retail display and proliferation of licensed products doesn’t only generate product sales, but it also promotes the core property.
A display in a shop of toys or clothing tied to a film also helps to promote the film itself. A sports fan wears a shirt with the logo of their favourite team may be expressing their enthusiasm about the team, but they are also subtly promoting the sport, the league and the team to anyone who passes her by on the street.
The same goes for a beer brand. Seeing a store display of glassware carrying a well-known beer logo reinforces the brand image, supporting the brand’s overall marketing efforts.
2) Extending a corporate brand into new categories, areas of a supermarket, or into new distribution channels
Licensing represents a way to move a brand into new businesses without making a major investment in new manufacturing processes, machinery or facilities. In a well-run licensing program, the property owner maintains control over the brand image and how it’s portrayed (via the approvals process and other contractual strictures), eventually reaping the benefit in additional revenue (royalties), as well as exposure in new channels or supermarket aisles. Examples might include:
- A well-known brand of construction tools licensed into such areas as work gloves or work boots
- A brand of beauty products extended into a new vitamin line that promotes better looking skin
- A popular restaurant chain licensing a frozen food manufacturer to market a line of appetisers under its brand
- A well-known fashion label licensing its name into such natural extensions as leather accessories, shoes, fragrances or home textiles
3) Trying out potential new businesses or geographical markets with relatively small upfront risk
By licensing its brand to a third-party manufacturer, a property owner can try new businesses, or move itself into new countries with a smaller upfront investment than by building and staffing its own operations.
4) Maintaining control over an original creation
Licensing represents a way for artists and designers to profit from their creative efforts, while maintaining control over how they are used. For brand owners (particularly those doing business internationally), licensing and registering the brands in multiple markets is a way to protect the brand from being used by others without permission.
In addition to giving the licensee the right to use the property, the licensor assumes several responsibilities that need to be met in order to create a successful licensing program. They include:
- A timely and efficient approval process, so that products can move their way along the development chain in a timely way.
- Giving guidance (often in the form of a printed or digital style guide) about how the brand, character, logo or other IP can be portrayed within the product, on packaging, or in advertising and promotional materials.
- Assisting in marketing activities and, in many cases, helping to sell the brand to retailers.
An IP owner also has to be aware of the risks involved in licensing. The brand owner has to be careful that a potential licensee can:
- Create and deliver products that meet certain agreed quality standards
- Service the retailer adequately
- Prove that their goals for the brand align with those of the brand owner
- Serve as a true partner in a relationship that, when well-executed, is a win-win proposition for all involved
Licensees lease the rights to a certain property for incorporation into their merchandise, but usually do not share ownership in it. Nevertheless, licensing provides a number of important functions to them.
1) Gaining the consumer awareness and marketing benefit of a well-known brand, character, logo, design
The most obvious benefit to a manufacturer or service provider that licenses a brand, character, design or other piece of intellectual property is the marketing power it brings to the product. It can take hundreds of thousands of pounds to build a brand from scratch, and licensing represents a way for a manufacturer to take advantage of all the brand building and image building that has gone on before. A child in a toy store doesn’t seek “an action figure.” He’s generally looking for a particular character he’s fond of. Faced with a choice among several cleaning implements, a shopper might be drawn by one that bears the brand of a well-known cleaning fluid, rather than a more generic label. In making the decision about whether or not to take on a license, a manufacturer often weighs the potential royalty payments against the cost of building a brand on its own.
2) Moving into new distribution channels
Taking on a license might help a manufacturer whose brand has been marketed in, for example, discount retail chains to market a more upscale, high quality line in shops or department stores that wouldn’t carry the lower end products.
3) Reducing in-house costs
A manufacturer who licenses artwork or designs to be applied to household items or clothing has less reliance on in-house art staff that would otherwise need to be maintained.
4) Enhancing authenticity and credibility
The publisher of a car-racing videogame might license a host of well-known automotive brands and car models to lend legitimacy and authenticity to the game. Similarly, a maker of automotive parts or accessories will license the car brand to establish in the consumer’s mind that its products will work seamlessly with the cars of the parent brand.
In taking on a license, a licensee takes on a financial obligation, and also an obligation to adhere to agreements in such areas as submitting products for all necessary approvals, creating a product to agreed-upon standards and marketing the product. The risks that the licensee faces in a licensing program are fewer in number than those of the licensor, but potentially greater in magnitude. The major risk is financial – royalties, guarantees and advances. Even if the products do make it to the market, there is no certainty at all that they will do well, no matter what property a manufacturer chooses