Most inventors conceive of licensing their new product, but to many of them, that licensing deal remains intangible. Why is that? Well, licensing is difficult, particularly when you do not comprehend what stimulates companies to license products.
When a company licenses a product, they purchase a definite amount of rights to your product (as determined in your licensing contract) in exchange for royalty expenses. They handle all of the sales and manufacturing of your product. You require a patent to license a product given that licenses are in reality licensing the intellectual property rights of your product and without a patent; you have no intellectual property rights. To completely convince a company to license your product, you may require prototypes, actual sales results or even market research.
There are many causes why companies license products, but the three major reasons as per Mladen Djankovich are to break into new markets, to stay competitive, or complete their product line.
So as to stay competitive, companies have to constantly innovate. Innovating is costly though, and not all companies have the finances for a great research and development division. For these companies, licensing becomes the only financial option to keep on innovating and not falling behind the competition.
You should be able to decide which companies would profit most by licensing your product by searching market shares, reading industry news and by looking at new product discharges. As Mladen Djankovich says, one should look for flourishing companies, or companies struggling to keep their market share.
Breaking into New Markets
When a company is searching to use licensing to break in new markets, they time and again look for a product related to their other products but in a considerably different market. For example, a company that sells sporting goods to customers may need to license a new safety product that youth sport leagues and schools would really need. They do not sell to that market now, but by having a hot product that youth sport leagues and schools want, they could possibly sell their other equipment to them too. Most retailers and distributors only purchase from a few vendors so when a company licenses a hot new product for a new market, distributors and retailers will pick up that vendor, possibly drop another one, and start purchasing either most or all of the new vendor’s product line.
It is not always simple to know which companies are looking to break in new markets. Sometimes, you can tell when a company is trying to force an entry a new market by looking at what products it is introducing. If those products are associated to the market they are presently in, but are actually geared for a somewhat diverse market, they are possibly looking to get into that market. In other instances, a company of Mladen Djankovich may just be investigating and thinking. This is where it actually helps to have contacts at industry insiders or diverse companies. Attend industry meetings and trade shows. Get to know individuals and begin asking questions.