We are surrounded by examples of co-branding. For example, Packard bell computers are labelled that they contain Intel processing chips; McDonalds using confectionery brands for their McFlurry desserts; and Shell petrol stations having Tesco Metro branded shops.
Co-branding also exists at a more local level. For example, your local café may advertise that it uses cakes and bread from a well-respected local bakery or the local restaurant may advertise it gets its produce from a particular local supplier.
Co-branding is where two brands either use an association to market a product or get together to co-develop a product for a particular market. Co-branding can be used for short-term gain but may be better viewed as a long-term strategy.
Co-branding can provide significant advantages for the brands involved but beware, inappropriate co-branding strategies can pose damaging risks to existing brand equity.
- Existing brands may be able to develop a new income stream or boost the earnings of existing products. Co-branding can increase the prominence of a brand
- New brands can gain immediate credibility in a sceptical marketplace by their association with a well-known brand or product. This may reduce the amount of financial investment required to launch in a particular market particularly where the co-branding partner is already respected in the chosen market. It also allows the risks related to new market entry to be shared between co-branding partners. Where the cost of product development is high this can be shared between co-branding partners.
- Co-branding can be a source of royalty income. For example, Coca-Cola uses Nutrisweet brand artificial sweeteners in diet soft drinks. Nutrisweet receive a royalty on each drink sold. Similarly, when Sir Nick Faldo was the world’s top golfer, he signed a contract with Pringle to produce a range of sweaters under his name. Faldo received a royalty on each sweater sold.
- Co-branding can provide a sales boost. Mini has had a long relationship with the engine tuning firm Cooper. Not everyone will be able to afford the top of the range Mini Cooper but the pride in ownership and the perception of the Mini Cooper brand boosts sales across the Mini range.
- Co-branding can help to develop new markets. Volkswagen initially purchased Skoda as part of their strategy to become the dominant firm in the mass market car sector. the initial investment in Skoda, and its eventual purchase by the Volkswagen group, was part of a strategy to dominate the car market in Eastern Europe. The Czech government, which was a major investor in Skoda was happy with Volkswagen’s involvement as they knew that for Skoda to compete in a free market, significant investment in plant and machinery was required. Skoda’s existing customers saw the involvement of Volkswagen as a sign that the quality and design of Skoda cars would improve greatly.
- Co-branding provides opportunities for cross-promotion. For example, a supermarket chain can publish advertisements showing the range of brands available in their stores. Brands included in such advertising can benefit from such promotion. Some firms, such as Proctor and Gamble use cross-promotion as a brand building strategy. P & G ran a series of television advertisements which took up an entire advertising break between programmes. The advertisements were in the form of beauty makeover and promoted a range of beauty brands produced by P & G such as Max Factor cosmetics, Olay moisturisers and Aussie hair products
- Co-branding can provide shared customer incentives. Nectar is an example of a customer loyalty scheme which is co-branded with a range of services such as credit cards, groceries and DIY products. For example, Nectar points are used by Sainsbury’s for groceries, Barclaycard for credit cards and another 500 otherwise separate brands.
- Services can be integrated using a co-branding strategy. Moto, the motorway services provider have arrangements with Marks and Spencer and Burger King to provide food and restaurants on their sites.
That is quite a list of benefits for a co-branding strategy but beware, there can be significant risks involved with sharing brand promotion. History is littered with examples where co-branding strategies failed causing damage to one or all partners.
Choosing the wrong co-branding partner can risk a brand’s reputation and it is important when choosing a brand partner that their values and culture match your own.
- Financial greed – Co-branding should be regarded as a source of long-term brand equity not the way to make a fast buck. Co-branding partners may have to accept modest returns until the co-brand is accepted whilst the majority of profit is re-invested in the co-branding strategy. If you are looking to co-brand for short-term gain and your partner is after long-term benefits, this may be a source of friction and cause unfavourable consumer perceptions. I remember having to deal with a certain supermarket chain who had linked itself with a large cancer charity. My involvement related to potential criminal breaches of the Cancer Act regarding the application of cancer claims to food labels. During my investigation it was clear that the charity entered the relationship with a focus on promoting their cause; the supermarkets focus was on increasing sales and beating the promotional activity of a major rival. I also remember a exercise set by one of my university tutors regarding the negotiations for the manufacture of own-brand goods. In that exercise, the supermarket wanted to declare that their own brand products were made by a market leading firm. This was a cause of great friction in the exercise; the brand were willing to make the own-brand products but did not want to co-brand the label as it would impact heavily on their premium brand products.
- Potential incompatibility – Where there is a divergent culture between co-branding partners, friction can occur and major stumbling blocks encountered. For example, Mike Ashley, the owner of Sports Direct wanted to rename St James’ Park in Newcastle as the Sports Direct Arena. Ashley also owns Newcastle United Football Club. This caused uproar in football-mad Newcastle. The people of the town saw Newcastle United and St James’ Park as cultural icons in the city. They felt that the co-branding of the stadium with Ashley’s discount sports goods stores was not respectful to the history and culture of the city.
- Co-branding can make shifting strategies more difficult. Individual partners in the co-branding arrangement may find that their brand strategy options are limited i.e. you can only shift strategies with the permission of your co-branding partner
- Co-branding can be a source of brand dilution. If a co-branding strategy fails both partners must accept their share of any reputational damage. Take the example of the Alfa Romeo Arna. The Arna was a co-branding joint venture between Alfa Romeo and Nissan. The plan was to develop a small family car to combat the popularity of the Volkswagen Golf and the Lancia Delta. Such platform sharing joint ventures are common in the car industry where the cost of retooling can be prohibitive. The car produced in the Arna joint venture (Arna stands for Alfa Romeo Nissan Autoveicolo) was regarded as exhibiting the worst aspects of the two co-branding partners. Reviewers joked that the Japanese did the styling and the Italians did the engineering. It was a disaster. However, in terms of reputational damage, Nissan got off lightly whilst Alfa Romeo almost went bankrupt. Alfa was rescued by Fiat and for many years after Alfa Romeo Cars were little more than rebadged fiat models.
If you are looking to bring a new brand to market or to expand the market for existing goods, a co-branding strategy may be the way forward. Philmus Consulting Ltd can help you assess the options available and to choose appropriate partners.