The difference between licensing and franchising is that in franchising, one party permits another party to use its brand name. On the other hand, licensing is an act of issuing a license to utilize someone else’s intellectual property.
Franchising focuses on the delivery of service, while licensing provides both product and service. For instance, a coffee shop can be franchised, but not the item of the coffee shop can be franchised.
Licensing is the practice of selling retail licensing rights for a product or service, whereby a company grants to another company the right to sell that product or service bearing the trademark and trade name of the licensor or manufacturer under certain conditions.
With the help of licensing and franchising, businesses can expand into new markets while keeping their strong brand recognition and efficient operating procedures.
Table of Contents
What is Licensing?
Licensing is a way of giving rights to a company to produce its product for a fixed fee.
In general, licensing is allowing one firm to use another firm’s design, patent and other rights in return for an amount.
Licensing means simply granting permission to others to use confidential information, logo, designs and copyrighted materials.
While licensing can include both services, franchising only deals with the delivery of a single service.
Licensing is the best way to expand the brand name of a business and make great money.
Some of the companies do not have the proper resource or time to manufacture their own product, so they can get reliable products to grow their business by licensing.
Advantages of Licensing
The following are the advantages of licensing:
1. Licensing is less expensive than owning a whole firm.
2. A firm that licenses any product or service will not be responsible for financing and making time for advanced research of the product.
3. A licensing company can get direct rights to the knowledge and skills of the company team that designed the product.
4. In case the product is unsuccessful in the market, the licensing company will not suffer a major loss.
5. Licensing making a small-sized company to be competitive in a simple way with few materials.
Types of Licensing
There are two important types of licensing:
1. Brand Licensing
2. Copyright Licensing
1. Brand Licensing
Brand Licensing is a means of giving authority to market goods by presenting the name of the brand order. It enables businesses to keep hiring good and famous brand names and use them on your goods.
Allow you to interact with both present and potential consumers and create a competitive advantage.
Such as any logo or the artist’s name joined with the brand name.
2. Copyright Licensing
Copyright licensing is a method of giving copyrights of any items or entity to someone else.
It is a sort of agreement between the owner of the copyright and someone who wishes to use the protected works for a certain purpose.
It includes books, software or any artistic or musical work.
What is Franchising?
Franchising is a quick way to become a business owner. Franchising is a way of running a separate company under another company’s trademark and operating system.
The beginning of franchising started in the middle of the 1800s with Albert Singer. He began selling and marketing his sewing machines in the United States. He was the first one to promote franchising and write a franchise agreement.
Franchising works under accurate rules and regulations. McDonald’s is a well-known example of a business that has grown through franchising.
An individual who offers his business plan for sale is called a Franchisor and a person who buys a franchise is called a Franchisee.
Advantages of Franchising:
There are multiple advantages of franchising:
1. Franchises can benefit businesses by allowing them to grow and gain knowledge from mature corporations.
2. Franchising involves finding people who want to operate your business using your successful formula.
3. Franchisor gives proper training on operating the business using its system and processes.
4. A Franchisee can get a prepared sales model and strategy with a good brand name.
5. Buying a franchise is less risky than starting a new firm.
Types of Franchising
There are three primary franchising types.
1. Business type format franchising
2. Product type format franchising
3. Manufacturing type format franchising
1. Business Type Format Franchising:
Most franchises are business formats in which the business owners provide a variety of services, business models and trade mark rights to franchisees.
2. Product Type Format Franchising
Product type format is the oldest style of franchising. In this type of franchising, dealers have the authority to sell products on behalf of a producer.
3. Manufacturing Type Format Franchising
In this type of franchising, the franchisor gives the right franchisees to make its product and promote them using its brand name.
Difference Between Licensing and Franchising
Highlighting the comparison between the franchising and licensing in the following table:
|Licensing is getting secret information from any company; it can be a secret ingredient.||Franchising is basically an extension of an already existing brand or business.|
|It is the process of transferring rights at once.||It is the process of giving consistent6 help and support to the franchisee.|
|It has a variable fee structure.||It has a standard fee structure.|
|Licensing cost is low.||Franchising costs are high.|
|The example of licensing can be software licensing as MS office.||Example: McDonalds|
The main difference between licensing and franchising is that listening is a way of getting rights to a product. While franchising is getting authority to produce copies of already manufactured products. License agreements differ from franchise agreements in that they have more constraints. To conclude this subject, there is one further thing to make: generally speaking, franchising is more restrictive than licensing since, often, franchisers impose strict guidelines for how the franchisee will run the business.