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What Are The Benefits Of Licensing
Licensing is delineated as the process of leasing a copyrighted or trademarked entity for use with a product or service. The property could be anything from the signature of somebody well-known to a picture, graphic or logo. A business contract is drawn up between the owner of the trademark or copyrighted material and the person who wants to lease it. These people are identified as the licensor and licensee respectively.
Why would anyone desire to license an entity? Simple answer is to get more sales. Some brands catches the attention of such high customer loyalty that you could sell almost anything once you have that image or logo or signature on your product.
The licensor is normally encouraged by the cash they could make but this is not always the sole reason. Market penetration might be important. For example, if a new movie is being produced, the producers know that having heaps of toys or items which have picture of that movie on it in shops will aid to augment the publicity around launch date thus leading to an increase in box office takings.
Licensing even gives the licensor a chance to move into related product areas without having to incur the rate of product design or development. They may be hunting to break into new markets for example a US product launching in China but due to inadequate information of the new market they will want to test it out first via a comparatively minimum risk inexpensive route akin to licensing. If the new market loves the product, they know they have only leased the brand for a short period and are collecting a percentage of sales. Once the time frame is up they can move into that market themselves. If the new market isn't thriving, they have still got profits from leasing the brand but they haven't wasted any money trying an indifferent marketplace.
Obviously the licensor needs to protect their brand first and foremost hence there will be very strict quality controls put in place to cover this issue. The other common elements to a license will be a particular geographic place i.e. you cannot simply trade wherever you want. The contract will also specify the time the license has been granted for, the conditions for renewal, the decided contract price and stipulations of payment - this is usually a percentage of sales subject to a minimum value i.e. you end up paying a particular minimum amount even if you don't sell anything. But if your product sales take off, you will pay a certain percentage back to the licensor. There will also normally be a contract over how many licenses will be issued for that particular region i.e. you could have a sole license or be allowed to license additional people.
Individual who want to take up a licensing contract do so because they believe that they have found a perfect market for that product but couldn't finance the operation themselves. Or they may have manufactured a new product that will do much better having been associated with that brand name for even a short period of time. Building reputation in the business is essential, almost as important as being 100% sure you understand the licensing procedure and know exactly what you are getting into prior to signing the deal.
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