Having a license in a product is usually profitable for all parties (owners, licensees, retailers and consumers) because it adds extra value for each of these groups of interest. In this article however we will focus in the licensees for they usually take the higher risk when choosing a license.
Why licensing then?
In the first place because a license properly chosen creates a bond between target and product hard to replicate, increasing the perceived value. As consumers we link the fact of having a Pirate of the Caribbean cup with the inner desire of being a bit more like Johnny Depp. Even an action figure when licensed becomes a source of imagination and creativity, much more than the simple toy it would be without the license.
Secondly, starting a brand consumes huge amounts of resources, while using a license turns immediately any product into a recognized brand. This is a clear advantage for the producer, who in exchange of a royalty can focus on manufacturing -knowing that the license owners will take care of the core values that represent the brand, logo or character. A meal sponsored by our favourite sportsman must be, by extension, healthy.
The best way to boost your brand with a License
Many well-established brands also use auxiliary licenses in order to increase their appeal and strengthen the reason-why in times of especially hard competition. As an example, snacks or editorials frequently give promotional material, often licensed, as a distinctive value.
Usually, a license becomes a purchasing reason also for retailers. A distributor will choose a product people will recognize, meaning if we have a license representing our product we increase our probabilities of getting a place in the store.
Entering new markets and distribution channels
Licensing allows us to access different markets and new distribution channels with the same product. A clear example would be Apple: whenever they launch a new product they also offer a number of accessories branded with their logo. These accessories are made by licensees able to produce generics but willing to enter Apple’s distribution network in order to target an audience with a higher purchasing power.
The moral is that buying a license is, like most business decisions, a risk. But at the same time the licensee is the actor with highest potential profits, which has translated in a continuous growth of the licensing market over the last 30 years.