ALP: I’ve heard Trademark Licensing referred to as a “strategic marketing tool.” What does that mean to me?

January 2005

In marketing terms, licensing is the extension of the underlying idea or message conveyed by an existing brand into a series of products marketed by an unrelated company.  In legal terms, it is essentially the lease of a trademarked brand or logo in exchange for a defined payment or royalty.

Mutual Benefits
Each party to such a relationship benefits.  The licensee/manufacturer enjoys enhanced consumer recognition through use of an established brand.  Association with a brand having an image of high quality brings the licensee’s product within the halo of that image and creates consumer acceptance.  This combination of consumer awareness and acceptance can significantly enhance sales and reduce the need for advertising, while enabling the licensee to compete effectively with the bigger players in its industry.

The licensor/brand owner enjoys revenues from expansion into new product categories without the cost of developing and launching its own products.  Brand awareness increases, elasticity of the brand is enhanced, and a broader retail presence is created.  The licensor’s advertising creates leverage by generating rub-off sales of the licensee’s products, in turn generating increased royalties, while the licensee’s own advertising can generate sales of the licensor’s products.

Mutual Rewards
In addition to individual benefits, other rewards can effect the parties simultaneously.  For example, cross-promotional programs can offer discounts in the price of one company’s products when combined with purchases of the other’s products.  Joint advertising and public relations campaigns can be coordinated to benefit both parties. Each party’s products and brands are further protected against knockoffs as the result of the expanded range of legal protection resulting from their cooperation.

Nothing to Sneeze At
As a pertinent case study, several years ago a manufacturer of an unbranded but high quality room atomizer used to relieve cold symptoms approached Procter & Gamble for a license to the well-known VICKS® brand.  The manufacturer’s product had experienced consistent sales at moderate levels for many years.  After careful consideration, P&G granted the license.  In the first year of use of the VICKS® brand, sales of the otherwise unchanged atomizer increased by five hundred percent (500%)!

Cold Facts
Brand licensing offers sufficient advantages to warrant close consideration by brand owners as well as by potential licensees looking to add bottom-line results.