Trademark brand licensors may potentially leave billions of dollars on the table without a detailed licensing plan in place. As a small-business owner, do you know the mechanics of licensing and whether it can positively affect your bottom line?
A license can be described as a legally protected agreement through which a third party leases the use of the company’s brand, name or likeness from another entity. The licensee—the company purchasing the rights to use the successful brand—typically does this because it will assist in selling more products, such as media, soft goods (i.e., T-shirts and sleepwear) or toys and games, than it would without the brand.
Meanwhile, the licensor may benefit from a license that helps strengthen and expand its brand beyond its existing client base. It's also typically less expensive for the licensor to license with a manufacturer to produce a new line of products rather than take on the cost of manufacturing the product itself. And the royalties received from licensees may add to the licensor's profit margins.
When considering who the "appropriate" customer is, more specific can often be better.
You could think of a successful licensing partnership as an effective way for both parties to collaborate in selling quality goods to the consumer. Typically, the licensor has a widely successful brand, but doesn't manufacture or sell products. Similarly, the licensee makes and/or distributes quality products, but may not have brand recognition that resonates with the consumer. Together, they can reach an entirely new group of customers and share in the profits of that retail partnership.
What to Consider
What factors should you consider when exploring a licensing plan? Here are a few steps in the process of creating an effective licensing plan.
Hire counsel to secure your intellectual property. A seasoned attorney can help trademark your company’s brand in the early stages of your business. Once that brand is strengthened through your strategy marketing, sales and PR efforts, then you might explore next steps.
Hire a licensing agent with relationships in the industry to solicit partnerships. Once you have your intellectual property secured, consider finding a seasoned licensing agent. These brokers can consult with you to determine whether licensing is right for your brand. The agent may look at your business for signs of a strong brand (i.e., social media presence, market share) and then develop a licensing plan for finding the right partners and negotiate an effective agreement. One question that the licensing agent will hopefully be prepared to answer is: “Will this brand assist the licensee in selling more?”
The agent might identify that answer by identifying the correct products to develop to the appropriate customer in the correct retail space. First, when considering what types of products will be a good fit, consider whether the extension makes sense so there's credibility with the consumer. (A sugary drink may not be a great expansion idea for characters focusing on health and fitness, for example.)
When considering who the "appropriate" customer is, more specific can often be better. Are you seeking to sell your new baking materials to stay-at-home dads? Then you will likely want to tailor your products to suit their unique needs.
Finally, identifying where customers shop and make their purchases is often a final critical step in the analysis. These might be trendy stores like Urban Outfitters, value channels such as Dollar Tree, or larger mass stores such as Target.
Timing Is Everything
Different retail categories have different time frames for getting a product to market. Understanding those calendars is usually a part of your agent’s responsibility. Depending on the nature of the licensed product, it may take nine to 18 months to hit the shelves.
Once an agent has created an effective strategy for your company, implementing those relationships often require consistent effort. However, with a strategy plan and solid relationships, you can hopefully expand your brands with lucrative, well negotiated agreements.
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A version of this article was originally published on June 9, 2015.