Brand owners grant licenses to generate revenue from the guarantee and royalty payments, but licensing can also serve a number of other purposes.

Marketing support for the core business: The retail display and proliferation of licensed products not only generates product sales but also promotes the core property. For example, a sports fan wearing a shirt with the logo from their favorite team allows them to express their fandom while simultaneously promoting the team, the league, and the sport to anyone they interact with. Similarly, seeing toys inspired by an upcoming film in stores supports the brand’s overall marketing efforts.

Extending a corporate brand into new categories: Licensing can move a brand into new businesses without making a major investment in new manufacturing processes or facilities. This could include a popular restaurant chain licensing a frozen food manufacturer to market a line of appetizers under its brand or a fashion label licensing its name to fragrances or shoes.

Expanding into new geographical markets with relatively small upfront risk: By licensing its brand to a third-party manufacturer, a property owner can move into new countries with a smaller upfront investment than by building and staffing its own operations.

Maintaining control over an original creation: Licensing represents a way for artists and designers to profit from their creative efforts while maintaining control over how they are used. For brand owners (particularly those doing business in the global marketplace), licensing and registering a brand in multiple markets is a way to protect the brand from being used by others without authorization.

In addition to giving the licensee the right to use the property, the licensor assumes several responsibilities that need to be met to create a successful licensing program.

They Include:

–  A timely and efficient approval process, so that products can be developed in a timely way.

–  Giving guidance (often in the form of a printed or digital style guide) about how the brand, character, logo, or other IP can be portrayed within the product, on packaging, or in advertising and promotional materials.

–  Assisting in marketing activities and, in many cases, helping to sell the brand into retail.

Brand owners must also be aware of the risks involved in licensing, however. It is crucial to find the right partners and to sign agreements that result in products that are of agreed-upon quality, can service the retailer adequately, align with the brand’s goals, and are in service to a true partnership that, when well-executed, is a win-win proposition for all involved.

While licensees traditionally do not share ownership in the brand, leasing the rights to a property for incorporation into their merchandise or services serves several purposes.

Gaining consumer awareness: The most obvious benefit to a manufacturer or service provider that licenses a brand, character, design, or other piece of intellectual property is the marketing power that brands bring to a product. It can take millions of dollars to build a brand from scratch, and licensing represents a way for a manufacturer to take advantage of existing image building and fan engagement. Faced with a choice among several cleaning implements, for example, a shopper might be drawn by one that bears the brand of a well-known cleaning fluid, rather than a more generic label. In making the decision about whether or not to take on a license, a manufacturer often weighs the potential royalty payments against the cost of building a brand on its own.

Moving into new distribution channels: Taking on a license might help a manufacturer whose brand has been marketed in mass merchandise outlets to expand to market an upscale, high-quality line in specialty stores or department stores, for example.

Reducing in-house costs: A manufacturer that licenses artwork or designs to be applied to home textiles, wall coverings, housewares, or on apparel has less reliance on in-house art teams that would otherwise need to be maintained.

Enhancing authenticity and credibility: The publisher of a car-racing videogame might license a host of well-known automotive brands and car models to lend legitimacy and authenticity to the game. Similarly, a maker of automotive parts or accessories will license the car brand to establish in the consumer’s mind that its products will work seamlessly with the cars of the parent brand.

By entering an agreement, the licensee takes on a financial obligation as well as an obligation to adhere to requirements around submitting products for all necessary approvals, creating a product to agreed-upon standards, and marketing the product. The major risk faced by a licensee is financial, including royalties, guarantees, and advances. This is because, even if the products do make it to the market, there is no guarantee that they will do well, no matter what brand a manufacturer chooses to partner with.

Brand owners often retain licensing agents to manage their licensing programs. These agents assume duties for their clients such as contract negotiations or the product approval process. In return, the agent receives a certain percentage of all royalty revenues. For the brand owner, the advantage of retaining a licensing agent involves the agent’s expertise and network of contacts. The brand owner also weighs the cost of the agent against the cost and time involved in building up an internal licensing department to handle the business.

Manufacturers that are involved in brand licensing but who do not have in-house employees to handle the business, on the other hand, may retain a licensing consultant. Consultants represent manufacturers in their licensing activities, including the evaluation of properties or the development and implementation of licensing strategies. The terms under which licensing consultants are paid can vary, but the major percentage is paid in commissions derived from product sales.