Why Businesses Co-brand

Co-branding is cooperation between two or more businesses, each of which has significant customer recognition and where both brand names are used on products and services.

We can all see co-branded products around us every day.  The lap-top on which I am writing this article is a Hewlett Packard machine but it is clearly marked with the logo of Bang and Olufsen, the hi-fi specialists, It contains microchips produced by Intel and it came with Microsoft 10 operating software.  Computers are excellent examples of the co-branding process in operation.

It is important that co-branded products offer added value to consumers.  The must offer something new, better and with additional capabilities than each of the constituent brands.

So Elixir guitar strings are co-branded with Goretex, the coating offering strings with a longer lifespan and greater resistance to corrosion.  Coca-Cola is co-branded with Bacardi rum to allow the production of ready mixed spirit drinks. Barr’s Iron Bru is similarly co-branded with Famous grouse whisky. Claridges co-brands with Gordon Ramsey in relation to fine dining restaurants.

In effect co-branding is a superior form of joint venture.

The following are types of co-branding categories by the level of shared value they create:

  1. Reach Awareness Co-branding: This offers the lowest level of shared value. It is where cooperation between brands allows the parties involved to increase brand awareness through exposing their brand identities to the existing customers of their co-branding partner. An example would be the direct marketing of credit cards alongside customers bank statements.  Especially if the credit card is promoted to high net worth individuals.
  2. Values’ Endorsement Co-branding:  The co-branding allows for endorsement messages which promote individual brand values and desired market position. So Tesco sponsor the Cancer Research Race for Life and Bank of America issue credit cards on behalf of the World Wildlife Fund (where a contribution to the fund is made each time the card is used). Tesco and Bank of America hope to co-opt the values of their co-brand charity.
  3. Ingredient Co-branding:  Branded components are included in products.  Like the speakers in this laptop. This allows the cross-promotion of different brand attributes.  So this computer offers better sound reproduction because of the quality engineering offered by a high quality, specialist audio manufacturer. This type of relationship needs a junior and senior brands e.g. Hewlett Packard being the senior brand and Bang and Olufsen the junior brand.  Such a relationship means that the number of potential co-branding partners can be small. The use of Lycra and Woolmark are similar junior co-brands. The aim is to reinforce your brand values by co-opting junior co-brands which highlight those values.
  4. Complimentary Co-branding:  Where brands combine to create a product greater than the sum of their individual parts.  These can be separately branded joint-venture products.  For example, Smart Cars are a co-branded joint-venture between Swatch, the designer watch manufacturer, and Mercedes.  Mercedes bring their engineering excellence and Swatch bring their design flair.  Similarly Lego co-brands with Star Wars and Marvel Comics. Lego’s co-branding brings the excitement and story-telling of their brand partners and Lego bring their market leadership in toys and model-building. However, with such complimentary co-branding it is important not to give away your brand.  On one occasion Lego refused a co-branding opportunity; to create a building block product for a high street chain; because the co-branded product reduced the individuality of the Lego block.

Co-branding can offer numerous benefits:

  •  new income streams through expanding your brand identity into new market segments
  • boosting the earning potential of existing products
  • creating credibility in sceptical markets.
  • additional brand exposure with lower risks
  • short-term tactical advantages over competitors
  • shared advertising costs through cross promotion (Sky broadband currently advertises it’s products alongside the promotion of family animation films like The Secret Life of Pets and The Incredibles).
  • Royalty income through the use of components in products produced by others e.g. for many years Nick Faldo, the major-winning golfer earned significant income by lending his name to clothing produced by Pringle.
  • boosting sales through the inclusion of additional product benefits
  • The use of joint tools by co-branding partners to allow entry into new markets and lowering the cost of such new market entry.

However there are significant risks to co-branding strategies, particularly in markets like fashion.  You have to carefully consider who your co-branding partners will be.  Your partner may be seeking a quick buck rather than a long term relationship. Financial greed has ruined many a co-branding relationship.

Co-branding partners must be compatible. If they operate in different markets, it may be important to seek a partner with a similar target customer profile.

Brand strategies need to be coordinated and co-branding deals can be ruined if a partner suddenly shifts their strategy to one that isn’t complimentary with your brand.

You need to avoid brand dilution; where the co-branding weakens your brand image and identity.

You also need to avoid error contagion, where an issue with an individual brand does not lead to errors with the co-branded product.  For example Ford had massive issues when manufacturing and design faults with Firestone tyres were discovered. These tyres had been fitted to thousands of Ford cars during manufacture.

The Changing Scope of Brand Management

In recent years, with the rise of social media and the recognition that many western markets are mature, we have seen a shift from traditional transactional marketing to relationship marketing.

The focus has shifted from continually increasing sales to new customers to customer retention strategies. This is recognised by the maxim;  The longer you keep a customer, the more you earn from them.

This shift has required marketers to develop new working methods, new marketing tools and to think differently.

The transactional focus required marketers to develop knowledge of why consumers purchase and the choice criteria behind it.  This leads to marketing plans developing mixes wholly reliant on the sacred four ‘P’s of Kotler’s original marketing mix.

However, today most products require a service element and a marketing mix based on the seven ‘P’s (Product, Price, Place, Promotion, People, Process, Physical Evidence).

The shift to relationship marketing has also meant the marketing profession developing new buzzwords:

  • Instead of financial capital marketers speak of Customer Capital.
  • They no longer speak of conquering consumers but in retaining them
  •  They no longer talk of predicting consumer choice and instead focus on classifying the relationships consumers have with a brand and the relationships between individual consumers.
  •  They look to a relationship between consumer and brand beyond achieving a sale. they talk of long-term customer engagement.

As discussed in last week’s blog entry, the best form of loyalty is not based on transactional criteria such as loyalty cards.  It is the creation of internalised loyalty and thus brand commitment.

Brand managers and marketers look to deepen the relationship between the customer and the brand through the creation of emotional connections.

The aim is to move from the emotional high of a purchase to the satisfaction of ownership to the experiential delight of product use and ownership. So products need to deliver the pre-purchase expectations of consumers and deliver an experience which is rewarding.

Many retailers now look to developing more that an opportunity to purchase when a consumer walks through the doors of a store, they should expect a rewarding experience.  Philip Kotler talks of the creation of ‘atmospherics’ which provide consumers with fantasies, feelings and fun.

Bonds need to be created through aspirational values with which the consumer identifies. this means that all brands have to be, in some way, aspirational.  Aspiration goes beyond materialism or hedonism. Aspiration should not simply be short-term highs but long-term satisfaction.  This aspiration should be represented by your businesses vision and mission. Long-term aspiration should be central to your organisational values.

Marketing tactics can be categorized as follows:

  1. Short-term transactional relationship and functional satisfaction:  Product quality, product advantage, trial promotions.
  2. Short-term transactional relationship and experiential enchantment: Advertising, in-store animations, built-in experience products, storetainment, street marketing.
  3. Short-term transactional relationship and aspirational fulfilment:  Image advertising, co-branding, sponsorship.
  4. Re-purchase and functional satisfaction:  Post-purchase promises
  5. Re-purchase and experiential enchantment:  Collectables and systematic additions tied to events
  6. Re-purchase and aspirational fulfilment:  Fanzines, websites, virtual commuities, ehtical growth.
  7. Long-term commitment and functional satisfaction:  Loyalty cards and programmes
  8. Long-term commitment and experiential enchantment:  One to one recognition and service, product co-creation.
  9. Long-term commitment and aspirational fulfilment:  Inter-community groups, disruptive innovations.

So if you are running a business and looking to survive over the longer term it is no longer enough to focus on the acquisition of new customers or sales growth.  You should aim not just to acquire new customers, you should look to continually improve the experiences of existing customers.

The latest advertising from the insurance firm Aviva is a good example. Rather than offering price discounts to new customers whilst existing customers pay more, the price for all customers is the same. And the insurer’s focus has shifted to providing a high level of customer service to both groups.