The Pros and Cons of Co-branding

I am writing this blog on a Hewlett-Packard laptop.  It is labelled as containing Intel processing chips and, in the top right-hand corner is the logo of Bang and Olufsen, the high quality audio manufacturer.  My laptop is a perfect example of co-branding.

Co branding is the term used for a collaborative joint venture between two independent organisations as part of a coordinated marketing strategy.  It is a common strategy in the IT and automobile sectors but increasingly it is seen in a wide range of consumer product sectors.

The Mini Cooper is an example of co-branding.  The Mini brand is owned by BMW but the cooper brand means engine tuning has been carried out by Cooper Engineering.  Freeview are currently advertising their television service in commercials which also mention retailers such as Curry’s PC World; as well as television manufacturers.  McDonald’s advertise their McFlurry desserts in a range of flavours including Galaxy Ripple (the Galaxy chocolate brand is owned by Mars); Cadbury Crunchie and Oreo McFlurry (Oreo biscuits are manufactured by Mondelez International).  Co-branding can range from the joint development of a new product to a licensing agreement to use a particular branded ingredient in a product.

Often co-branding is an attempt to create something new which is outside the scope of the individual organisations involved or which can only be achieved by firms joining forces in terms of expertise or capability.

Two obvious benefits of co-branding are the ability to reduce operational risk and to share costs between organisations.  For established brands, co=branding can be an opportunity to develop new income streams and to boost the earning power of existing brands.  For new brands, it can offer instant credibility in a sceptical marketplace and allow easier access to new markets.  For both there is the opportunity for additional brand exposure and risk reduction.

There can be an opportunity for royalty income.  NutraSweet, the artificial sweetener brand licence the use of their product in a range of foodstuffs manufactured by other food producers.  The use of the NutraSweet name gives an enhanced product offer which increases sales.  NutraSweet receives a share of the profits generated.  Nick Faldo, the golfer, had such a deal with Pringle, the knitwear manufacturer. For each jumper sold in his proprietary range, Faldo received a royalty payment.

As stated in the NutraSweet example, co-branding can offer a sales boost.  By using the Bang and Olufsen brand to promote the audio capabilities of their computers, HP add a cache to their brand and increase consumer desire.  In turn the expectation is an increase in sales.

Co-branding allows firms to enter into new markets.  The East Coast mainline rail service in the UK is a co-branded joint venture between Virgin and Stagecoach.  When Tesco entered the UK consumer banking market, it initially did so as part of a joint venture with Royal Bank of Scotland.  If you are entering a new geographic market, having a partner firm who already has experience and exposure in that market will make the process easier.

Opportunities for cross-promotion can be developed through co-branding.  The Olay moisturiser brand currently runs commercials using the beauty editor of Vogue magazine.  For many years, washing machine manufacturers would run commercials specifying that certain brands of washing powder such as Ariel worked most efficiently in their machines.

Co-branding can give additional benefits to consumers.  For many years both Sainsbury’s and Barclaycard have offered the Nectar point scheme.  This loyalty programme, in turn, allows consumers to purchase goods and services from a wide range of corporations, from wine to holidays.

Co-branding allows the integration of customer services.  Moto service stations in the UK have agreements with a number of retailers, including Marks & Spencer, WH Smith and Burger King.  Moto operate franchises on behalf of these retailers.  The retailers also gain access to the UK’s motorway network. In return, Moto can gain from the reputation of these retailers.

Co-branding can go wrong.  The key is to pick the right partner.  When the wrong partner is chosen it can be a disastrous strategy.  It can put your reputation at risk.

Financial greed can ruin a co-branding strategy.  It is a strategy for long-term gain, not a ‘fast buck’.  Profits from co-branding must be fairly distributed.  The strategy of the two co-branding partners must be complimentary and they must have similar goals.  A co-branding exercise will fail if its partners want different things from it.

Co-branding can lead to brand dilution.  An example is the Alfa Romeo Arna.  The Arna was a joint venture between Alfa and Nissan to produce a sporty saloon car.  Alfa were known for their sleek designs; Nissan for their engineering quality and quality assurance.  It seemed to be an ideal marriage.  The Arna was a disaster.  It was a box on wheels with no sleek bodywork.  It was replete with mechanical and electrical faults.  The Japanese appeared to have been responsible for the cars styling and the Italians for its engineering.  Rather than taking the best attributes of the co-branding partners, the Arna took their weaknesses.

With careful management and the correct strategic choices however, the benefits of a co-branding strategy far outweigh the weaknesses.