Brand Licensing Definition: Everything You Need to Know
The brand license definition is a licensing agreement that gives permission to a company to produce or market a product or service from the original owner.3 min read updated on January 01, 2024
The brand license definition is a licensing agreement that gives permission to a company to produce or market a product or service from the original owner. In essence, the company is renting the use of the product or service from the owner. The licensee will then produce, promote, and distribute the product or service and, in exchange, the licensor will get royalties from the sale.
Once an agreement is in place, the licensee will be able to access all of the trademarks and logos that are associated with the brand. Since it can take years and a significant amount of money to create a brand from scratch, licensing may be the best option. Brand licensing is also a shortcut route when a company is interested in gaining access to a positive brand. Brand licensing can also be used to differentiate products from the competition and extend a brand.
When a company licenses a brand, it will take on all of the marketing and production roles in bringing the new product or service to consumers. An example of a brand licensing agreement includes Reese's, who knew the large market for peanut-based chocolates, but instead of trying to create the products themselves, they licensed their brand to other manufacturers.
They gave the license agreement to Betty Crocker, who had experience and expertise in the field. Reese's was able to tap into new markets and generate new revenue, and Betty Crocker was able to increase revenue by leveraging the Reese's brand name, which had wide mass appeal.
Understanding Licensing Terms
To understand a licensing agreement, you must first understand the terms used. Some of the most common terms in brand licensing agreements are:
- Licensing - Leasing a copyrighted or trademarked brand identity. This encompasses the tagline, brand name, logos, and signature to use in the company's product line.
- Licensor - The owner of the rights to the brand to be leased.
- Licensee - The business who is seeking the rights to lease the brand.
- Contractual agreement - The document that will lay out the terms of how the licensee may use the brand and how the licensor expects to be compensated.
- Royalty - Typically in a brand licensing contract, the licensee will be required to pay a minimum payment as well as a royalty on sales of the product or service.
Different Stages of Brand Licensing
There are multiple stages to the process of brand licensing.
- The licensor chooses the product they wish to license.
- The licensee will create a prototype of the product and come up with a final production piece and sample.
- The licensor will approve the licensing deal.
- The licensee will begin selling products to retailers.
Steps to Follow When Licensing
When licensing occurs it will often result in a product that looks brand-produced or co-branded. An example of a licensing agreement would be with Disney and Timex. Disney licensed its name to Timex so that they would be able to produce a watch that features Mickey Mouse. The piece will appear like the two companies came together to produce the item, when in fact it was the result of a licensing agreement.
When drafting the contract, the agreement should specify:
- The usage purpose
- The limits on its application
- The geographic area allowed
- The time period
- The payment schedule
- The terms
Below are some guidelines and considerations when entering into a brand licensing agreement.
- Make sure to build, protect, and manage your brand and its reputation.
- Establish the guidelines for licensing, including product category, price range, and distribution.
- Only license to well-respected companies.
- Limit the number of companies that you agree to license to in a specific geographic area or product category.
- Create a licensee training program to help ensure all of the products you license will achieve your brand standards and live up to the reputation of your company. This can include training on your brand image as well as quality standards.
- Continue to monitor your licensees to make sure your licensed products are branded the way you want them and stay in line with your company image.
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