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Licensing + Franchising (Advantages of Licensing (Low-risk + Inexpensive…
Licensing + Franchising
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What is Licensing?
- A commercial process whereby the trademark of an established brand is used by another organisation over a defined period of time in a defined area, in return for a fee, to develop another brand
EXAMPLE: Budweiser products were made in the UK under license from the US brewing organisation Anheuser-Busch
EXAMPLE: Universities create a lot of products but don't have the facilities to manufacture + distribute them. They get patent protection + sell the rights to someone else to go and make it
Advantages of Licensing
- Low-risk + Inexpensive method of generating income from foreign markets - can avoid high import tariffs + high costs of direct investment
- In the case of universities, for example, it can help them get the product to market for no additional cost. They might receive a royalty [% of sales] or buy it outright depending on the cash flow model
- Low initial investment for the business
- Avoids trade barriers if wanting to sell overseas
- Potential for utilising location economies
- Easier to respond to customer needs
What is Franchising?
- Involves a brand owner authorising another organisation the right to produce/market services to certain criteria laid down by the franchisor in return for fees/royalties
- Some of the most successful international marketing operations are franchise-based, including KFC, McDonalds etc
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