Product Licensing
[noun, verb]
‘Product licensing’ is a key marketing concept, normally used to describe a business arrangement in which one company gives another company permission to manufacture its product for a specified payment.
Licensing arrangements can be applied to physical and digital types of artifacts, from software licenses to tangible items with a sufficient enough appeal to attract the interest of end-users. Through product licensing, the owner of such software or product allows someone else to use their intellectual property, design or logo in exchange a pre-established fee agreement which could be in the form of royalties, % of the licensee’s sales, or even a lump sum up front.
Licensable properties are quite numerous, and even though every licensing opportunity is one-of-a-kind, there are some broader categories in which most properties would fall into – according to the latest industry data shared by LIMA (the International Licensing Industry Merchandisers’ Association) 45% of the global licensing revenue is generated by entertainment characters, followed by corporate branding at 21% and fashion at 12%. Even though the licensing of company names/logos/brands comes in second, it is one of the fastest-growing segments of the licensing business as it allows enormous strategic, marketing and earning benefits to both licensor and licensee. Overall, product licensing is also a great tool to support small and bigger sized companies in increasing their market share, venturing their brands into new territories: i.e. under the Armani brand umbrella, consumers can purchase clothes and accessories, but also…tiles.
Product Licensing Fun Fact
Among the first and perhaps most famous examples of product licensing in history is that of “Star Wars.“ In 1977 Lucas Films licensed the production of all the merchandise attached to the movie franchise to a quasi unknown toy company named Kenner. Hasbro, Mattel and others had all refused to taken on the opportunity, failing to see its potential.
This licensing agreement was unprecedented and broke all records, soon proving how merchandising plays a key role for consumers who thrive for immersive types of experiences within convergent media landscapes. Even more importantly than that, it proved how licensing can be an incredible revenue-generating stream:
- In 1978 alone, one year after the first movie was released, Kenner sold more than 40.000 action figures of Ian Solo, Luke Skywalker, Chewbacca & friends.
- After 40-year since its debut on the big screen, the Star Wars saga earned a total of over $7 billions at the box office.
- The toys based on that saga have earned that amount x2.
- A total of +1billion Star Wars toys have been produced and Star Wars is now helping Disney (current owner of Lucas Film) making over $57 billion in licensed products alone every year.
Businesses who want to expand their market share and sales revenues through licensing, would also often benefit from more ‘indirect’ nice-to-have awareness and positioning types of KPI's, as licensing would maximize brand exposure and foster brand loyalty. This comes as a direct consequence of making some brands labels appear more affordable. For instance, thanks to licensing it is possible to buy official Ferrari merchandising: this offers entry-level types of products to consumers who can’t afford to buy a Ferrari car but would still like to build some sort of affiliation with such a famous and aspirational automotive manufacturer.
Product Licensing
Product Licensing allows the production, marketing and distribution of products under a specific brand for a fee (i.e. Calvin Klein licensed the production of its perfumes first to Unilever and then to Coty). A licensing agreement would therefore specify terms, conditions and costs allowing the use of names and images on products in return.
Franchising
Franchising on the other hand, is a form of licensing that goes beyond branding and actually encompasses a pre-existing business model as well. Through franchising it is possible to completely replicate a business in another location, maintaining format, style, business model and so forth in exchange for fees –usually an entry flat cost to join the franchise and then royalties, marketing & purchasing costs and so forth. Since they leverage a pre-existing and often well positioned brand, franchisees are on the fast-track of generating quick ROI. A good example of franchise is Bloomingdales: its stores are present all across the USA and they all deliver a consistent and coordinated user experience.
netamorphosis has helped a number of different types of organizations (from small businesses to huge market leader ones) brokering and strengthening licensing arrangements as well as directly worked on the licensing of products, defining: fees, granting of rights, obligations, terms, termination and so forth.
The top 5 key benefits of licensing:
- Brand and product expansion
- Market expansion
- Leveraging of a pre-established and functional
- Production/distribution/sales/marketing pipeline
- Cost efficiency: reduction of costs, as well as more contained losses
- Ideal for small companies and bigger businesses alike
In our +10 years’ experience as a digital growth agency, through our product licensing services we have secured fast and efficient new revenues opportunities for clients such as: MoMA, Hyundaicard, Target, Kirna Zabête, Nine West, Pico Design, Frank Lloyd Wright’s Foundation, Dynomighty, and the CLC {Collegiate Licensing Company} – expanding their range and/or optimizing their results by leveraging pre-existing (and verified) production, distribution and marketing channels.
