Co-Branding – Meaning, Strategies and Benefits

Nowadays, one of the highly valued assets for a company are its brands, with branding being every company’s top priority. But it often costs the companies huge amount of money and takes them a long time to build their brand. Today’s market is suffering from a syndrome of sameness where all the products offered to the customers look very similar both in terms of sameness in the physical brand element and in the symbolic value proposition offered to the market. Thus it has become difficult to establish a unique position for new products with markets cluttered with competing brands. Even innovative differentiated products can be imitated quickly, leaving no strategic edge. As globalization phenomenon continues to elevate competition in the marketplace, product introduction has become highly fraught with risk. One reason of such risk is the incredibly high cost of building brands for a product and another is that firms are facing the reality of high new-product failure rates between 20 and 40% per year. In this situation marketers are searching for alternative method of branding for creating sustainable competitive advantage.

Although there are a number of ways for a company to build its own brand, co-branding may be a good branding strategy since it can offer fresh opportunities for companies to gain new markets that may otherwise be difficult to reach effectively, and it is beneficial to the organizations involved to alleviate costs when entering new markets by using the established equity of the second brand. Moreover, it can also help the company to increase consumers’ perceived quality and image toward their brand.

Co-branding is a marketing arrangement to utilize multiple brand names on a single product or service. Basically, it involves combining two or more well-known brands into a single product. The constituent brands can assist each other in achieving their objectives. Used properly, co-branding has the potential to achieve “best of all worlds” synergy that capitalizes on the unique strengths of each contributing brand. Successful examples include Coach and Lexus, Diet Coke and Nutra Sweet, Pillsbury Brownies and Nestle Chocolate, Crocs and Disney, IBM and Intel, Betty Crocker and Hershey, Breyers and Hershey, Lays and KC Masterpiece, Sony and Kodak, and so forth. These co-brandings have created large benefits for stakeholders. However sometimes co-branding can pose the threat of differential advantage on one partner and generate potential competitors. Many a times, co-branding effects one partner positively and the other negatively.

Co-Branding

Among many factors that affect a brand’s evaluation by its customers and thus affect a co-branding alliance’s success, country-of-origin is an important factor. Country of origin information is an indicator used by consumers to infer the quality and reliability of products from a country. This notion is typically used to describe the overall quality of goods within a particular product category, such as electronics or automobiles. Country-of-origin fit is described as the consumer’s perception of the overall compatibility of the two countries of origin involved in the brand alliance. Compatibility is assessed by comparing the consumer’s overall perceptions of the countries’ ability to produce quality goods within their respective product category. For example, assume that a consumer is evaluating a brand alliance that involves a Taiwanese computer manufacturer and a Japanese microprocessor chip manufacturer. When analyzing country of origin information, the consumer will rely on his or her perception of the overall quality of computers made in Taiwan and microprocessor chips made in Japan. If there is an inconsistency within this country of origin fit, the consumer may either weigh each country in terms of relative importance to the brand alliance or simply view the alliance unfavorably due to its dissimilarities of perceived product quality of the brands. Therefore country of origin fit will directly influence consumer attitude towards a cross-border brand alliance for specific product categories. That is to say, if the brand had a very strong negative brand of origin stereotype, it would be very difficult for it to build its own brand.

Benefits of Co-Branding

There are several reasons why some companies would want to pursue co-branding. The first one is that co-branding can attract a wide range of consumers. Because once company adopts the co-branding, for consumers, it means that it provides more selection and more function of products. For example: Nike and iPod, announced a partnership, which resulted in forming a coopetitive alliance of co-branding named “Nike+iPod”. They call the co-brand product “Nike + iPod Sport Kit”. The consumers can download the music from the iPod website for free. They realized that there is one kind of the potential consumers who like to listen to music while can achieve the aim of the exercise. This is the change from a single product to a diverse selection of products. What is more, there are not only bringing more choices to choose brand and product but also bring the convenience for the consumers. In this fast-paced society, more and more people want to purchase the require goods in one place. So co-branding integrates variety of business concepts in order to meet the consumer needs. They can take the less money and time to buy the satisfied products. So co-branded products and services can gain consumer choices, loyalty and ultimately make the brand unique and distinctive.

In addition, co-branding can bring more opportunity for the company. It can improve the quality of the product and influence the consumer judgment of the brand. Like innovation, this approach offers opportunity of growth in existing market and exploration of new markets. In such alliance, companies come together to create new offerings for customers. Once the new products can meet the consumers taste, it means that can bring the more profits for the company. So, it must have more space for development. For IT industry, relying on co-branding to gain the trust of consumers is a common marketing strategy.

Co-branding can also reduce the risk of company to enter new markets, because they share the risk and responsibility from each other. Most of all, it can help the company reduce the costs and expense of operation. So co-branding provides the opportunities and integrates their resources and makes-up their disadvantage in order for business to achieve the win-win situation. Like Miller Brewing Corporation and Coors Brewing Corporation, which are US second and third largest brewers, combine their operations to create a bigger challenger to Anheuser-Busch Corporation. SABMiller and Molson Coors will each have a 50% interest in the joint venture, and have five representatives each on its board of directors. Based on the value of the assets, SABMiller will have a 58% economic interest in MillerCoors, and Molson Coors will have a 42% economic interest. MillerCoors will have annual beer sales of 69 million barrels, roughly 29% of the U.S. market, and revenue of $6.6 billion. Anheuser-Busch has a market share of around 48%. Collaboration not only increases the number of market share, but also reduces the cost of two companies.

Risks Posed by Co-Branding

However, co-branding can also provide bad effect to the company. Because collaborating with your competitors is like a double-edged sword. Firstly, it is difficult for one of the parties to abandon the partnership and re-establish itself in the market independently. Once a co-brand takes position in market, it becomes difficult to dismantle co-brand and even more difficult to re-establish the brand alone. It is not good for the firm future because it more easily bring dependence.

Secondly, brands are also exposed to the risk of devaluation, sometimes virtually overnight. At times, both companies can be affected, as in the case of a partnership between a discount chain and an upscale house wares company. At first, the co-brand created significant earnings for both companies-in one year generating more than $1 billion in sales. But when the discounter filed for bankruptcy the announcement depressed the partner company’s stock. It also caused the investment community to question the partner about its contingency plans-an unexpected challenge for a co-brand. Subsequent bad press about possible criminal activity by the house ware brand’s CEO had similar effects and raised similar questions for the discounter’s managers. Shortly after the allegations were made public, a consumer tracking firm reported that nearly 20 percent of the upscale manufacturer’s customers said that now, because of the negative media attention, they would be less likely to buy the company’s products.

Thirdly, when establishing co-branding, choosing the right partner is very important. Sometimes, due to the different cultures and vision and even operational frictions, they are in-compatible. One fast-food chain that serves mostly sandwich fare had unsuccessfully tried co-branding with Italian and Mexican restaurant chains. While these partnerships created great brand synergies, operational friction was created because the co-branded restaurants attracted customers at the same time of day-during the lunch and dinner rushes. The chain went ahead with the deals anyway, overburdening its staff and diminishing the in-store customer dining experience. Finally, the company learned its lesson, and its most recent co-branding partner is a breakfast-food chain.

Western firms commonly exhibit a lack of strategic intent in collaborative efforts. The contribution of a Western firm in a collaboration effort is often in the form of technology and is relatively easy for the alliance firm to transfer. In many instances, Western firms are less skilled at limiting unintended competency transfer than their Japanese counterparts. So if the company with different culture backgrounds transfer, perhaps it will bring the bad effects (including low profit, internal conflict).

Finally, in some extent, co-branding can lead to transfer of competitive advantage to the partner, creating a potential competitor. Collaboration allows two firms to share their resources, tacit knowledge, and know-how to align with a joint goal. In a word, due to the collaboration they lose their own advantage in strategy. Sometimes co-branding more easily leads to loss of characteristics of their own products and their own strategy. Meanwhile, there is a crisis in co-branding, when they share the same brand, so there is a problem which company can get the ownership of the brand after co-brand. On the other hand, it can lead to transfer of consumers. For example, the per-brand’s product image and quality can effects the partner. After co-brand it may lose some consumers. So, sometimes, co-branding is a treat for the company.

Critical Factors for a Successful Co-Branding Strategy

In order to achieve a strategic fit five critical factors that must be analyzed for a successful co-branding strategy. This can be referred to as a 5C model for evaluating a co-branding opportunity. These factors can assist a company in organizing a successful and appropriate co-branding strategy from a macro perspective.

  1. Transition Cost – It’s important to consider the transition costs for two companies embarking on a successful co-branding strategy. For the joint venture type, the two companies have the same responsibility for both profits and liabilities (e.g., Sony and Ericsson). Thus, the transition cost for both parties is symmetric. But in the merger type, one party (e.g., BenQ) must take responsibility for the other (e.g., Siemens). BenQ merged with Siemens and had to provide constant financial support. Unfortunately, BenQ’s pockets just weren’t deep enough to absorb the cost of turning around the profit-losing Siemens unit. The cost for both parties was thus asymmetric. Thus the transition costs of co-branding seriously affect the future for the companies involved.
  2. Cultural Differences – Cultural differences are also a crucial consideration for two companies planning a co-branding strategy. Trying to consolidate companies from different countries creates many unknowns of, especially at the employee level. For example, if one company’s culture is conservative while the other is innovative, cooperation will prove difficult. And there are many other potentially problematic cross-cultural factors like power distance, uncertainty avoidance, etc. BenQ’s employees worked hard to collaborate with Siemens’ workers for nine months, but ultimately failed, largely as a result of underestimating the intractability of German labor laws. Cultural differences are a major factor impacting on the direction and outcome (success or failure) of a co-branding strategy. Thus cultural differences between two companies should be considered thoroughly in advance and require very effective management.
  3. Consumer Acceptance – The third lesson is “know thy customers”. Consumer-centric design will drive a successful co-branding strategy. Sony and Ericsson is a case in point, having launched several consumer-centric mobile phones in recent years (e.g., embedded with Cybershot technology), they advanced the level of functions (digital video recorder, Bluetooth, etc.) in order to increase competitive advantage. On the other hand, BenQ and Siemens originally targeted teenage customers (based on the slogan “enjoy matters”) and then attempted to provide diversified models (e.g., classical and business models) for other groups (besides teenagers). However, consumers in Germany and Taiwan are completely different. It was difficult to find a leverage point and common ground for both parties to satisfy the radically different types of consumers in the two countries, the companies should identify, focus on and act concertedly in terms of what specific consumers want and need.
  4. Core Positioning – The core competence of a brand is fundamental in attracting large numbers of customers. Since each individual brand has its own core competence, the synergy between two brands is extremely important. In the brand alliance situation, a strong brand should clearly and uniquely identify and position its core competence, so that the second brand can integrate with it. The core competence could be either homogeneous or heterogeneous. Ideally, similar core competencies (i.e., homogeneous) will generate a stronger co-branding effect. However, heterogeneous core competencies can complement each other to create a substantial synergy. For example, BenQ has re-positioned its brand as “keep exploring” to replace the original slogan “enjoy matters” after that original venture failed. The lesson is that the core competencies of two companies should be clearly identified in order to successfully position the new brand.
  5. Capital Restructuring – As previously mentioned, co-branding may take on one of two essential operational types: joint-venture or merger. For the former, both companies restructure the capital structures of the original corporations. That is, each member corporation is responsible for the new joint-venture company, especially the financial aspects. In the merger situation, the dominant company should be responsible for the gain and loss after merging. For example, the capital structure of BenQ was reorganized after it merged with Siemens, and this resulted in a loss of around 810 million US dollars between October 2005 and June 2006. The lesson: adequate capital for two companies is critical before they even start evaluating each other and organizing a co-branding plan.

Various Strategies for Co-Branding

A co-brand is more limited in terms of its audience than a corporate brand. It conveys a specific image and a set of expectations to target customers in a given market. The key decision that the merged firm needs to make regarding its co-brand is to choose the type of tactic it wants to create or maintain with the various strategies previously served by the individual firms. Should it try to maintain all the existing strategies or eliminate them in favor of just one or a few? The issue underlying these choices is how to manage similarities and differences in respect of both customers and the brands that it has inherited through a clear co-branding strategy.

The two dimensions that determine a merged firm’s co-branding strategy are its co-brand name and its intended market. The co-brand name signifies a new or existing brand name for a co-brand. The co-brand name involves a choice for the firm: should it have a same brand name to all its customer segments no matter how different they might be from each other? Or should it create a different brand name, varying the range of specifications and quality accordingly to different customer segments?

The intended market dimension signifies the market positioning of the firm’s products or services that it wishes to convey to a given market. The merged firm may decide to stay in the existing market regard to all its product or service, that is, suggest the same positioning across all served segments. Alternatively, the firm could create new opportunities to move to a new market with its product or service, that is, adopt different positioning for them depending upon the particular customer and competitive dynamics in each of its served segments.

Various Strategies for Co-Branding

Cross-classifying the two dimensions (Co-brand name: existing or new; Intended Market: existing or new) leads to four alternative co-branding strategies, each representing a particular way to integrate the brand name and customer positioning dimensions: Market Penetration, Global Brand, Brand Reinforcement, and Brand Extension.

Market Penetration Strategy

A Market Penetration Strategy signifies a conservative tactic to keep the existing market and the original brand names of two firms. In essence, the co-brand name is either a single brand name (e.g., BMW MINI Cooper) or the combination of two firms (e.g., MillerCoors and DaimlerChrysler). The key assumption that drives the adoption of a Market Penetration strategy is the horizontal convergence of two companies. The merged firm’s commitment is to take advantage of such horizontal integration, accentuate the desirable goals and benefits by sharing the resources. The merger between HP and Compaq, for instance, has led to the creation of a global brand. HP uses single brand name for the firm’s image but some products with a dual name such as HP Compaq Presario series of laptop/desktop.

However, focusing on existing market and brand names might not cause the synergy to make the merged firm stronger and more efficient (e.g., HP was not superior to IBM much after merging Compaq). Finally, for a Market Penetration strategy to succeed, it is critical that the heterogeneous of customer segments and the reputation of two firms should be sufficiently high.

Global Brand Strategy

A Global Brand Strategy signifies a firm’s decision to serve all its customers with an existing co-brand name in a new market. The key assumption that drives the adoption of a Global Brand strategy is convergence of cross-segmental preferences. The merged firm’s commitment is to take advantage of such convergence, accentuate the desirable goals and benefits by utilizing global recognition. Among recently merged firms in the telecommunication sector, BenQ has actively pursued to extend the market share and global visibility by merging telecommunication department of Siemens with existing brands of the combination “BenQ-Siemens”.

For the merged brand, advantages of a global product brand could accrue at both the supply end when scale and scope advantages substantially outweigh the benefits of partial as well as the demand end, with uniquely and premium than local or regional brands. However, focusing on extending the current market might cause fail and lose the original advantages (e.g., BenQ reduced its assets dramatically after merging Siemens). Finally, for a Global Brand strategy to succeed, it is vital that the universality across diverse customer segments appeal continuously to evolving patterns of preference.

Brand Reinforcement Strategy

A Brand Reinforcement Strategy signifies two firms decide to use a new name as a co-brand name in the existing market. The key assumption that drives the adoption of a Brand Reinforcement strategy is brand image reinforcement. The merged firm’s commitment is to take advantage of such attempt of a totally different co-brand name, accentuate the desirable goals and benefits by providing a diverse name and representation style.

For the new co-brand name, two firms could reinforce the reputation of their original brands without hurting the original names. However, focusing on creating a new brand name might cause fail lose the advantages (e.g., people have negative image will affect the seed company of a diverse co-brand name). Finally, for a Brand Reinforcement strategy to succeed, it is essential to create an appropriate co-brand name that is totally different from original ones effectively and efficiently.

Brand Extension Strategy

A Brand Extension Strategy signifies two firms decide to serve a newly co-brand name in a new market. The key assumption that drives the adoption of a Brand Extension strategy is union of cross-segmental preferences (e.g., Sony and Ericsson). The merged firm’s commitment is to take advantage of such union, accentuate the desirable goals and benefits by extending different segments.

The merger between Sony and Ericsson has led a horizontal integration for a strategic purpose. Before merging with Ericsson in 2001, Sony was not (with market share of only 1% to 2%) a leading player in the telecommunication industry. Sony had superior design capabilities, but lacked core telecommunication competences, whereas Ericsson had excellent R&D capabilities. The merger began to earn profits in the second merged year (2003). Sony-Ericsson is currently among the top four mobile phone manufacturers. This success can be attributed in part to the fact that the partners had a good co-branding plan including a joint brand name for cellular phones.

For the merged brand, positioning a co-brand in an extension purpose might cause by a successful co-branding plan (e.g., Sony-Ericsson). However, it is risky for both firms to position a new brand in an unfamiliar market or customer segments. Finally, for a Brand Extension strategy to succeed, it is vital that two firms have to take advantage of their core competences at the first place, generate the positive synergy as well as draw up an appropriate long-term co-branding plan.

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