Brand Licensing – History and All the Rest
The term "brand licensing" comes up quite often. If you aren't part of this sphere or haven't studied the subject you will feel confused and somewhat "lost" among the vast number of legal and economic terms surrounding this concept. So let's try and put a few things in order. Brand licensing is essentially a process of leasing something which is actually intangible "property".
For example The right to market schoolbags or pencil cases decorated with Walt Disney cartoon characters, or marketing a brand like Marilyn Monroe anyplace in the world. In order to do so, you need a license to sell, market, and distribute the product, or, better said, a license for a certain brand in a certain area.
And what is a "brand"? The truth is that today everyone sells "brands", but the legal definition refers to a symbol, name, term, or any combination thereof, which designates or identifies the particular brand and distinguishes it from all other products. This is a term from the world of commercial law so that the consumer knows that he or she is buying an authentic product and who stands behind it. More than anything else, this detail separates the product from its competitors.
Today, the brand market helps the consumer to be confident in the knowledge that the product will meet his or her expectations. It has a reputation, attracts a certain market segment, and sends a message of quality, trust, and durability.
Therefore, a license for a particular brand is actually the approval given to the company holding the license by the owner to market the specific product or to provide a certain service. Most manufacturers operate brand licensing programs for license holders.
Now that we've clarified the basic terminology, perhaps we can begin to understand from where this all originates.
The truth is that the most prominent spheres in the world of brands originally came from the entertainment industry. From there it has grown and changed so much that there is almost nothing today that is not branded. This has become a first-rate economic tool: many companies over the world have turned to this sphere because it has become such a significant marketing tool in the modern economic world.
What is the purpose of brand licensing? To create a legal process that protects the agreement between two commercial enterprises. The brand owner is actually the owner of an asset that can use his manufacturer's rights to sell franchises to potential buyers. The option of using a franchise is always granted only under certain conditions, like marketing something for a specific purpose in a specific political or geographic area. Such an agreement includes an end date agreed upon in advance. In exchange for selling the license, the seller receives monetary royalties, which are usually calculated as a percentage of the sales made by the franchising agent. A minimum royalty rate acts as a kind of guarantee for the franchise purchaser, a sort of payment to demonstrate the franchiser's serious intentions to act according to the terms of the agreement. This is a type of promise. Incidentally, this amount stands even if income is extremely low, and is sometimes even paid beforehand as an advance.
Choosing one brand over another is really showing a preference over a different product on the market. Consumers who purchase name brands already know their expectations from the product and if satisfied they will continue to buy the same brand. For example, the car or cars you may have purchased in the past. If you are happy with its performance, it is fair to assume that when you buy a new car from the same company, you will expect the same kind of quality and performance. A dimension of communication always exists between the consumer and the brand and this is excellent for the owners of the rights.
Why do brand-name companies need a license to sell their products?
A brand licensing agreement authorizes a company or service provider to lease the right to market said product or service from the brand owner. Today, most serious companies operate such brand licensing programs. They allow the brand owners to examine to whom they are transferring franchise rights and supply consumers with the exact product they desire. Today, this is so common that even a company like "Apple" has decided to market its IPOD through franchises. Similarly, many firms have reached the conclusion that after developing a product, all marketing activity is transferred to franchisees and licensees.
But there is another advantage to granting licenses. The transfer of such rights further advances a product already on the market. There is no need to start from the beginning. When someone purchases the brand license he or she is also buying its recognition and reputation. This is really a tradable commodity, for which a rapid commercial basis can be created without having to start everything anew. This is not a "cat in the bag". Purchasing a brand licensing option also allows you to enter other niches. Let's say you deal in a certain sphere, so if you add a name-brand to that same area, your total sales will grow. This has been readily proven time and time again.