What is Meant by Brand Licensing?
Introduction: The simple explanation for this is - suppose A makes a product, then stamps it with its name and markets it with a guarantee of its reliability and worth; comes along B who borrows that product name at a price to market his own products of a different type. This is Brand Licensing, which is becoming quite popular worldwide.
Now we come to the actual question as to who makes a name popular enough to become a trademark. The answer is - the consumers of the branded product. People like you who choose to opt for a particular trademark of any item help in making it a famous household name.
For instance, you may like only one type of toothpaste and will choose it over a variety of others in the market. Occasionally you may try other brands but will always come back to your original favorite - Why? Either your favorite product provides all that you look for in toothpaste or has proven to be good for your oral health and/or suits your pocket.
Similarly, millions all over the globe have the same choice as yours and thus a brand has been formed. Naturally, this product must be reliable enough quality-wise to have such a vast consumer base.
As soon as the product has made a position in the market, someone will come along to borrow the trademark to market his own product. Of course, he will not be making or selling toothpaste but items ancillary to it - like toothbrush or mouthwash, etc.
The second person or company uses the popularity of the trademark of the toothpaste, as in "riding on its shoulders" and brands his products with the borrowed name. You and others like you who recognize the name with quality and strength will now purchase these supplementary products for their renowned quality.
The test comes when the new products are either accepted or rejected by the mass of consumers.
If accepted the reason obviously is that the borrower has kept up to the high quality of the lender's reputation and has been successful in penetrating the existent loyal customers of the same. Gradually the market base increases with more consumers joining in who may need the particular product.
The chances of rejection are pretty high when the borrower has not followed the strict guidelines of the trademark company; moreover, this can also affect the reputation and value of the named lender. The onus lies on the trademark lender to choose wisely as to whom to lend its name which will increase its reputation and create a wider consumer network.
There are some legal transactions and commitments between the two parties and a heavy price paid for the use of the brand, known as royalty. The price involved goes higher with the value of the name's popularity and demand in the market - the greater the market value, the higher the lending price.
The trademark owner's advantage is that he does not have to make or create a market for this new product, yet reaps in the profits marginally, as agreed upon by the two parties.