Brand Licensing
Brand licensing is the process of leasing or renting the right to use a brand in association with a product or set of products for a defined period and within a defined market, geography, or territory. Through a licensing agreement, a firm (licensor) provides some tangible or intangible asset to another firm (licensee) and grants that firm the right to use the licensor’s brand name and related brand assets in return for some payment. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to the market in question.
Campbell’s “Star Wars” Soup. Source: http://www.campbells.com/star-wars/
Licensing can be extremely lucrative for the owner of the brand, as other organizations pay for permission to produce products carrying a licensed name. The Walt Disney Company was an early pioneer in brand licensing, and it remains a leader in this area with its wildly popular entertainment and toy brands: Star Wars, Disney Princesses, Toy Story, Mickey Mouse, and so on. Toy manufacturers, for example, pay millions of dollars and vie for the rights to produce and sell products affiliated with these “super-brands.”
A licensing arrangement contains risk, in that if the licensing venture is very successful, the profit potential is limited by the terms of the licensing agreement. If the venture isn’t successful, the licensee loses a substantial investment, and the failure may reflect poorly on the original brand. Also, a licensor might be very controlling about how the licensed offering is designed, produced, distributed, marketed, or sold, making it difficult for the licensee to meet the expectations or requirements of the licensor. Conversely, a licensor might make a long-term commitment to a firm, and that firm could be less capable than expected, leading to a botched implementation of the licensing venture. Or, the licensee may be unwilling to invest in product quality, marketing, distribution, or other areas needed to be successful.
Franchising represents a very popular type of licensing arrangement for many consumer products firms. Holiday Inn, Hertz Car Rental, and McDonald’s have all expanded globally through franchising. In a franchise, the entity purchasing the franchise (the franchisee) typically pays an up-front fee plus a percentage of revenue in return for the right to use branded assets such as recognized brand name(s), proven products, building design and decor (as in a fast-food restaurant chain), business processes, and so forth.