W H Y D O COM PA N I E S

LICENSE THEIR BRANDS?PETECANALICHIO

A licensing agreement authorizes a company which markets a product or service (a licensee) to lease or

rent a brand from a brand owner who operates a licensing program (a licensor).

Companies who know their brands well have a good understanding of the equity

of the brand.

BENEFITS FROM A BRAND’s EQUITY

A brand’s equity is derived from the awareness and image a brand holds with its consumers.

1. Licensing enables companies whose brands have high preference to unlock a brand’s latent value and

satisfy pent up demand that exists.

After Apple launched the iPod a

number of years ago, it created an

immediate need for accessories.

Licensing the iPod brand enabled many companies to produce all kinds of terrific products to make the iPod more user-friendly and enhance

the listening experience.

Examples include the Bose Sound System with iPod docking station, other products that enable an iPod to be heard through a vehicle’s built-in stereo and iPod holding devices that allow users “to take their music with them” when they go running.

2. Licensees lease the rights to a certain property for incorporation into their merchandise, but traditionally they do not share ownership in it.

Having access to major national and global brands gives the licensee significant benefits

they previously did not possess.

The most important of these is the marketing power the brand brings to the

licensee’s products.

Building a brand from scratch can take years, millions of dollars and a lot of luck.

3. The company which licenses a brand gains immediate access to all the positive brand and

image building that went before it.

The licensee also takes with them the reputation of the licensor.

Often this “halo” effect can translate into many intangible and immeasurable benefits such as

returned calls, an agreement to meet, or simply the benefit of the doubt.

USING LICENSING TO ENTER NEW CATEGORIES Often brand managers will enter or extend their brands into new product categories to drive strategic growth for the company.

P&G wanted to find out if consumers would expect Crest to offer a whitening product and if so, based on the preference for the Crest brand, purchase this new product.

While P&G decided to source the product

overseas and distribute globally,

they could have chosen to

manufacture it themselves and

distribute or enter the market through

licensing.

P&G discovered that consumers expected them to sell cleaning

accessories under the Mr. Clean brand.

P&G decided to enter the market by licensing the category to Magla, a company that already had

expertise and presence in this category.

The diagram below illustrates the different stages that are a part of the

Licensed Product Process Flow

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