Brand Licensing

Posted on Mon, 11/20/2017 - 16:59 by avantgarde

According to Philip Kotler and Gary Armstrong a brand is defined as “a name, term, sign symbol or combination of these, that identifies the maker or seller of the product” or service. The brand or its legal term, trademarkaffixed to the product helps the consumer understand where it was manufactured or produced. 

The primary reason companies choose to brand their products is to differentiate them from their competitors’ products. By giving their products a brand, a company or brand owner can begin to communicate with their consumers regarding the attributes of their products. Over time, a consumer can rely on the brand to connote not only a product’s value but also its reputation. If a consumer likes what a brand represents and they have purchased it before, there is a higher likelihood they will choose the brand of their preference over a competitor.  In fact, consumers will often purchase a brand for the first time if it has a strong reputation or if it is used by friends or celebrities.

Brands also lead consumers to develop certain expectations of products. The longer they experience predictable, consistent quality and performance, the more they will expect any new products sold under the same brand to have the same. The brand, therefore, adds value to these products.

When consumers get into the habit of buying certain brands, they automatically buy them again. This reduces the amount of time and promotion needed to make future sales, and it results in brand loyalty.

Why Do Companies License Their Brands? 

A licensing agreement authorizes a company which markets a product or service (a licensee) to lease or rent a brand from a brand owner who operates a licensing program (a licensor). Companies who know their brands well will have a good understanding of the equity of the brand. A brand’s equity is derived from the awareness and image a brand holds with its consumers.

Licensing enables companies whose brands have high preference to unlock a brand's underlying value. 

Licensees lease the rights to a certain property for incorporation into their merchandise, but traditionally they do not share ownership in it. Having access to major national and global brands, and the logos and trademarks associated with those brands, gives the licensee significant benefits they previously did not possess. 

Often brand managers use licensing to enter new categories and also extend their brands into new product categories to drive strategic growth for the company. This helps attract more customers as well as change and alter the vision of the brand. 

Expectations Of Licensors And Licensees

Licensors expect that the licensee will be committed to investing in the category they license. This means they will work hard to understand the essence of the brand and develop their licensed product in a way that captures that essence. In other words, the licensed products should connect with the consumer both functionally and emotionally. If the licensee does this, the products they develop will normally be approved without delay or difficulty. To achieve this takes time and money. So while both parties want to commercialize the category as soon as possible, the licensor will expect the licensee to start with building the brand into the product first. The licensor will also expect the licensee to be familiar with the contract and to meet the obligations of the contract. That is why it is important for the licensee to ensure all employees in the licensee’s organization working on the license are familiar with its contractual obligations.

Licensees, in turn, expect that the license they have acquired will provide them with sales growth, and rightfully so. This sales growth may be in the form of growth within existing channels or the opportunity to enter a new channel or new market. To accomplish this objective, licensees expect that the brand they are licensing is as strong or stronger than they believe or have been told, that it will open doors and ultimately help them meet or exceed their business objectives. Moreover, licensees expect that the licensor or their agents will run a simple, straight forward licensing program that will not administratively tax their organization. Finally, they expect that the licensor will approach the licensing relationship with a win-win attitude that will allow them to move quickly to take advantage of opportunities that present themselves. Because licensing contracts obligate the licensee to sales targets and royalties, the licensee’s goal will be to quickly achieve sales of licensed product to meet these requirements.