How To Craft a Winning Market Entry Strategy – Licensing

by

Grow­ing your busi­ness be expand­ing into new mar­kets is one of the most tried & true busi­ness growth strate­gies. Many busi­ness lead­ers point toward it as the vision for their orga­ni­za­tion. Hav­ing a vision is key, but strat­egy exe­cu­tion earns the dollars.

Inside today’s video I dis­cuss the pros and cons of licens­ing. The dis­cus­sion intro­duces the the­o­ret­i­cal aspects of this strat­egy. Of all the options open to a busi­ness this is the quick­est to implement. We also look at a case where licensee brought unfore­seen for­tunes to the licensor’s doorstep.
 
 
How to Craft a Win­ning Mar­ket Entry Strat­egy — Part 1: Transcript

Wel­come back. In the last video we intro­duced the mar­ket entry con­tin­uum. In this video we’ll dive into the Licens­ing rev­enue model.

So exactly what is licensing?

Licens­ing is a con­trac­tual arrange­ment whereby one com­pany (the licen­sor) allows another com­pany (the licensee) to mar­ket and pro­duce one or more of its prod­ucts or ser­vices in exchange for roy­al­ties, license fees, or some other form of com­pen­sa­tion. The licensed asset could be anything…
  • a patent
  • trade secret
  • brand name
  • or prod­uct for­mu­la­tion
     
Essen­tially licens­ing is a busi­ness struc­ture that allows the cre­ator of an asset to make money with­out hav­ing to invest­ment more time or effort.

If you’re think­ing it is only for hard good man­u­fac­tures like Hugo Boss, Coca-Cola, and Cater­pil­lar? Think again, media and enter­tain­ment com­pa­nies like Via­com, Mar­vel Comics and the National Bas­ket­ball Asso­ci­a­tion are heavy licen­sors. Their agree­ments allow them to extend their brands and gen­er­ate sub­stan­tial revenue.

There are two key advan­tages asso­ci­ated with licens­ing as a mar­ket entry mode.

First, because the licensee is typ­i­cally a local busi­ness that will pro­duce and mar­ket the goods on a local or regional basis, licens­ing enables com­pa­nies to cir­cum­vent tar­iffs, quo­tas, or sim­i­lar export barriers.

 Sec­ondly, when appro­pri­ate, licensees are granted con­sid­er­able auton­omy and are free to adapt the licensed goods to local tastes.

The most referred to busi­ness case of the oppor­tu­nity costs asso­ci­ated with licens­ing dates back to the mid-1950s, when Sony obtained a licens­ing agree­ment for the tran­sis­tor from AT&T’s Bell Lab­o­ra­to­ries. The then head of Sony dreamed of using tran­sis­tors to make a small, battery-powered radio. Seems sim­ple enough now, how­ever at the time, Bell engi­neers thought it was impos­si­ble to man­u­fac­ture tran­sis­tors that could han­dle the high fre­quen­cies required for a radio; they advised Sony to try mak­ing hear­ing aids. Unde­terred, Sony pre­sented the chal­lenge to their engi­neers who spent many months improv­ing the chip’s per­for­mance. What makes this story dou­bly ironic is that Sony was not the first com­pany to unveil a tran­sis­tor radio; a U.S.-built prod­uct, the Regency, fea­tured tran­sis­tors from Texas Instru­ments and a col­or­ful plas­tic case. How­ever, it was Sony’s high-quality, dis­tinc­tive approach to styling and mar­ket­ing savvy that ulti­mately trans­lated into world­wide suc­cess. They spent the time and energy to under­stand what would work in each of this ini­tial tar­get mar­kets and turned this knowl­edge into dis­tinc­tive, market-focused offerings.

There are, how­ever, dis­ad­van­tages asso­ci­ated with licens­ing. The key one’s are:
  • Lim­ited participation
  • Lack of control
  • Licensee may become a competitor
  • Licensee may exploit com­pany resources

So that’s it for licensing.

Inside the next video we’ll keep walk­ing up the curve and dis­cuss Spe­cial License Agreements.

Thank you for watching.

Previous post:

Next post: