What Is Brand Licensing? — A Comprehensive Analysis from Definition to Practice

I. Core Definition: The Essence of Brand Licensing Is “Right Authorization and Value Sharing”

Brand licensing, also known as brand franchising, essentially refers to a commercial activity where the brand owner (licensor) grants the right to use its intangible assets (such as brand trademarks, patents, IP characters, and technical formulas) to another enterprise (licensee) through a legally binding agreement.

In this process, the licensee is required to pay a “licensing fee” to the licensor (usually calculated as a percentage of sales or a fixed fee) and must strictly comply with the usage standards set by the licensor (including brand visual standards, product quality requirements, and sales channel restrictions). Meanwhile, the licensor expands its brand influence, diversifies its revenue streams, and avoids direct investment in production and channel development through licensing.

In simple terms, brand licensing is a win-win model where “the licensor contributes its ‘reputation,’ and the licensee provides ‘production capacity/channels’ for collaborative success.” Typical examples include Disney licensing the “Mickey Mouse” IP to toy manufacturers for peripheral products, and Starbucks authorizing its brand elements to co-branded clothing brands for limited-edition items.

II. Operation Model: Completing Brand Licensing in Four Steps, with “Standardization and Risk Control” at the Core

Brand licensing is not merely a simple “signature approval” but a complete process involving screening, agreement signing, supervision, and settlement. The core objective is to protect the brand value from dilution:

1. Licensee Screening: The licensor first evaluates the licensee’s qualifications, including production capabilities (e.g., compliance with industry quality standards), channel coverage (e.g., alignment with the brand positioning to prevent damage from low-cost channels), and past reputation (e.g., history of infringement or quality violations). For instance, luxury brand Louis Vuitton would never license its trademark to street-side workshops for bag production; instead, it partners with enterprises with high-end manufacturing experience.
2. Agreement Signing: Both parties sign a Brand Licensing Agreement that clarifies key terms, such as the scope of licensing (e.g., limited to “children’s clothing” or full-category), licensing period (typically 1–3 years to avoid long-term loss of control), licensed region (e.g., limited to the Chinese market or global), calculation method of licensing fees (e.g., 5%–15% of sales), and quality standards (e.g., products must pass random inspections by the licensor).
3. Process Supervision: The licensor establishes a “licensed product quality control system” to conduct regular inspections of the licensee’s product quality, packaging design, and promotional materials, ensuring compliance with brand standards. If the licensee is found to unauthorizedly expand the licensing scope (e.g., selling online at low prices when the agreement restricts sales to “offline stores”) or fail to meet quality requirements, the licensor has the right to terminate the agreement and claim compensation.
4. Fee Settlement: The licensee pays the licensing fee to the licensor regularly in accordance with the agreement, usually providing sales reports as evidence. Some licensors also require a “minimum guarantee deposit” (a fixed fee to be paid even if sales targets are not met, ensuring the licensor’s basic revenue).

III. Common Types: Classified by “Licensed Assets” to Meet Diverse Industry Needs

Based on the “core assets” licensed by the brand owner, brand licensing can be divided into four categories, adapting to the needs of different industries:

1. Trademark Licensing: The most basic type of licensing, involving the authorization of brand trademarks (logos, word marks, etc.). For example, Coca-Cola licenses its trademark to beverage factories for bottled water production, and Huawei authorizes its trademark to partners for peripheral accessories (e.g., phone cases, data cables). The core goal of this type is to leverage the brand’s reputation to boost product sales, commonly used in fast-moving consumer goods (FMCG) and 3C accessory industries.
2. IP Character Licensing: This type involves licensing IP assets such as the brand’s cartoon characters or virtual personas. Examples include Disney’s “Elsa from Frozen,” the Palace Museum’s “Emperor Yongzheng IP,” and LINE FRIENDS’ “Brown Bear.” These are often licensed to industries such as toys, stationery, apparel, and cosmetics. The core advantage lies in using the IP’s “emotional appeal” to attract consumers, particularly popular among children and young people.
3. Technology/Formula Licensing: This category involves licensing the brand’s core technologies, patents, or product formulas. For instance, McDonald’s licenses its fried chicken formula to franchisees in different countries (essentially a comprehensive license combining technology and brand), and a well-known home appliance brand authorizes its inverter technology to small and medium-sized home appliance enterprises. The core purpose is to monetize technology, commonly used in technology-intensive industries such as catering, home appliances, and pharmaceuticals.
4. Scenario/Experience Licensing: This type involves licensing the brand’s scenario-based services or experience models. For example, Starbucks licenses its “coffee store operation model” to franchisees (i.e., franchising, a comprehensive license combining brand, technology, and scenarios), and a high-end hotel brand authorizes its service standards and decoration styles to partner hotels (i.e., “management output + brand licensing”). This type is widely used in service industries such as catering, hotels, and retail.

IV. Core Value: “Mutual Benefits” for Both Licensors and Licensees

Brand licensing has become a mainstream business model primarily because it creates unique value for both parties:

1. For the Licensor: Low-Cost Expansion and Multi-Dimensional Monetization

• Brand Extension Without Heavy Asset Investment: The licensor can expand the brand into new categories (e.g., the Palace Museum extending from a “cultural IP” to “stationery and cosmetics”) and increase its influence without building its own factories or channels.
• Diversified Revenue Streams: In addition to product sales, the licensor gains stable income through licensing fees. For some brands, licensing revenue accounts for more than 30% of their total revenue (e.g., Disney’s IP licensing revenue).
• Strengthened Brand Awareness: Through licensed products across multiple categories and scenarios, consumers are exposed to the brand more frequently in daily life (e.g., from “watching Disney movies” to “using Disney stationery” and “wearing Disney apparel”), deepening brand memory.

2. For the Licensee: Reduced Risks and Rapid Market Entry

• Leveraging Brand Reputation to Lower Market Entry Barriers: New brands or small and medium-sized enterprises often need substantial marketing expenses to build trust with consumers when using their own brands. However, obtaining the right to use a well-known brand through licensing helps attract consumers quickly (e.g., a niche toy factory may see its sales increase by over 50% after obtaining a Disney license).
• Reduced R&D and Marketing Costs: The licensee does not need to invest resources in building IP or brand images, allowing it to focus on production and channels and lower operational risks.
• Enhanced Product Premium Capacity: Products bearing a well-known brand logo typically command higher prices than unbranded alternatives (e.g., a T-shirt printed with “Mickey Mouse” may cost 20%–50% more than a plain T-shirt), helping the licensee improve profit margins.

V. Key Considerations: Avoiding “License Out of Control” and Protecting Brand Value

For licensors, the core risk of licensing is “dilution of brand value,” so two key points must be noted:

1. Strict Control of Licensing Scope: Avoid “over-licensing” — for example, a high-end brand licensing its trademark to low-cost FMCG products may damage its premium positioning (e.g., a luxury brand once lost its core customer base after licensing to an affordable perfume brand, eventually terminating the agreement).
2. Strengthened Quality Control and Supervision: The licensee’s product quality is directly linked to the brand’s reputation. If quality issues arise, consumers will hold the licensor accountable (e.g., a well-known IP once faced large-scale negative public opinion due to safety hazards in its licensed toys, eventually recalling all defective products and paying compensation).

For licensees, the key consideration is “balancing licensing costs and benefits”: Licensing fees and the licensor’s quality requirements may increase costs. The licensee must calculate sales and profits in advance to avoid losses from “licensing for the sake of licensing” (e.g., a stationery factory fell into financial trouble due to high IP licensing fees and underperforming sales).