Benefits of Licensing Established Name Brands
Walk down any frozen food aisle in the United States, and you’ll see a large and growing variety of well-known restaurant and food brands on products ranging from entrées to appetizers to side dishes. That’s because all of these brands have been licensed by frozen food manufacturers to put their names on such frozen food products — a process that allows a manufacturer to “rent” the value of the name brand, paying a royalty to the brand owner for that “famous” logo. Here is a breakdown of the benefits of licensing established name brands.
Consumers are loyal to name brands: Consumers love brands, and will try products with a brand name they know and trust. It’s far cheaper to “rent” a well-known, long-established brand than to build a new one from scratch. In addition, raising consumer awareness for a new brand and getting consumers to buy it is horribly expensive, demanding a large investment. The savings that come from licensing an established brand explains why even giant CPG companies such as Heinz (Boston Market and Friday’s) or Nestlé (California Pizza Kitchen) have embraced licensing.
Instant recognition: Licensing a strong brand name dramatically cuts the product’s time-to-market, taking advantage of instant recognition by both retailers and consumers. Licensing not only drives consumer trial, but also makes retail sell-in easier — store buyers and divisional merchandise managers are consumers too, and are more open to a brand they (and their customers) know than one they’ve never heard of.
Job security: Unlike co-packing or contract manufacturing where contracts can be cancelled on 90 days’ notice, licensing deals typically extend from 3-5 years or longer. This allows for greater stability in revenue forecasting, strategic planning of product line extensions, capital investments and financing.