Now suppose you feel like eating a pizza, as opposed to a home-made pizza offered by your mother; the obvious choices that come in your mind are Pizza Hut, Dominos, etc.
The brand value which is built after years of struggle is at stake for these niche companies. This in return ensures Pizza hut that it can penetrate different markets Penetrate Different Markets Market penetration is calculated as how much the product or service is being used compared to its total market and how it creates a position in the market, especially in the primary stages of setting up the business.
Though both share similar advantages, licensing can be called a subset of franchising; i. Franchising is a much broader concept since it involves a greater degree of control by the franchisor.
This has been a guide to Licensing vs Franchising. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. You may also have a look at the following articles —.
Your email address will not be published. An infringer or competitor can be turned into an ally or partner by settling an IP dispute out of court and agreeing to enter into a licence agreement.
A licence may be essential if a product sells best only when it is incorporated in, or sold for use with, another product, or if a number of IP assets, for example, patents owned by different businesses, are required simultaneously for efficient manufacturing or servicing of a product.
Last but not least, a licence agreement allows the licensor to retain ownership of the IP and at the same time to receive royalty income from it, in addition to the income from its own exploitation of it in products and services that it sells.
The risks of licensing out include the following: A licensee can become the licensor's competitor. The licensee may 'cannibalize' sales of the licensor, causing the latter to gain less from royalties than it loses from sales that go to its new competitor.
The licensee may be more effective or get to the market faster than the licensor because it may have fewer development costs or may be more efficient.
The licensee may suddenly ask for contributions, such as technical assistance, training of personnel, additional technical data, etc. All this may simply prove too expensive for the licensor. It is important that the licence agreement clearly defines the rights and responsibilities of the parties, so that any future disagreements can be quickly and efficiently resolved. The licensor depends on the skills, abilities and resources of the licensee as a source of revenue.
You could agree to a specific royalty rate with a licensee, then never see anything because the licensee is unable to generate any sales. You might face returns of damaged merchandise as a licensor as well, which reduces your overall profits as well. In a franchising agreement, royalties might be paid weekly out of the sales that are generated at the register. This can be an automatic process, withdrawn directly from a bank account or the batch sales created. For many licensing agreements, however, the royalty payments are offered just once per quarter.
That means it could be months before you see your first meaningful royalty payment as a licensor, even when your product is doing well in other markets. One of the biggest issues that licensors face with licensing agreements is a refusal by the licensee to validate royalty statements. They may not let you audit their statements at all for accuracy. This does allow you as the licensor to take legal action, but that tends to get very expensive, very quickly.
For that reason, arbitration clauses are becoming a common component of licensing agreements. Some are even requiring ongoing royalty statement audits as a condition of the license continuing.
The advantages and disadvantages of licensing can be managed when due diligence by both parties is performed before agreeing to anything. A licensing agreement can be beneficial because both parties get the chance to earn profits. It can also be detrimental if a license is over-extended or one of the parties acts in bad faith. Home » Pros and Cons » 14 Licensing Advantages and Disadvantages A licensing agreement gives a licensee rights to use a product that the licensor already owns.
List of the Advantages of Licensing 1. It creates an opportunity for passive income. It creates new business opportunities. It reduces risks for both parties. Purvis, S. Basics of Patent Protection. Sharma, D. Franchising and Licensing. Weston, B. Product Licensing for Beginners. Why Licensing is a Great Option Often, licensing is a more lucrative choice for certain products and industries, especially when considering the costs of starting a new business both time and money , and because licensing gets your product or or service in front of an already established customer base and much wider audience Abedi, The Purpose of Licensing The main purpose of licensing is two-fold.
Patent Protection for Ideas and Inventions With licensing, you are essentially selling your intellectual property, your ideas. Advantages and Disadvantages of Licensing One of the biggest advantages for a licensor is that it allows you, the creative genius behind your invention, to continue to do what you love: come up with new ideas for innovative products or services. Advantages to Licensing Disadvantages to Licensing You will not need to incur the costs of producing, promoting, packaging, or selling your product.
You will likely lose control over your product, including promotion, packaging, and selling. The licensee already has knowledge and know-how as it pertains to breaking into an already established market, so there is no risk to you.
You will only receive a portion of the profits from the sale of your product, as outlined in your agreement. Depending on the terms of your agreement, your royalty payments can last a very long time.
If your product does not sell well, you will not receive royalty payments; or, it may take a while until you receive a payment, depending on your agreement Much of the decision pertaining to whether or not you choose to license is dependent upon your goals.
Tangible products or ideas created by a company or independent entrepreneur Trademark License The licensee gains rights to utilize your trademark in connection with specific goods and services.
Design, artwork, fictional characters for use on other products Copyright Material License The licensee gains rights to use material developed or created by a licensor. Educational resources and materials; branding or logos Trade Secrets The Licensee is required to disclose use of trade secret information that is deemed secret and has commercial value over other businesses or organizations.
Formulas, patterns, information or processes, etc. Computer programs and the code therein the code, as stipulated by the licensor, may or may not be altered, as specified by the owner of the technology Many times, licensing categories overlap and are not mutually exclusive.
Licensing with the Right Company All companies are not created equal in this equation. Advantages and Disadvantages of Franchising The benefits of franchising are similar to that of licensing. But this envelope is even better. Citations Abedi, K.
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