Flirting with co-branding – The considerations

16 Jun 2017

At the supermarket a few days ago, I came across a pack of Stimorol chewing gum flavoured with Halls Menthol. I’m not an avid bubble gum-chewer, but being an ardent lover of Halls Menthol, I simply couldn’t resist buying a pack. Had it not been for the Halls Menthol “additive”, I’m sure I wouldn’t have bothered.

We are surrounded by examples of co-branding – it has become quite prolific and judging by my experience, can actually work. Co-branding is a marketing strategy that involves the collaboration of two or more brands to create a product or service that is representative of both. There are various forms or types of co-branding:

• Ingredient co-branding: For example, the addition of OREO cookie pieces into CADBURY DAIRY MILK chocolate, KFC DORITOS crunch burgers, INTEL processors in DELL computers and of course, HALLS Menthol to STIMOROL chewing gum.
• Same company or internal co-branding: For example, NESTLE COUNTRY FRESH ice cream with NESTLE BAR ONE sauce.
• Joint venture co-branding: The athletic clothing range released by REEBOK and CROSSFIT, NIKE and APPLE’S NIKE+iPOD, SONY ERICSSON and ABSA VISA or MASTERCARD.

There are certainly advantages to co-branding. Co-branding can raise awareness about the brands; allow a business to introduce or expose its products or services to the loyalists of the other brand or penetrate another market; allow the business to benefit from the brand equity (or affection) held by another brand; and enhance the value or quality of the product or service in the minds of consumers.

In offering more choice to consumers; the ‘new’ product or service increases profits while reducing the costs involved in introducing new products or services as well as costs of marketing and advertising.

However, brand-holders should also bear in mind that there is a flip side to the co-branding coin. For example, co-branding could lead to the dilution of your brand. A smaller, new or less well-known brand risks being subsumed by the other more established or well-known brand. If one of the brand-holders has a greater say or hand in the co-branding exercise, this may result in a loss of control by the other brand-holder.

And if the co-branding strategy doesn’t work – if the product or service is of an inferior quality or one of the brand-holders suffers negative publicity – this could have a negative impact on consumers’ perception of the brands and consequently, the reputation and value thereof.

When deciding to co-brand, it is essential to bear the following in mind:

Choose your co-branding partner carefully.

Get to know and gather information about your potential co-branding partner. It is essential to choose a partner that offers products or services that are complementary to those that you offer.  There must be a natural link between the co-branding partners and at the end of the day, the product or service offered under the co-branding exercise must be relevant and offer value to consumers. Furthermore, the co-branding exercise must have advantages for both parties and add value to both brands.

Aside from this, the brand-holders should be compatible and have synergy to reduce the likelihood of conflicts arising and ensure a better working relationship.

It is also vital to consider the reputation of the other brand and the financial and market position and operations of the other brand-holder vis-a-vis the reputation of your brand, financial and market position and operations.

Communication and participation.

There are, of course, circumstances where one of the parties may be more involved in the co-branding exercise than the other due to its expertise, know how, etc.

However, it is important that both parties participate and are involved in one way or another and that they effectively communicate with each other.  Both parties should have a say in the co-branding exercise.

Agreement.

Most importantly, the parties must have a carefully drafted and detailed agreement (as well as guidelines or rules) in place, which sets out the parameters of their relationship and governs the co-branding arrangement.

The co-branding agreement is, in essence, a type of co-licensing agreement and should thus include provisions relating to the use of intellectual property.  It is important that the brand-holders are able to maintain their separate identities and exercise control over their respective brands to maintain the integrity thereof.

Some issues that need to be considered include the retention of the proprietary rights by each brand holder once the co-branding arrangement is terminated, ensuring that the use of the brand inures to the benefit of the respective brand holders and maintaining the distinctiveness of the brands.

Lack of quality control provisions and monitoring can result in dilution or loss of control by the brand holder and aside from this, there are other risks to consider such as liability for defective products.  Thus, it is imperative that the agreement contains quality control provisions.  Branding specifications setting out how (that is, in what manner and form) trade marks will be permitted to be used and the scope of such use (including territorial considerations) as well as a marketing strategy/ plan setting out how and through what mediums the product or service will be marketed and promoted and how all of this will be monitored are crucial.

Other provisions in the agreement should deal with the exclusivity, duration and termination of the co-branding arrangement.  Grounds for termination should be widely construed to cater for a variety of circumstances – for example, if targets are not met, if there is an infringement or misuse of intellectual property, if one of the brand holders suffers negative publicity, etc.  There should also be provisions dealing with warranties, indemnities and confidentiality.  In this regard, it should be noted that entering into a co-branding arrangement may necessitate the disclosure of certain confidential or privileged information such as customer data, technology and know how, market research data, etc and the agreement should ensure that this information is not disseminated to third parties or used when the co-branding arrangement has been terminated.

The agreement should also deal with any new intellectual property, whether it be trade marks or new technology, etc, derived from the co-branding exercise.

These are, of course, just some of the considerations to bear in mind when entering into a co-branding arrangement.  Co-branding is indeed a powerful tool and can certainly provide a competitive edge when properly structured.  However, it is essential that brand holders are diligent and exercise due caution when entering into such arrangements.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)