How Brand Licensing Drives Growth | Explained by Licensing Agency
Licensing is one of the best ways to grow a brand, and now is the best time to leverage this strategy. In today's competitive market, licensing stands out as a powerful strategy to elevate brand growth. This approach not only boosts credibility, but also attracts new audiences and retailers, offering a cost-effective alternative to building a brand from the ground up.
What is Brand Licensing?
Brand Licensing is the process of acquiring the limited use of a known brand onto your product or service in order to drive demand. Manufacturers have been using licensing for decades with great success as it transfers emotional connection, awareness, and loyalty consumers have with brands or properties onto products or services they may not have considered buying. For smaller or new brands, licensing can help build credibility with consumers and help tap into new audiences who may be more likely to try your product/service.
Market Trends and Growth
Global licensing revenue grew to $340 billion in 2022 with an 8% annual growth rate. We firmly believe this trend will go even deeper as licensing can provide great content for social media and create clearer differentiation in categories that are becoming more competitive and saturated. It can take 10-15+ years and sometimes well over $50 million to build a national brand; however, licensing can accelerate this growth and provide a lower investment, making licensing a fantastic strategy for the right situation.
Key Market Data Overview
- Global Licensing Revenue (2022): $340 billion
- Annual Growth Rate: 8%
- Traditional Brand Building Cost: Over $50 million
- Traditional Brand Building Time: 10-15+ years
How Brand Licensing Works
Licensing involves two main parties: the Licensor and the Licensee. The Licensor (like Disney, Paramount, or Hershey’s) owns the brand and intellectual property (IP), while the Licensee (like Frito Lay, a clothing manufacturer, or a toy company) licenses that brand for their own use under specific parameters. As you can see, there is a lot of negotiation that occurs between Licensors and Licensees. Strong contracts are needed to set clear expectations and safeguard both parties to ensure a successful and fair outcome.
Types of Licenses
There are two main types of licenses: perpetual licenses and promotional licenses.
- Perpetual Brand License: This can last 3+ years for specific categories. For example, a toy manufacturer wanting to create Nintendo action figures would license the characters and brand from Nintendo for a period of time, such as 3 years. The manufacturer agrees to pay a guaranteed royalty ranging from 5-15% of sales.
- Promotional Brand License: This works well for companies like Frito Lay. They might license Star Wars from Disney for a 12-week period on specific items in a specific territory with category exclusivity. In these cases, there would be a specific fee instead of a percentage of sales.
Case Study: Frito Lay and Star Wars
For example, while at Frito Lay, Crew CEO Braden Douglas licensed Star Wars from Disney and created a campaign that included the Star Wars characters on packaging, positioned on retail displays, in social media, and in commercials for a specific period of time. This enabled Braden/Frito Lay to create excitement with consumers and encourage retailers to provide floor placement in stores to drive sales. Star Wars worked. The snack brand saw a strong sales lift for the promotional period and it increased consumption from current consumers and enticed new users to try them out (especially new flavors).
Typical Categories for Brand Licensing
The typical categories that licensing is used in are:
- Apparel and Footwear
- Accessories (i.e. watches, socks, hair bands, etc.)
- Automotive (i.e. dash toys, seat covers, key chains, etc.)
- Health & Beauty
- Food & Beverage
- Pet Products
- Toys & Games
- Lottery & Gambling
Navigating the Complexities: The Licensing Process
Whether you’re a licensee or a licensor, tailored solutions are required to maximize your brand licensing potential. The process follows a multi-phase, 360° approach:
- Strategic Planning: Defining objectives and brand fit.
- Licensee Prospecting: Finding the right partners and setting expectations.
- Terms Negotiation: Crafting strong contracts and royalty agreements.
- Product/Retail Development: Bringing the brand to market.
- Infrastructure Development: Managing audits and process development.
Each party’s obligations are concrete, and performance can be objectively measured. Licensing is better characterized as a partnership where everyone wants the relationship to work.
