Introduction to Co-branding
There are various strategic options available to a marketer for building a strong brand in the marketplace. Brand image building is a long-term process and three key issues need attention to make a brand distinct from other products or brands in the same product categories.
It is difficult to develop a long-term one-way strategy for a brand and make it a success in the marketplace today due to sameness in the market. The market is flooded with products or brands with similar physical features and value promises and to make the condition worse for the modern marketer, there is a very high level of media clutter and advertising is fast losing its effect on the customers.
Table of Contents
- 1 Introduction to Co-branding
- 2 What is Co-branding?
- 3 Definition of Co-branding
- 4 Aim of Co-branding
- 5 Forms of Co-branding
- 6 Benefits of Co-branding
- 7 Global Co-branding
- 8 Successful Co-branding
- 9 Retail Co-branding
- 10 Need for a Strategic Fit
- 11 Prerequisites for a Successful Co-branding Strategy
- 12 Brand Management Topics
The high cost of media and the complexity of consumer response to interactive media makes marketers look for new alternatives for brand management. The three distinct propositions have remained the same for building brands but the approach to building a successful brand is changing the current context. The three macro strategic issues relates to building a strong brand include a distinct value offer with a high level of sustainable competitive advantage, a differentiated positioning statement and a consistent positioning strategy.
In the attempt to build up, a strong brand image marketers are using co-branding as a strategic option. Co-branding, co-partnering or dual branding is the act of using two established brand names of different companies on the same product. It has made inroads into nearly every industry, from automotive and high-tech Internet companies to banking and fast food.
Many well-known firms chose this marketing strategy to draw new customers, increase brand awareness, support customer loyalty or win some other individual advantages offered by the partnership.
What is Co-branding?
Co-branding is when two companies ally to work together, creating marketing synergy. A co-branded extension is a composite brand concept that contains the characteristics of two underlying concepts (Cohen and Murphy 1984; Park, Jun, and Shocker 1996).
Each of the two participating concepts is associated with a set of attributes that are combined according to a set of rules to form the composite concept. In other words, a co-branded extension does not involve the transfer of the entire brand concept from a parent category to an extension category.
Rather, it merely involves the transfer of a subset of attributes from the two parent brands, and their recombination into a coherent composite concept that could become a member of the extension category to which the new brand belongs.
Earlier marketers were just bothered about how to promote their brands. But now they have graduated to a more “defining their customer” approach. This approach though tedious makes branding and eventually co-branding easier for them.
Definition of Co-branding
Co-branding involves combining two or more well-known brands into a single product. Used properly, it is an effective way to leverage strong brands and has the potential to achieve ‘best of all worlds’ synergy that capitalizes on the unique strengths of each contributing brand.
To put in the words of inter-brand definition, “Co-branding is a form of co-operation, in which all the participants’ brand names are retained.” And Kotler defines co-branding as, “two or more well-known brands combined in an offer” and each brand sponsors expect that the other brand name will strengthen the brand preference or purchase intention and hope to reach a new audience.
Aim of Co-branding
Most companies have explored co-branding at one time or another. But few have realized its full potential. While there are many forms of co-branding; before a company can decide which option makes the most sense for its situation, it must fully explore four main types of co-branding. Each is differentiated by its level of customer value creation, by its expected duration, and perhaps most important, by the risks it poses to the company.
These risks include the loss of investment, the diminution of brand equity and the value lost by failing to focus on a more rewarding strategy. According to Chang, from the Journal of the American Academy of Business, Cambridge, states there are three levels of co-branding.
- Level 1: Market Share
- Level 2: Brand Extension
- Level 3: Global Branding
- Level 1 includes joining another company to penetrate the market.
- Level 2 is working to extend the brand based on the company’s current market share.
- Level 3 tries to achieve a global strategy by combining the two brands.
Forms of Co-branding
There are many different sub-sections of co-branding. Companies can work with other companies to combine resources and leverage individual core competencies, or they can use current resources within one company to promote multiple products at once. The forms of co-branding include:
- Ingredient Co-branding
- Same-company Co-branding
- Joint Venture Co-branding
- Multiple Sponsor Co-branding
- Reach and Awareness Co-branding
- Value Endorsement Co-branding
- Complementary Competence Co-branding
This involves creating brand equity for materials, components or parts that are contained within other products. Intel Inside on a Compaq Personal Computer explains the basis of ingredient co-branding. In this form, there is a physically identifiable ingredient brand that has a high brand value for the customer and with it, the value of the final product greatly increases.
Here, one of the strong brands is an ingredient to another strong brand adding value to the final product. The potential of value created in this cooperation is tremendous and without it, the value of the product will be diminished significantly. Another example here can be Nutrasweet as an ingredient in Diet Coke.
- Betty Crocker’s brownie mix includes Hershey’s chocolate syrup
- Pillsbury Brownies with Nestle Chocolate
- Dell Computers with Intel Processors
- Kellogg Pop-tarts with Smucker’s fruit
This is when a company with more than one product promotes its own brands together simultaneously.
- General Mills promotes Trix cereal and Yoplait yogurt
- Kraft Lunchables and Oscar Mayer meats
Joint Venture Co-branding
Joint venture co-branding is another form of co-branding defined as two or more companies going for a strategic alliance to present a product to the target audience.
British Airways and Citibank formed a partnership offering a credit card where the
card owner will automatically become a member of the British Airway’s Executive
Multiple Sponsor Co-branding
British Airways and Citibank formed a partnership offering a credit card where the card owner will automatically become a member of the British Airway’s Executive club
Citibank/American Airlines/Visa credit card partnership
Reach and Awareness Co-branding
This is the lowest level of shared cooperation in a co-branding exercise and its objective is to rapidly increase the awareness of the sharing brands through each other’s strength in the respective domains. An example of this type of co-branding is found in credit cards. Co-branding of this type finds the maximum utility of co-branding.
In the Indian context, we have already observed a spate of co-branded credit cards between Citibank and Jet Airways, Standard Chartered Bank and Indian Railways, Indian Oil and Citibank, and Citibank and The Times of India.
The benefit of co-branded cards to the cardholder is that he gets points whenever he uses them and he can get these points redeemed for additional products or services for free. Thus, it builds loyalty to the brand or service in use by the customer. This is a sort of affiliate marketing between three brands, viz., a payment service franchiser (Mastercard, VISA), a bank and a product or service.
Value Endorsement Co-branding
This is the second level in the co-branding hierarchy wherein the shared value creation and the strength of a relationship are such as to have the endorsement of one brand values to the other with a strong affinity towards the other.
The most appropriate example here would be of the companies getting involved with a cause with some non-government organization, e.g., the co-branding exercise between P&G and National Association for Blind in the form of Project Drishti where one rupee per pack of Whisper purchased by the customer was diverted towards the cause of a blind female child.
Thus, here one of the brands gives a small proportion of its transaction revenue to charity and the brand comes to be associated in the public mind with a worthy cause and with good citizen brand values. The essence of this type of branding is that the two participants cooperate because they have, or want to achieve an alignment of their brand values in the customer’s mind. Some of the other examples of two commercial brands coming together would include the endorsement of Ariel by Vimal.
Complementary Competence Co-branding
This is the highest layer in the hierarchy of co-branding. In terms of value creation, it is just next to the Joint Ventures. Here, the two powerful and complementary brands come together and combine for a product or service that is more than sum of its parts, and it relies on each partner committing a selection of its core skills and competencies to a product.
Benefits of Co-branding
- It is inexpensive.
- It’s a form of marketing that can generate business even when rates climb.
- Many line extensions capitalize on a partner’s brand equity.
- Brand extension success rates are maximized in the new market when co-branded with the reputed brand that has been established in that market.
- Co-branding may help usage extension.
- Image reinforcement may take place due to co-branding.
- Loyalty programs increasingly include co-branding arrangements. The corporations are sharing the cost of loyalty programs; hence, the promotional costs to the companies are coming down.
- Co-branding signals a trade marketing operation.
- Capitalizing on the synergies among several brands is yet another advantage of co-branding.
Co-branding between an Indian major and a global firm in the Indian markets is beneficial as the Indian company would be having already established an existing distribution network and a brand image in the market. The MNC in turn will provide the Indian partner with the technical know-how and an international brand attachment.
Constraints in Global Co-branding
When it comes to co-branding between two global companies in Indian markets, the main constraints faced are:
- May not have any existing distribution network of any note.
- This May lead to brand dilution of one or both brands if the perceived image of both brands is not similar in the Indian market.
- The two companies may be in different fields altogether and the consumers may find it very difficult to identify the co-branded product with either of the two parent companies.
- No two brands have the same impact on the consumer. Therefore, one partner in every co-branding partnership will receive more attention than its counterpart. If that risk is accurately assessed and accepted by the junior partner and it’s still a net gain for its brand identity, then the partnership is sound. For example, computer-manufacturing companies like HP do co-branding with Intel. But Intel’s Pentium Processor campaign has been so successful that many computer buyers don’t bother about the computer manufacturers as long as it has Intel Inside.
Over 90% of co-branding ventures fail. This is because they did not follow the basic or ground rules of co-branding. Successful co-branding must achieve equal value for all parties in any relationship; partner brands’ values need to match each other; and consumers must easily understand the resulting strategy.
A successful example of co-branding is the Senseo coffeemaker, which associates Philips-made appliances with a specific coffee brand of Douwe Egberts.
Other examples include the alliance of the Beer Tender in-home draft system, sold by Krups with the specific brand of Heineken, and the marketing of Gillette M3 Power shaving equipment (which require batteries) with Duracell batteries (both brands owned by Procter & Gamble).
Co-branding can be between an organization and a product also. An example of co-branding between a charity and a manufacturer is the association of Sephora and Operation Smile: Sephora markets a product carrying the logo of the charity, the consumer is encouraged to associate the two brands, and a portion of the proceeds benefit the charity.
In India, retail is poised to be the next big thing. Apart from the growth prospects, it gives retailers a lot of opportunities to create alliances to strengthen their marketing offers.
With a lot of companies entering the retail scenario, it becomes imperative they resort to co-branding and/or strategic alliances to strengthen their consumer base, e.g. when a giant like Walmart enters India, for the Indian retailers to fight back, they will have to go the co-branding way to increase or maintain their customers.
Need for Co-branding in Retail Sector in Coming Future
Modern consumers will be discerning and will demand their needs be met all of the time and at the right price. Information about consumer shopping habits has never before been better and technology is improving all of the time to increase marketers’ knowledge. Traditional retailers will find consolidation in buying habits and will find it tough.
For example, consumers will find it easier to buy fresh vegetables from a food retailer on Sunday rather than going to a traditional vegetable seller in a mandi. The market shares of traditional retailers will be gobbled up once the majors like Wal-Mart enter the Indian retail space. The superstores of supermarket chains provide a perfect host environment for a plethora of co-branding opportunities. But the question that arises here is.
SWOT Analysis for Co-branding in Retail
- Ability to adapt to the change in markets
- Provide one service in exchange of the other
- Benefit by association
- Building of two in house brands.
- Long-term association with a poor performer or weaker brand
- Dropping of standard because of the inability of the poor franchisees.
- Outsource to experts
- Introduce a new culture change through a new organization
- Learn a new trade
- Improve consumer trust
- Increase market penetration.
- Changing Consumer
- New entrants from overseas or different market sectors
- Consumer confusion
- Safety scares and product recalls.
Disney worldwide has an agreement with Mcdonald’s whereby the characters from its new films are distributed as toys with Mcdonald’s “Happy Meals”. This is a win-win situation for both parties as it ensures publicity for Disney within its relevant target audience and an increase in sales for Mcdonald’s. With the McDonald’s partnership, Disney also uses the extraordinary reach of the chain to promote and advertise new movies both in stores and through ads the fast-food company funds. That’s especially valuable to a studio at a time when the costs to make and sell films are soaring.
Need for a Strategic Fit
Whenever brands go in for co-branding, they must ensure that there is a strategic fit, especially in the consumer’s mind. Successful co-branding occurs when both brands add value to a partnership. The value-added potential should be assessed by examining both the complementarily between the two brands and the potential customer base for the co-brand.
A great deal of attention has been given to the potential for Interbrand effects in co-branding, that is, the potential for enhancement or diminishment of the brand equity of either partner. Much of this attention has been directed to the effects on brand attitudes.
In general, research suggests that consumers tend to respond favorably to co-brands in which each partner appears to have a legitimate fit with the product category, and the attitudes towards the parent brands will be reinforced, or at least maintained, as a result of the partnership.
E.g. consider an alliance between the brand Amitabh and Dabur. After they get together, it is important for the manufacturer to realize whether the perceived brand value of either of the two brands has increased. In case there is a genuine fit between the two, it will be accepted by the consumers.
Prerequisites for a Successful Co-branding Strategy
A product is identified with a company by its brand and usually consists of some type of identifier. The concept of co-branding consists of taking a product developed for one company, and changing the look and feel to match that of another company. The detailed co-branding process results in a product that is fully customized to meet the particular needs of a specific company with minimal change to the underlying technology, processes and modular functionality.
- Work of designers and developers
- Brand association phenomenon
- Consumers’ attitudes toward a particular brand alliance
- Different forms of co-branding
- Consideration of existing brand
- Familiar brands
- Similar buying situations
Work of designers and developers
Co-branding customization requires the work of both designers and developers. Designers modify the look and feel to match the new company’s value offer. Developers add and remove product functionality modules to meet the specific needs of the customer segments.
Brand association phenomenon
The very base of the co-branding marketing strategy is related to brand association phenomenon. To understand the process of co-branding fully, the principles of classical conditioning may be used.
Although classical conditioning is only one method for creating associations and advertisers do not follow strictly all the aspects of this theory, many classical conditioning principles can be applied to co-branding in advertising. Therefore it makes sense to examine co-branding from a classical conditioning perspective.
Originally classical conditioning was discovered as a method for creating physiological responses in animals. Pavlov’s classical experiment, in which a metronome is paired with the presence of meat paste on a dog’s tongue to elicit the salivation responses and where in the absence of the meat paste the dog salivates to the sound of the metronome, proved the theory of association.
Research suggests that humans develop physiological responses to such stimuli as well. Humans can even be conditioned to develop favorable or unfavorable attitudes toward brands/images (stimuli) or to develop an understanding of the meanings of various stimuli, including products and brands.
Similarly, one goal in co-branding is to create favorable attitudes toward a new product by creating an alliance with a favorable existing product. Further, the advertiser may intend to associate a certain meaning with a new product by pairing it with an existing brand. Understanding the mechanism behind association formulation is very helpful in developing successful co-branding strategies.
One can explain the process of creating positive stimuli by co-branding strategy through classical conditioning. It can be described as follows: a stimuli that does not naturally produce a response, a conditioned stimulus (CS) is paired with a favorable stimulus, an unconditioned stimulus (US).
Consumers’ attitudes toward a particular brand alliance
Despite the growing use of co-branding in practice, little empirical research has been conducted on the topic. Most of the literature on co-branding simply describes the strategy or discusses the advantages and disadvantages of co-branding arrangements.
There are however two empirical studies dealing with this topic. In the first study by Simonin and Ruth (1998) consumer attitudes toward brand alliances are examined. The focus of this work is on the spillover effects of brand alliance evaluations on the later evaluation of partners and the role of brand familiarity in these relationships.
The result of this study is that consumers’ attitudes toward a particular brand alliance influenced their subsequent attitudes toward the individual brands that comprise that alliance. The second study by Park et al. (1996) deals with a Composite Brand Extension (CBE), the combination of existing brand names, analogous to co-brand.
It examines how consumers form the concept of the CBE based on the concept of their constituent brands, the roles of each constituent brand in forming this concept and the effectiveness of the CBE strategy.
According to the study a composite brand name can favorably influence subjects’ perception of the CBE and those complementarities between the primary and secondary constituent brands is a more important factor in the success of the CBE strategy than a positive evaluation of the secondary brand.
Different forms of co-branding
There are several approaches to trying to define different forms of co-branding. The first of its kind is by the process of differentiation in co-branding forms. There are four different forms of co-branding. The first form is ingredient co-branding. A representative example could be recognized when Maruti advertises that it uses MRF tires.
Another form of co-branding is same-company co-branding. A Titan watch from the house of Tatas is an example of the second kind. Joint venture co-branding is yet another form of dual branding. The case of Godrej and Procter and Gamble is an example of this kind. We are going to experience more joint venture branding in near future.
Finally, there is a multiple-sponsor form of co-brands as in the case of HCL computers with hardware alliance of HP, processor alliance of Intel, and software alliance of Microsoft. The second approach to co-branding forms defines the approach of mixed markets, the umbrella approach, and cyber branding. The approach of mixed markets allows two firms to benefit from joint marketing and broaden their customer base.
The penetration of the market increases for both organizations creating a classical win-win situation. The umbrella approach takes co-branding to its outer limits. As an example, the organization HDFC can be used. It operates as the umbrella company for separate firms focusing on forcing effective marketing operations to serve the financial industry.
The individual companies focus on securities, banking operations and housing loans and other needs of financial services firms. According to leading marketers, co-branding helps the partnering companies to differentiate themselves in the financial industry, which experiences competition from nontraditional sources. Cyber branding is very well represented by the high-tech world of Internet banking.
An example of the ICICI Bank can be presented. It co-brands with other high-tech companies to establish special products and services for those firms´ employees. As natural with every marketing strategy, even with co-branding, it is difficult to expect only positive results. There are far too many factors, which can influence either success or dismal failures.
Co-branding has been successful in the credit card industry and is believed to have helped Citibank to improve its position by co-partnering with Indian Oil in India to offer specialized cards. On the contrary, however, though the Sony Mini Disk CD player held a prominent role in the film Last Action Hero, sales did not improve.
Though many firms try to co-brand in expectation of benefit, caution is recommended when using this strategy and common sense suggests that theoretical research on association formulation may help marketers gain the maximum amount of benefit from such arrangements. Co-branding should be beneficial to both parties and the products or services offered must provide a worthwhile benefit to both participants.
The partner chosen for the co-branding strategy should be reliable and responsible. Both companies should represent the partnering company without any possible scandals and public relations problems. The acting of every single partner influences the customer base very easily.
Every business needs capital and also in creating a partnership between two companies, financial strength is very important. This is especially important for the future possibility of problems or slow sales periods.
Consideration of existing brand
To be more precise, before choosing a branding partner, it is necessary to consider that the existing brand usually awoke some association in the past. In some cases a problem can occur, and hence that a prior brand association may limit co-branding possibilities.
In order to mange the co-branding strategy successfully, it is important to identify the original associations tight to the brands, which are to create an alliance. There is a wide range of associations, which may be awoken among customers.
Most common are the attributes of the product or benefits from it, but quite often are brands also associated with the celebrities, events that have been linked to it or even geographical location. The best example of a brand with a wide network of associations is Pepsi in Indian market.
The brand is already associated with the celebrities that have endorsed it ( both Amitabh and Sachin), the Cricket series, which Pepsi sponsors, the concept of refreshment, certain music that has been used in the advertisements, the color blue and even some Catch line (yeh dil maange more).
Because of the high number of associations, difficulties could occur in trying to tie another brand to Pepsi in Indian market. It is also very important to remember that positive and also negative associations can be created.
An example could be the Wills sponsorship for Indian cricket team where the brand is associated with cigarettes. There is no guaranty that the audience watching cricket belongs to the smoking part of population and in today’s world full of “healthy ways of life” some people may connect negative associations with cigarettes.
The basic proposition of co-branding strategy implies that at least one of the stimuli is a familiar brand with which people have developed favorable associations. Marketing practitioners use popular stimuli that are well known to consumers.
This strategy may however have its negative sides, when people are familiar with stimuli, it is more difficult to attach new associations to the product that awoke this associations. One way to avoid this problem is to try to show the familiar brand in a different context.
Using this technique the stagiest can present a familiar brand in a different context and people will be more likely to pay attention. It is advisable to choose a brand that has a reasonable number of associations and that will also well connect with the target brand.
Similar buying situations
Finally, research on the bundling of products suggests that products that have similar buying situations and are bundled together are more favorable to consumers and consumers will pay more for them than products that do not belong together. Combining two completely different partners could cause failure.
For instance, if a banking industry tries to associate itself with a cartoon character might not be successful at all. The explanation for these results could be the fact that financial products are just not funny and humor is not an appropriate fit.
For instance, the Daewoo Matiz, introduced in 1999, is positioned in the marketplace as a technologically advanced automobile. To introduce the image of a family car, Matiz made very clear advertising that the product was for families, had an interior room, and had a nice ride, and customers began to perceive the Matiz as a family car.
There are also other potential benefits connected to co-branding. Once a response is conditioned to a particular stimulus, individuals may respond similarly to similar additional stimuli. It is possible that when you create an association between a target brand and a familiar positive brand, other brands, either your similar brand or competitors´ brand, will also be associated with the stimuli.
As an example, we could use the Nike trademark, which produces high-quality sporting gear. This brand has become very popular among sportsmen across the world. The association that Nike awakes among the customers is “high performance through the – Just Do It caption”.
When another brand of similar sportswear tries to introduce this image, the association of Nike is reinforced. To increase the effect it is recommended to repeat the co-branding connection several times by using co-branding in advertising.
Advertisers using co-branding should be aware also of special aspects of this strategy like the timing of the co-branding presentation and ordering of the images to achieve maximum association formulation.
The optimal ordering of the images is supposed to be the presentation of the target product before the familiar positive brand rather than after the familiar positive brand. This is known as forwarding conditioning.
Although it is wise to consider the length of the relationship between the two branding partners, advertisers should also be aware that associations are fairly resistant to extinction.