Licensing a brand: What Does It Mean?
Introduction: The simple explanation for this is that if A makes a product, stamps it with its name, and markets it with a guarantee of reliability and worth, along comes 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 of what 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 make it a famous household name.
For instance, you may like only one type of toothpaste and choose it over a variety of others in the market. Occasionally, you may try other brands, but you 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 of reliable quality to have such a vast consumer base.
As soon as the product has established itself in the market, someone will come along to borrow the trademark to market their own product. Of course, they will not be making or selling toothpaste but items related to it, like toothbrushes, mouthwash, etc.
The second person or company uses the popularity of the trademark of the toothpaste, as in "riding on its shoulders," and brands their 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 is obviously that the borrower has kept up with the high quality of the lender's reputation and has been successful in penetrating the already-existing loyal customers of the same.
Gradually, the market base increases as more consumers join 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 is paid for the use of the brand, known as royalties. The price involved goes up 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 they do not have to make or create a market for this new product, yet they reap the profits marginally, as agreed upon by the two parties.