Co-Branding

Over the last twenty years we have witnessed extraordinary growth in world trade. Much of this has been driven by developments in central and eastern Europe, Asia and the Latin American countries, where rapidly increasing prosperity has created huge markets for consumer goods and services which Western companies have been quick to exploit. In the more mature markets too there has been steady growth accompanied by technological developments, which a few years ago would have been quite inconceivable. These factors, underpinned by a period of unprecedented geopolitical stability, have helped to create a climate of commercial opportunity that is unmatched in the history of the world.

Brand owners have found many different ways in which co-branding may be turned to advantage. For established brands it offers the opportunity to create an entirely new income stream or to boost sales of existing products and for new brands it may bring immediate credibility in a normally sceptical marketplace. Co-branding may reduce the need for costly investment in targeting new markets or be a means of overcoming non-financial barriers to entry, of gaining additional brand exposure, of reducing risk, of speeding investment payback, of facilitating price-profit maximization or of providing a novel way of communicating with the market. It can be used to gain short-term tactical advantage as well as for longer-term strategic purposes. In exceptional cases a brand may even be used in co-branding applications before it has been established as a separate entity in the marketplace and be the way in which its reputation is first established. Let us look in more detail at these advantages

Co-branding may not be all plain sailing and you should not approach it with unrealistic expectations of high rewards for little investment or effort. There are considerable risks to your brand’s reputation if you choose the wrong partner brand or if your partner brand suffers a setback in the marketplace or receives bad publicity for some reason. As with selecting a partner in any other business context, it pays to make sure that you have thoroughly investigated their background and their values to minimize the risk of unexpected problems. It may be wise to ensure that the co-branding agreement provides for the possibility of termination in the event that the partner brand or the co-branded product suffers a serious reputation problem, to minimize the possibility of knock-on damage to your own brand. In this chapter we examine some of these risks and pitfalls.

Retailers are big business. Their brands are even bigger. They position carefully selected ranges of goods and services and develop interesting and exciting promotions to reap the rewards from loyal customers. If they get it right, these customers return to buy more, over and over again. New product development is expensive and only the largest companies have the funds to invest. By building bigger brands for themselves they have had to look at doing business with other brands from different and, in some cases, competitive categories to enhance the vitality and the dynamism of their offers. Staying on top is tough; increasing the lead is tougher, so why not get help from another leader?

Ingredient branding is a specific category of co-branding. Whilst co-brands bring together brands in a single offer to the consumer, ingredient brands differ in that they are a component of the end product. This chapter will look at what lies behind this generic and often misused name in an attempt to establish what ingredient branding is. We will then investigate what has to be taken into account when moving into ingredient branding (the why?) and the optimal brand strategy to do so (the how?).

A company’s brand is usually one of its most valuable assets and authorizing a third party to use it, for example in a licensing or franchising arrangement, always requires careful consideration and control. However, in a co-branding situation a number of exceptional factors have to be taken into account and these may have important legal implications. This chapter sets out some guidelines on legal issues that may arise with co-branding but in all cases legal advice should be taken, as every co-branding venture is unique and will require specific adaptation of the general principles. Depending upon the nature of the products or services concerned and the countries in which they are produced and marketed, some additional considerations may also impact upon the project and require specialized legal advice that is beyond the scope of a book such as this.

The ultimate purpose of the co-operation of two or more brands is the creation of economic value. Although all types of co-branding situations described in Chapter 1 have been established to create economic benefits for all participants, the financial measurement and valuation of these benefits is a very complex matter. To make the principles and applications of the valuation of co-branding structures more transparent, this chapter will for the most part focus on the visible co-operation of two independently owned brands in the sale of a new product or service with its own identifiable earnings stream.

If three such savants cannot agree on the predictability of the future, then what chance have we? ‘Futurecasting’ is, very clearly, never easy to do, and for this reason rarely a fruitful occupation. It seems hardly appropriate, however, to conclude this book on co-branding without some attempt to forecast what the next few years may have in store. There is every indication that increasing prosperity — particularly in Asia and Latin America — will continue to drive worldwide economic growth well into the next century. But who will benefit from the explosion in consumer demand? Will it be the big ‘global’ suppliers of goods and services? Or will we see resurgence in smaller national companies, which in turn become the regional and multinational groupings of tomorrow? Much will depend on political and societal factors: critically the extent to which the ‘enterprise culture’ model is embraced by developing countries; and whether, and how, public attitudes towards big corporations change.