Brand Licensing – History and All the Rest
The term brand licensing comes up quite often. If you are not part of this sphere or have not studied the subject, you may feel confused and somewhat lost among the vast number of legal and economic terms surrounding this concept. So let's try to put a few things in order. Brand licensing is essentially the process of leasing something that is actually intangible property.
For example, it involves the right to market schoolbags or pencil cases decorated with Walt Disney cartoon characters or to market a brand like Marilyn Monroe anywhere in the world. 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 specific 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 that 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 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 almost nothing today is not branded. This has become a first-rate economic tool. Many companies around 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? It is to create a legal process that protects the agreement between two commercial enterprises. The brand owner is 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 particular 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 paid in advance.
Choosing one brand over another indicates a preference for a different product in the market. Consumers who purchase name brands already know their expectations from the product. If satisfied, they will continue to buy the same brand. For example, if you have purchased a car from a certain brand in the past and 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 level 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 brand.
Why do brand-name companies require a license to sell their products?
A brand licensing agreement authorizes a company or service provider to lease the right to market a product or service from the brand owner. Nowadays, most reputable companies operate such brand licensing programs. They enable brand owners to examine to whom they are transferring franchise rights and provide consumers with the exact product they desire. This is so common that even a company like "Apple" has decided to market its IPOD through franchises. Similarly, many firms have concluded that after developing a product, all marketing activity should be transferred to franchisees and licensees.
But there is another advantage to granting licenses. The transfer of such rights further advances an existing product on the market. There is no need to start from scratch.
When someone purchases a brand license, they are also buying the brand's recognition and reputation, which is a tradable commodity.
A rapid commercial basis can be created without having to start from the beginning. This is not a "cat in the bag". Purchasing a brand licensing option also enables entry into other niches. For example, if you deal in a certain sphere, adding a name brand to that same area will increase your total sales. This has been proven time and time again.