Brand Licensing 101

By | June 19, 2017
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Model Licensing 101

A Common Overview of Model Licensing

Have you ever ever puzzled how Coca-Cola, an organization so centered on assembly your beverage wants, sells Coca-Cola branded tee shirts or caps? Or how does Newell Rubbermaid present you such a variety of merchandise below a single model identify? Whereas firms typically manufacture these things themselves, at different occasions they might select to permit a producer to provide and market these merchandise below their model names. In return for using their model, these firms cost the producer a price. Such an association known as model licensing and may be outlined as an settlement that authorizes an organization that markets a services or products (a licensee) to lease or hire a model from a model proprietor who operates a licensing program (a licensor) in return for a portion of the gross sales income (royalty).

This module will assist you perceive model licensing higher, in addition to tackle why firms license manufacturers.  We may even take you thru the method of the right way to decide the license-ability of a model, expectations of licensors and licensees, the model licensing course of and the royalty fee circulate.

To grasp model licensing higher, one should perceive the 2 element elements individually – model and licensing. Let’s start with understanding the which means of the time period ‘model.’

What’s a Model?

In accordance with Philip Kotler and Gary Armstrong, a model is outlined as “a reputation, time period, signal, image or mixture of those, that identifies the maker or vendor of the product (or service).”

The model or its authorized time period, trademark, affixed to the product helps the buyer perceive the place it was manufactured or produced. From the model proprietor’s perspective, it distinguishes the services or products from these of its rivals. Customers, in flip, may be assured the product they’re buying is strictly what they need.  Primarily based on its status, a model will convey a stage of high quality, reliability and sturdiness.

The first purpose firms select to model their merchandise is to distinguish them from their rivals’ merchandise. For instance, most shoppers don’t have any downside differentiating a Coke from a Pepsi.  By giving their merchandise a model, an organization or model proprietor can start to speak with their shoppers relating to the attributes of their merchandise.  Over time, shoppers can start to depend on the model to connote not solely a product’s worth but additionally its status.  If shoppers like what a model represents they usually have bought it earlier than, there’s a larger chance they may select the model of their choice over a competitor.  In actual fact, shoppers will usually buy a model for the primary time if it has a robust status or whether it is utilized by pals or celebrities.

Manufacturers additionally lead shoppers to develop sure expectations of merchandise. The longer they expertise predictable, constant high quality and efficiency, the extra they count on any new merchandise offered below the identical model to have the identical. The model, due to this fact, provides worth to those merchandise. For instance, prospects count on new merchandise offered below the BMW model to be of the identical high quality as the prevailing BMWs. Customers will affiliate a model with a sure value stage and normal of efficiency. If we have a look at two distinct watch manufacturers, Rolex and Timex, one is related to a excessive value and excessive efficiency and the opposite with worth and sturdiness.  These similar attributes may also be of profit to companies.  Many shoppers look to UPS for his or her delivery wants, they usually want doing enterprise with firms that ship by way of Brown.  UPS provides worth to its shopper firms, with a status for making delivery easy, straightforward, dependable and efficient.

Why do firms license out their manufacturers?

Corporations license their manufacturers for a wide range of causes. Licensing permits firms with manufacturers which have excessive choice to unlock their manufacturers’ latent worth and fulfill pent-up demand.  By way of licensing, model house owners have the flexibility to enter new classes virtually in a single day, gaining them quick model presence on retailer cabinets and sometimes within the media.  Let’s take a deeper have a look at the advantages that make licensing so engaging to model house owners.

By licensing their manufacturers, firms are in a position to fulfill shopper wants in classes that aren’t core to their enterprise.  When Apple launched the iPod quite a lot of years in the past they revolutionized the way in which wherein individuals take heed to their music. The iPod was so profitable that its fast acceptance created a right away want for equipment resembling armbands, adapters and auto chargers.  Apple might have chosen to fabricate and distribute these equipment themselves.  As a substitute, Apple determined that these equipment weren’t core to their enterprise experience and due to this fact selected to fulfill the necessity by way of licensing.  By licensing the iPod model, Apple enabled an incredible variety of firms to provide all types of terrific merchandise to make the iPod extra user-friendly and to reinforce the listening expertise.  Examples of licensed merchandise for the iPod embody the Bose Sound System with iPod docking station, the Nike+ working shoe, auto adaptor kits, armbands and plenty of different merchandise.  All these equipment are offered by licensees.

Some licensors see licensing as a chance to “check” the viability of a brand new class with out having to make a significant funding in new manufacturing processes, equipment or amenities. In a well-run licensing program, the model proprietor maintains management over the model picture and the way it’s portrayed (by way of the approvals course of and different contractual buildings), positioning itself to reap the good thing about further income (royalties) and model publicity by way of product displayed by way of new channels and incremental shelf area.  For instance, Rubbermaid gained further income and model presence by licensing kitty litter containers which can be offered within the mass channel core to Rubbermaid, and in specialty pet retailers core to United Pet Group, the licensee.

In return for using their model, firms cost producers a price within the type of royalty funds and ensures that represent a income for the corporate. Royalty funds are sometimes calculated as a share of wholesale income whereas ensures are normally decided on an annual foundation and calculated as a share of the anticipated each year royalty.

The retailer earns income on licensed merchandise offered on the market value. The licensee earns wholesale income, which incorporates the price of making the products plus a markup. The licensor in flip receives a share (predetermined within the licensing contract) of the wholesale income as a royalty.

A well-managed licensing program can generate a considerable and rising stream of incremental royalty income that may complement an organization’s core enterprise.

Model licensing additionally gives advertising and marketing help to the core enterprise. In lots of situations, the licensee will probably be required to supply advertising and marketing to help the licensed class.  This advertising and marketing expenditure, in flip, gives further general model presence.  For instance, if a licensee promotes its product in a weekly round and positive aspects an finish aisle show, the promoting and retail show not solely generate product gross sales, however additionally they promote the general model.  An array of toys or attire tied to a film, sitting on a retailer shelf, serves to advertise the film itself. A sports activities fan sporting a sweatshirt with the brand of his favourite crew expresses his enthusiasm in regards to the crew, whereas subtly selling the game, the league and the crew to anybody who passes by him. The identical goes for a beer model. Seeing a retailer show of glassware carrying a widely known beer brand, or strolling right into a neighbor’s dwelling and seeing the glasses on his bar, reinforces the model picture, supporting the model’s general advertising and marketing efforts.

For model house owners who’re assured that their model has permission to enter a class that’s managed by their competitor, licensing is usually a sensible and efficient technique to fight a rival the place it issues most.  By taking the offensive, the model owner-turned-licensor will pressure the competitor to take its eye off of its core enterprise.  This could have a major influence.  For instance, what if adidas selected to license a shoe producer to compete immediately towards Nike’s Cole Haan model?

Many licensees are consultants in their very own proper; they provide the licensor entry to their mental property, product design and advertising and marketing experience.  Furthermore, licensors can faucet into their licensee’s provide chain administration information, retailer relationships and strategic alliances. Over time, licensors and licensees can maintain information administration workshops and boards the place they’ll change methods, processes and concepts that not solely develop the licensed class, but additionally different areas of their companies.

Lastly, for model house owners (notably these doing enterprise within the world market), licensing their registered logos in a number of markets is a technique to shield the model from being utilized by others with out authorization. When Coca-Cola first began licensing, the authorized division managed this system particularly to guard the corporate’s logos in international locations all through the world.

How does the method of brand name licensing work?

Model licensing may be very useful for each manufacturers and licensees if performed in a step-by-step method. We have now divided the model licensing course of into eight steps. This module will offer you an summary of every of the steps.

The model licensing course of begins a number of months previous to the commercialization or launch of the licensed product. The determine under tells us the totally different steps concerned within the model licensing course of. Licensees and licensors must also take into account that lacking essential deadlines resembling a line assessment can push the product launch out by as much as a yr.

Dashboard critiques

On a month-to-month foundation the licensor will assessment the enterprise estimate towards the plan.  Thus each the licensee and the licensor ought to observe the precise gross sales and royalties versus these projected within the annual marketing strategy.  Subsequent month-to-month projections needs to be laid out with justifications for any will increase or decreases relative to the marketing strategy and the latest estimate. The outcomes of this will probably be used to maximise alternatives throughout the calendar yr and to develop the marketing strategy for the next yr. Equally, there’s a quarterly and an annual assessment that examine the gross sales efficiency with the earlier quarter (or yr).


Every licensing settlement gives the licensor with the rights to audit its licensee.  These audits embody a assessment of the licensee’s monetary and product improvement information, in addition to social compliance audits of its accepted factories.  Social compliance audits are carried out every time a brand new licensee or facility is made a part of a licensing program.  As well as, enterprise audits are carried out routinely to make sure the licensee is complying with the phrases of the settlement.  Sometimes audits are carried out by accepted third events.

Any discrepancies present in a social compliance audit that may be dangerous to the ability’s workers should be resolved earlier than the ability can be utilized.  Others could also be resolved on an ongoing foundation.  Licensee enterprise audits that flip up any inconsistencies are reviewed for the seriousness of the error.  A discrepancy associated to promoting unapproved product or promoting product in an unauthorized methodology can lead to termination.  As well as, there are vital penalties for gross sales of unapproved or unauthorized product.  Royalties associated to those gross sales sometimes are equal to the gross sales worth themselves.  Minor infractions are resolved by correcting the issue in a prudent and expeditious style.


For many model house owners, Model Licensing is an under-utilized methodology of coming into a brand new product class. Nevertheless, we hope that by way of this module now we have been in a position to illustrate what Model Licensing is and the quite a few advantages that it has to supply each to licensors and licensees, in addition to describe the whole model licensing course of as now we have seen it work in the actual enterprise world.

Evidently, the whole course of is prolonged and time consuming, with efforts beginning as early as 24 months earlier than you possibly can see product on the shelf. One should additionally take into account that the objective is to not obtain the license however to make a hit of it and the actions that comply with the signing of the contract. These processes, if executed properly, on the one hand, can guarantee enormous success of this system. Whereas however, if both the licensee or the licensor don’t dwell as much as their commitments, it might probably have an effect on gross sales, and extra importantly the status of the model.

This module makes an attempt to offer you an summary of the Model Licensing course of. In the event you assume this will assist your manufacturing enterprise obtain new heights, or assist your model develop into new classes, we encourage you to check out our different modules that discuss every course of in higher element, together with figuring out product classes for model extension, prospecting licensees, understanding deal phrases and negotiating contracts, orientation and enterprise planning. For the whole Model Licensing 101 report or to obtain a abstract of all our modules, click on on the URL:

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