Lesson 2 (sports entertainment and marketing)

6.02 Discuss Product Licensing

Licensing Overview

  • Definition: Licensing refers to the permission granted to copy the name, logo, or trademark of various entities such as leagues, athletes, sports teams, entertainers, films, television shows, or characters in exchange for a fee, also known as royalties.

  • Key Players:

    • Licensor: The rights-holder of the name, logo, or trademark.

    • Licensee: The company that pays for the permission to use the licensor's name, logo, or trademark.

Well-Known Licensees

  • Examples of well-known companies that participate in licensing include:

    • Nike

    • Reebok

    • Adidas

    • Sony

    • Nintendo

Impact of Licensing on Products

  • Manufactured Goods: Licensed products are created by licensees under an agreement with a licensor. This relationship can significantly influence how consumers perceive the licensor's brand.

Licensing Agreements

  • A license is granted to a company enabling it to manufacture, market, and sell licensed products.

  • Licensing offers increased profit opportunities, promotional advantages, and legal protections for licensors.

Role of the Licensor

  • Responsibilities of the Licensor:

    • Approves products.

    • Collects licensing fees and royalties.

  • Example: Warner Bros. (WB) granting permission to Electronic Arts to use Harry Potter characters.

Royalties in Licensing

  • Typical royalty rates range between 5 to 10 percent of wholesale prices paid by companies.

Types of Licensing

Character vs. Corporate Licensing

  • Character Licensing:

    • Allows a licensee to use a specific character or image from sports or entertainment for a fee.

    • Example: LucasArts licensing character images from "Star Wars: Attack of the Clones".

  • Corporate Licensing:

    • Corporations permit the use of their corporate logos or images for a fee.

    • Example: Coca-Cola licensing its logo for use on merchandise like baseball caps.

Advantages of Licensing

For Licensors:

  • Enhanced company image and publicity.

  • Increased profit through royalties.

  • Improved brand awareness and recognition.

  • Better penetration into new markets.

  • Limited manufacturing costs and risks.

For Licensees:

  • Benefit from existing brand recognition.

  • Lower advertising and promotional costs.

  • Higher potential for success and profitability by association with popular entities.

Disadvantages of Licensing

For Licensors:

  • Risk of poor-quality products from licensees.

  • Partial loss of control over the marketing mix of the brand.

For Licensees:

  • Risks associated with a decline in popularity of the celebrity or entity.

  • Poor performance of sports teams impacting merchandising.

  • Changes in consumer preferences and styles.

  • High costs related to royalties and licensing fees.

  • Allergic competition leading to increased costs and potential market share loss.

Impact of Licensing on Consumers

  • Product Accessibility: Licensing increases opportunities for consumers to associate with athletes, entertainers, and corporations.

  • Product Availability: Results in a greater supply of licensed products.

  • Market Dynamics: Competition fosters lower prices, new offerings, and improved product quality.

Bootlegging

  • Definition: Bootlegging is the unauthorized use of a name, logo, or trademark which adversely affects the profits of licensors and legitimate licensees.

  • Consumer Impact: Leads to poor-quality products, ultimately diminishing brand loyalty.