Licensing is delineated as the process of renting 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 signed between the owner of the trademark or copyrighted material and the individual who wishes to rent it. These people are termed as the licensor and licensee respectively.
Why would anyone wish to license an entity? Simple answer is to get more sales. Some brands attract such high client loyalty that you can sell almost anything once you have that image or logo or signature on your product.
The licensor is generally motivated by the cash they could make but this is not always the sole reason. Market penetration could be a bigger issue. For illustration, if a new movie is being produced, the producers understand that having heaps of toys or items which have picture of that movie on it in shops will help to augment the publicity around launch date thus leading to an increase in box office takings.
Licensing also provides the licensor an opportunity to move into related product areas without having to incur the price of product design or development. They may be hunting to break into new markets for illustration a US product launching in China but due to limited knowledge of the new market they will wish to try out first via a comparatively minimum risk inexpensive route 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 limit is over they can enter the market on their own. If the new market isn't thriving, they have still got profits from leasing 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 extremely strict quality controls put in place to cover this issue. An Additional common elements to a license will be a particular geographic location i.e. you cannot simply trade wherever you wish. The contract will also stipulate the timeframe the license has been permitted, the conditions for renewal, the decided contract price 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 though 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 a contract over how many licenses will be issued for that particular area i.e. you could have a sole license or be allowed to license additional people.
People who wish to take up a licensing contract do so as they believe that they have found a right market for that product but couldn't finance 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, nearly as crucial as being 100% sure you understand the licensing procedure and know exactly what you are getting into prior to signing the deal.
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