Licensing is the practice of leasing a legally-protected property (such as a trademark or copyrighted name, device, logo or design) to another party in association with a product, service or promotion. Brand licensing involves a contract between the proprietor of a brand (licensor) and a company, organisation or individual (licensee) who wishes to use or commercially exploit the brand in relation to some products or services for a period of time within a particular jurisdiction in exchange for monetary remuneration.
In international trade, licensing is done extensively and is of great importance and remains one the most exciting activities of the marketing arena. The core equities of the brands are being used to generate additional income contributing to the overall revenues of a company. The realisation that brands are a powerful yet under-utilised asset is the reason why trademark licensing has become a popular marketing strategy today. In India, the outburst of economic growth and consumerism has made way for greater need for branding and advertising as a means of reaching the masses, leading to its exponential growth.
The orthodox line of thinking presumes licensing is a beneficial activity for the licensor in terms of revenue generation in the form of royalties in exchange for the license granted. Unfortunately, valuation methodologies that focus only on financial metrics or comparable transactions are not adequate to determine the value of a brand’s extension license opportunities. Apart from revenues, licensing is also a way of brand extension, awareness, recognition and protection; the demand for a large supply of goods and services bearing the marks make it more necessary for the licensor to license the marks in order to meet ever-growing demand.
On similar lines, franchising is a related aspect of the same trade, with brand being the most important asset, but a different way of conducting business, being more of a marketing concept and working by distribution of goods and services. Franchising is a continuing relation between a franchisor and a franchisee (operating under a recognised brand name with a certain set of conditions). The rights of exploiting a trademark are vested in a licensee with product quality control and the acknowledgment of the owner of the trademark. Similarly, the rights to market and sell the products or services of a franchisor after the agreement vests in the franchisee but with procedural and quality control extending to the method of conducting business from the franchisor, deviation from which is not permitted.
Licensing or franchising aids the licensor or franchisor in entering new markets or geographical areas, and can prove to be a booming business opportunity for a licensee or franchisee. It also can create job opportunities for people, generating a positive impact on the local economy. While the licensee spends less money in licensing an already-established brand rather than creating a new brand (with great expenditures of money, effort and manpower), the franchisee gets knowledge, technical assistance, training and experience from the franchisor in running the franchisee. The most important advantage for the franchisee is in having access to the franchisor’s intellectual property, including patents, trademarks, copyrights, trade secrets and secret business methods, processes and formulas, and access to continuing research and development carried out by the franchisor in the relevant field.
In the current scenario where unique messages, recognition, consistent delivery and emotional experiences are at the core of a brand’s success, organisations need to actively develop powerful design strategies. The global economy shall witness a further boom for this aspect of trade in the coming days.
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