Advantages and disadvantages of Licensing: The Case of Walt Disney Consumer Products, DCP
Introduction
Walt Disney owns and runs the affiliate Walt Disney consumer products, DCP, that extends the organizations main brand, Disney, to merchandise including books, magazine, stationery, animation art, electronics and books through the organization’s lines of business; Disney fashions, Disney foods, Disney toys, Disney health and beauty and the Disney stationery (Jalan, 2008). As a licensor, the organization provides licensing services to foreign companies willing to market the Disney product in various nations, most of which are located in Europe and Asia. Disney Corporation holds and maintains the product ownership through patenting, and only allows the client to market the products on its behalf (Cherunilam, 2006). These agreements do not allow the client organizations, (licensee) to make any changes on the products; rather theirs is to ensure that the products reach the consumer points within the diverse market (Pride, & Ferrell, 2008). However, the licensee is granted some kind of intangible rights, which in the case of Disney Consumer Products includes the rights to trademark, copyright and expertise in the foreign nations. In addition, it allows the licensee to program and market the products in their own strategies. This implies that Disney benefits from fees charged on these organizations in terms of the sales. In this form of business, the real merits of licensing to the licensor are evident on the side of DCP as described below;
Advantages of licensing to the licensor (DCP)
- Market accessibility
The organization has the expertise and experience in developing and producing the products in the United States, and in most cases, Disney does not have the first hand information in the foreign markets. As such, the company will achieve improved sales when it uses the licensee as the marketer in these foreign markets, considering that these clients are familiar with the markets. This further implies that Disney will not have to incur extra costs in advertisements because the licensee is experienced and popular in that area (Griffin, & Pustay, 2002).
- Avoidance of competition
Licensing allows Disney to access some markets that it could not have penetrated due to high competition rate. The company looks for the most competitive and well-advantaged organizations in the foreign markets. This means that Disney will have to avoid competition with these companies, while its product will find easy access to the consumers due to the licensee’s position in the markets (Jalan, 2008).
- Market advantage
The marketer has the ability to develop the products in a way that they will be readily acceptable in the new markets. The rights to improve certain aspects of the products, such as the appearances of the branding features, will improve the customer response in the markets (Sagib & Manchada, 2008).
- Reduced cost and time for seeking licensing in foreign market
With licensing, Walt Disney does not have to apply for licenses in the foreign markets, especially in cases where foreign nations face high licensing fees (Tracy, 2004). In addition, certain competitor companies are likely to file legal proceedings with an aim of ensuring the new market entrant does not pose a great threat to their survival in the market (Pride, & Ferrell, 2008). Since these will cost the organization extra costs, Walt Disney has the advantage of avoiding these situation when they license foreign organizations as the markets, especially in such markets where competition and licensing processes are highly complicated (Griffin, & Pustay, 2002).
- Collaboration with and taming would-be infringers and competitors
Most of the licensees are organizations that would likely be potential infringers or competitors in the new markets. Through licensing, Walt Disney has the capacity to turn these organizations into partners rather than market rivals, and as such, avoid the unnecessary competition that would result if Disney decided to directly invade the market (Sagib & Manchada, 2008). Disney can collaborate with such potential competitors so as to partner with them in various ways in order to prevent them from becoming their competitors.
Disadvantages of licensing
- Competition
Licensing does not come without a price to pay. In some cases, it is possible that a licensee (foreign company) could become Walt Disney’s competitor. The possibility of cannibalism is quite high in licensing agreements, where the licensee gains more than the licensor. The licensee could be more efficient in marketing its own or parallel products, which minimizes the sales for the licensor’s products (Pride, & Ferrell, 2008).
- Poor marketing strategies
Apart from this, some licensees fail to have the best marketing strategies and machinery need for a competitive market. In this case, they may have to ask for extra contributions such as training for the personnel, technical data and technical assistance. This may prove too expensive to the organization, and sometimes more expensive than it would cost the company to enter the market on its own (Sagib & Manchada, 2008).
- Dependency on the licensee
In addition, Walt Disney will have to depend on the market strategies and technical abilities within the licensee. This dependency is not good for Disney because in certain cases, the licensee may have complicated or ineffective strategies, which implies that the organization may not benefit the licensor as expected due to low volume of sales (Pride, & Ferrell, 2008).
- Incomplete technology/product and licensee expectations
A license agreement can be disadvantageous to the licensor if the technology or the product definitions are incomplete or if the details are missing. In such a case, the licensee expects that the licensor will continue with the work of development. To satisfy the licensee, the licensor must use more resources, even though in certain cases, this may not be necessary. This is a disadvantage to the licensor, as the company would incur more costs (Sagib & Manchada, 2008).
- Dissatisfaction with the licensees position
The licenser may feel that the position held by the licensee about the product is not satisfactory or does not conform to the licensors position. This creates a conflict of positions on the product. For example, the licenser may object to certain details of the marketing and advertisement campaigns that the licensee or even feel that the licensee does not pay attention to the energy and resources in the development of campaign strategies. This will result into a conflict of ideas, which will results into loss of time, money and other resources (Sagib & Manchada, 2008).
References
Cherunilam, F. (2006). International Business: Text and Cases. London: OUP
Griffin, R. W., & Pustay, M. W. (2002). International business: a managerial perspective. New York: Prentice Hall.
Jalan, P. K. (2008). Industrial sector reforms in globalization era. London: Sarup & Sons
Pride, W. M., & Ferrell, O. C. (2008). Marketing. Mason, OH: Cengage Learning
Sagib, N., & Manchada, R. (2008). Consumers' evaluations of co-branded products: the licensing effect. Journal of products and brand management, 17(2): 73 - 81
Tracy, J. F. (2004). Whistle While You Work: The Disney Company and the Global Division of Labor. Journal of Communication Inquiry, 23(4): 374-389
