Due to the rise of the internet and the increasing pressure on manufacturing companies to go global to increase profits, brand name licensing deals have become increasingly lucrative. While Hollywood has been recently the epitome of brand licensing, using a brand (e.g. a movie franchise) to sell an extremely wide variety of consumer products (superhero themed shirts, mugs, headphones, toys, keychains, bags, shoes, etc.), brand name licensing (also called brand-name leasing) has been around for many decades and has traditionally been used only in complementary product categories.
The goal of brand licensing is a win-win situation where a reputed brand can leverage its name to enter a new (related) product category, while third-party manufacturers with experience in this new product category can yield a profit by using the trust that customers put in the licensing brand. The licensing brand is paid a royalty on each sale made by the third-party manufacturer, and this price can be fixed or variable (based on the number of potential sales).
This arrangement allows well-known brands to sell a wider variety of complementary products that relate to their brand category, hence allowing them to make money from the consumer trust without shifting focus away from the main business.
(Please note that brand name licensing is different from franchising a brand, where the brand-owner sells the same product at a different location managed by a third-party.)
The main advantage of leasing a brand is that the brand-owner does not need to acquire the necessary capital and know-how required to set up a manufacturing unit for the production and sale of a complementary product. It saves the leasing brand years in bringing a new product to market. It also saves the licensing brand from making costly mistakes in a new market that might end up costing the brand owner a lot of money and time, as well as decrease liquidity and shift the focus of the parent company.
There are some potential disadvantages to brand-name-leasing. Valuing a brand accurately can be challenging, and a brand needs to have sufficient value and trust in the market to be able to lease it out. Once a brand has decided to lease its name, it still needs to ensure that the product quality of the third-party manufacturer stays up to the standards expected by the customers of the licensing brand. Choosing what products to launch is also crucial – launching too many products can result in brand dilution, and even a single failed product can result in lost consumer trust and result in devastating effects for the brand (especially if the company is listed in a public stock exchange) that can have a cascading effect in the long term.
The decision to lease your brand can be a tough one, and as with any business venture, the potential upsides of the business needs to be worth the risks. Given the many parameters that are involved in brand name leasing (choice of product categories, finding the right supplier/dealer/manufacturer, finding the right investor, ironing out the legal issues and making a contract fair to both parties) and the individuality of each case, you need a trusted and experienced partner to guide you through the process.
We at Bestin.capital have years of experience in brand leasing, and we shall be happy to help you obtain the necessary know-how to help you raise additional capital through brand licensing. Please get in touch with us here.