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Know What Is Licensing
Licensing is delineated as the process of leasing a copyrighted or trademarked entity for use with a product or service. The property could be anything from the signature of someone famous to a picture, graphic or logo. A business contract is drawn up between the owner of the trademark or copyrighted material and the individual who wishes to rent it. These individual are called the licensor and licensee respectively.
Why would anybody wish to license an entity? Simple answer is to get more sales. Some brands attract such high customer loyalty that you can sell nearly anything once you have that image or logo or signature on your product.
The licensor is usually inspired by the cash they could make but this is not always the sole reason. Market penetration could be a bigger issue. For example, if a new movie is being produced, the producers realize that having heaps of toys or goods related to the movie in shops will assist to augment the publicity around launch date thus leading to an increase in box office takings.
Licensing also gives the licensor an opportunity to move into related product parts without having to incur the cost of product design or development. They might be hunting to break into new markets for example a US product launching in China but due to limited knowledge of the new market they will want to try out first through a relatively low risk cheap way like licensing. If the new market loves the product, they know they have only leased the brand for a short length of time and are collecting a percentage of sales. Once the time frame is up they can enter the market on their own. If the new market isn't thriving, they have still got revenue from hiring the brand but they haven't wasted any money trying an indifferent marketplace.
Obviously the licensor needs to protect their brand first and foremost so there will be very strict quality controls put in place to cover this issue. An Additional ordinary elements to a license will be a specific geographic locality i.e. you cannot simply trade wherever you want. The contract will also stipulate the time the license has been permitted, the stipulations for renewal, the agreed contract rate and conditions of payment - this is usually a percentage of sales subject to a minimum value i.e. you end up paying a specified minimum amount even if you don't sell anything. But if your product sales take off, you will pay some percentage back to the licensor. There will also normally be an agreement over how many licenses will be issued for that specific area i.e. you could have a sole license or be allowed to license additional people.
People who want to take up a licensing contract do so since they think that they have found an ideal market for that product but do not have the capacity to financial support the operation themselves. Or they may have manufactured a new product that will do much better having been associated with that brand name for even a short period of time. Building reputation in the business is important, almost as vital as being 100% sure you comprehend the licensing process and know accurately what you are getting into prior to signing the deal.
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