Some licensors think first about the potential royalty income, often at the behest of top management. While technology owners would not initiate licensing programs if they were not profitable – and many programs can generate significant revenues – it should be reiterated that, in many cases, revenue generation is not the primary or most logical reason for the effort, especially in the corporate sector. In some cases, technology owners expect their licensing efforts to be self-supporting but not necessarily profitable since non-financial objectives take precedence.
Here are 15 management and marketing related benefits for companies to initiate a licensing program.
- As licensing is a less risky and less investment heavy way to develop a business, it contributes to a debt reduction, greater sales, and it also improves margins.
- A large percentage of licensing revenues, as compared to revenues from manufacturing, go directly to the bottom line.
- Some companies create cohesive, centralized brand marketing plans but still accomplish all manufacturing and distribution through licensed manufacturers. This happens when a technology owner’s potential royalties from a licensed product line exceed its profit margins for the same item produced in-house (or outsourced), licensing becomes an attractive alternative. Some licensors have made this move as a key means of surviving a bankruptcy filing.
- Licensing can be used as a way to increase control over their brand activities or to generate more profit by controlling manufacturing.
- Some licensors view licensing as a component of the marketing mix and a method to create consumer awareness. Licensing along with advertising, promotions, and point of sale materials can create positive associations between core and potential consumers.
- Licensing is a method of extending product lines into areas where a company does not have manufacturing or marketing expertise or existing distribution channels.
- Licensors use licensing and co-branding to add positive attributes to their products and brands.
- New product categories, achieved through licensing, can expand a customer base through exposing the brand to additional consumers in new venues.
- Licensing is also an effective and relatively risk-free means to test a new product category. If the category proves successful during the test period, the licensor can either continue to license or set-up an in-house operation to market the product line. The large investment required to set up a new division is more palatable once there is an assurance the line will sell.
- A company can test or expand its brand internationally through licensing.
- Another important reason to set up a licensing program is to strengthen trademarks. Licensing strengthens a trademark by expanding its use to products outside the licensor’s core categories. Trademark protection varies by country, but licensing efforts always help a technology owner protect and enforce marks.
- Another benefit of licensing is its effectiveness in helping to relaunch or reposition a brand or technology.
- In some cases, licensing benefits licensors by creating an additional outlet for its core products or by-products.
- Diverse licensed items enable cross-merchandising, which creates a bigger splash at retail, as cross-merchandising can help boost a product line into bestsellerdom.
- Licensing (in contrast to selling outright) allows owners to maintain control. Licensing gives final approval over all uses of the brands and enables owners to terminate agreements that do not meet expectations.
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