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If you are in the tech world or even in the vicinity of it, odds are that you’ve had more than one person ramble on and on about the advantages of licensing.
In today’s world of rapid technological change, new technologies are the key to economic growth and, with the growing digitalisation of the food industry, it is adamant for restaurateurs to be on top of the new trends, equipped with the best technology available. Restaurateurs may not have the time or the knowledge to search and work the new products, so obtaining something ready for use, patented, easy to use and functioning might become a very attractive and successful solution.
One would think that with how widespread the phenomenon is, clear information on what licensing is and how it works would be available to everyone, and yet, it is something that remains quite obscure.
Well, do not fret, this article is about to fend through the darkness and illuminate you on licensing.
What is licensing?
Licensing is a business arrangement in which one company gives another company permission to manufacture its product for a specified payment.
The licensee can instantly tap into the licensor’s existing technology, production, distribution and marketing systems. The multinational firm doesn’t have to spend its own resources to manufacture, market, or distribute the goods but can rely instead on the ones that the company might have spent decades building and trialing out. The licensee obtains the right and gives the licensor in return, a percentage of the revenue from products or services sold under the license.
Licensing can work in many directions and with many different combinations.
In the case of Foodetective for example, it works as a third party system: instead of having Foodetective sell its proprietary technology directly to restaurants, we have the sales team approach the head office of multinationals like Coca cola or Starbucks; the multinational will buy the license for an x number of franchise shops and sell them for Foodetective to their relative clients. Considering the widespread reach of multinationals like Coca-cola, licensing allows more businesses such as restaurants, hotels, bars, kiosks etc. to access immediately a patented, effectful and more advanced technology.
This system allows businesses to increase their reach, grow market share, target new audiences and increase sales. It is one of the most effective and modern innovations to successfully communicate and showcase the value of one’s products to the consumer. .
Let’s delve with more details into the benefits
- It is easier
As a restaurant business you get instant access to the technology, experience and know-how of a company’s product without having to undergo the lengthy development and trial process and ending with a technology that is simple, intuitive, effective and ready for you. It’s ready to use, patented and simple.
For the licensor, as in the case of Foodetective, it simplifies the marketing and selling process: instead of having to go to 100 different businesses, one taps into the network and the market of a trusted multinational company that sells the product for you.
2. It is cheaper
The licensee doesn’t pay for expensive and time consuming research and development or for the development costs up front, but only for the royalties when starting to make the sales. Further it costs less than buying an entire company and there is no risk of having large losses if the product doesn’t become successful in the relevant market area.
3. It narrows down business risks
“The profitability of your company depends greatly on the amount that was invested in order to generate your net revenue. By licensing your technology, you let your licensee make the heavy investments (commercialization efforts, production, logistics, marketing, etc.) and you limit yourself to mainly investing in a support structure (legal, audit).
Your risk is hence limited, and the returns on investment are relatively higher.” Itamar Ahrenbeck, 2019
4. It increases sales and grows market shares
According to market analysis the The global Brand Licensing market size is projected to reach US$ 384,508 million by 2028, from US$ 275,936 million in 2021, at a CAGR of 4.30% during 2022–2028.
The market of licensing is growing in relation to the tangible achievements and advancements that the companies using it have found. With a more updated and functional technology as well as with the ability to enter new markets — such as the ones linked with the licensors — sales increase and the market share of the company grows visibly.
5. New markets and new audiences
By licensing companies’ technology, you take advantage of their market knowledge, their distribution channels and production capabilities. This allows you to incorporate new markets and target new audiences and possibly source new partners creating multiple streams of new revenue. Ultimately this achieves greater scale results much faster than if one had to start operations and build connections with customers from scratch. That is especially true for markets that are highly competitive like the food and beverage industry in which gaining market share would require a lot of time and resources.
6. Expand product’s offerings and earn Ancillary Revenue
By accessing newer and more advanced technology means upgrading one’s business and being open to finding alternative ways to make revenue . Through licensing, interacting with new markets and technologies one can earn Ancillary revenue: the revenue that is derived from goods or services other than a company’s primary product offering.
7. Create customer value
By improving your business and its marketing process you make your business more attractive to your customers and you create more customer value for your company. Providing useful products and services for your customers can encourage sales, improve customer loyalty and grow your brand’s reputation. And ultimately creating value for your customers can have a direct impact on your company’s long-term success.
In conclusion, licensing allows startups to decrease risks as they limit the investments related to commercialization and production in a specific market or globally. By doing so, the company can focus on what it does best: developing solutions using its technology, and use the licensee’s own expertise and resources in order to get an important return on investment.
Incredible things happen when people come together
Want to find out more about licensing? Book a demo with us by clicking on this link: https://foodetective.typeform.com/to/xnVTlV0K?typeform-source=business.foodetective.co