By licensing a well-known brand on an exclusive basis, a licensee is “buying into” the brand recognition of, and the resulting predisposition to purchase a brand by, both retailers and consumers, often resulting in rapidly increased sales.
SECURITY AT RETAIL
Retailers want powerful brands – to lower risk, provide more value to the consumer, and become a hotter destination for the consumer. When retailers decide to cut back on their vendors, these powerful brands are the most likely to survive such a “purging.” Licensing these powerful brands provides an opportunity to secure a more permanent position with these retailers.
Whether through actual added value (such as better design), perceived added value (often a result of marketing), or a combination thereof, some brands will enable a licensee to achieve an increase in margins that will significantly exceed the cost of the license.
Licensing the right brand for use on appropriate products can provide instant entree into new channels of distribution, new departments within a store, new price ranges, new product categories, or new geographical territories.
DEVELOPING A NEW BRAND
Instead of spending many millions of marketing dollars for several years to launch and build recognition around a newly created brand, licensing allows the licensee to benefit from the high recognition level of an existing brand by essentially “leasing” the brand for a significantly smaller outlay, less risk and without waiting years to build consumer recognition.
INCREASED COMPANY APPEAL
The right licensed brand can enable a licensee to attract better employees, better production resources, better financial resources, prime positioning (i.e., print advertising positioning, tradeshow booths, showroom, etc.), powerful influencers, an omnichannel presence (i.e., by linking with and/or selling through the licensors’ website, owned retail stores, home shopping presence, etc.), and, in fact, other strong licensors, all of which can lead to a higher market value of a public or private company.
LOW-RISK MEANS OF DIVERSIFICATION
If a licensee wants to launch a new range of products or enter a new channel of distribution, the right license can be a much less costly and more immediate means of market penetration. The right license can provide instant credibility and immediate demand for the new product range, or instant entrée into the new channel of distribution.
INCREASED TOP AND BOTTOM LINE
All of the above factors can contribute to increased net sales and net profits.