The ins and outs of co-branding

While co-branding can be an excellent way for brands to increase their revenue and break into new markets, several complex business issues need to be addressed before brands get in too deep

There are any number of ways for brands to extend their market presence and market share. We are all familiar with basic brand/trademark licensing – for example, where a brand allows a third party with experience (hopefully) in one or more product or service categories to develop and market products or services under the licensed brand.

Another means that has become increasingly popular over the last 20 years – and which is seeing significant growth in the online and mobile environments – is co-branding. This occurs when two (or more) brands either market a new product or service bearing both marks combined as a single mark (a classic example is the fruit and nut product once marketed by Diamond nuts and Sunsweet dried fruit, called Diamond/Sunsweet), or co-market one or more products or services under their respective marks. Popular recent examples of this latter type of co-branding include Nike Air Jordan athletic shoes, Louis Vuitton and Christian Louboutin luggage, co-branded credit cards such as American Airlines/Citi and tie-ins or sponsorships for movies and television shows, such as American Idol and Coke and other entertainment products. In the food category, the co-branding of ingredients has created new versions of existing brands – for example, Philadelphia cream cheese with Cadbury chocolate.

Why co-brand?

There are a number of good reasons for co-branding. First, each brand gets to expand its presence in the market sector and among the consumer demographic in which the other excels. Entering a new market in partnership with a well-known and already desirable brand will likely lead to increased recognition and sales of the co-brand in the other’s market. Second, a brand that needs a boost in recognition or to appear more contemporary may achieve this through a co-branded relationship with another brand that already has that status; while the other brand may benefit from being introduced to a new consumer audience. Third, each brand can leverage the other’s core competencies, thus adding skill sets and strategies which may be new to one of the branding partners, but is integral to the other’s success. Fourth, fresh minds from one brand’s core group looking at the other brand can add new insights to branding and marketing strategies. Fifth, there are often cost savings – for example, there is an economic advantage to both brands contributing to the marketing expenses of the co-branded product or, in the fast-food sector, where two or more restaurants share the same building (eg, Pizza Hut and Taco Bell are often housed together). Sixth, sometimes adding a co-brand provides justification for charging a premium – for example, Ford’s long relationship with Eddie Bauer and more recently with Harley Davidson (the 450 horsepower supercharged Ford F-150 Harley-Davidson Super Crew).

In the food and beverage sector, partnerships between popular food brands, such as Pillsbury chocolate chip cookie mix and Hershey’s chocolate, can add any number of new perceptions to an existing brand – for example, the addition of a popular chocolate brand creates the powerful perception that the cookie mix is now more upscale, gourmet or delicious. Those who enjoy alcoholic beverages will already be aware of popular co-branded beverages such as Bacardi and Coke, and many other co-branded cocktails.

Celebrity co-branding, which frequently occurs with luxury brands, often endows the co-brand with whatever qualities a celebrity is perceived to add to a product’s brand persona to give it immediate lift and credibility. Having an athlete such as Michael Jordan endorse and co-brand with Nike gave Air Jordan shoes instant legitimacy and an eager fan base, creating an immediate, compelling desire to purchase the shoes among the relevant demographic.

A successful co-branding relationship hinges on many business and legal factors. Consider any relationship between two ‘A’ types – trust and respect are required if the relationship is to have a chance of working. In addition, a certain amount of compromise is necessary to make the relationship work. In most co-branding relationships, there are two A types – the brand, which has usually been successful in its own sphere of influence or seeks to be lifted into a more successful space, and the people behind each brand. Each brand comes to the other wanting to maximise the benefits, while at the same time understanding that without cooperation and sharing, the relationship is unlikely to work. However, as the adage goes, too many cooks spoil the broth, which means that some degree of decision making and control hierarchy needs to be established early if the venture is to succeed.

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In a bold move, YouTube produced its own half-time Super Bowl show this year, hosted by one of its own stars, Harley Morenstein, host of stunt cooking series Epic Meal Time

Legal relationship

The nature of the legal relationship between co-brands most frequently takes one of two forms. A classic structure for a new product containing co-branded ingredients was that used in the Diamond/Sunsweet scenario. This was a new product containing Sunsweet dried fruits and Diamond walnuts, where the two brands were tied together to form a single new product and brand – Diamond/Sunsweet. Since the brands were merged into a single new one that neither company could own individually, something other than a classic licensing-in of one brand to the other was necessary for trademark protection purposes. A new joint venture company was established (Diamond-Sunsweet, Inc) for the sole purpose of marketing this new product, with each company licensing in its brand to the joint venture for purposes of the single new brand. At termination, the joint venture would end and the licences would terminate, with the licensed rights reverting to each licensor. As a business structure (absent tax and other business-related considerations, which differ from company to company), this is the only legally clean way to co-brand where the actual product brand consists of both names. Further, this structure has been approved by various trademark offices, including the US Patent and Trademark Office (USPTO) (In re Diamond Walnut Growers, Inc, 204 USPQ 507 (TTAB, 1979)). The new brand and the composite trademark were owned not by the joint venture, but by each brand owner.

The most popular co-branding structure where the brands are not combined to form a new brand comprising both brands (and thus obviating the need for a joint venture-type relationship for ownership purposes) is a licence from one brand to the other – in other words, a cross-licence. When the co-brand relationship ends, so do the licences, with a simple reversion of each licensed mark back to its licensor. There is no need to register the co-brand with a trademark office, since the brands are displayed separately and therefore maintain their own legal integrity. However, if one of the brands has not previously been registered in the co-branding partner’s product class(es), it now can be.

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Ford’s limited-production 2011 Harley-Davidson F-150, which debuted at the Texas Motor Speedway in 2010, illustrates how adding a co-brand can provide a justification for charging a premium

Brand and marketing strategies

This is where things often become complicated. Each brand will have its own concept about how its brand should be presented and marketed, with the success (or failure) of the co-brand likely having a direct impact on the individuals involved in making it work. Thus, brand professionals who have fairly set views about how their brand is best managed will often need to see things through a different lens – that of the co-branding partner, which will have more expertise with its product type or customer demographics. Nonetheless, it is crucial for everyone involved in the co-branding strategy to establish philosophical, style and communication standards, as well as policies and procedures that will mutually work. Packaging and print advertising standards are often established through the use of mutually created style guides, which explain how the licensed brand should be displayed in print. The use of such guides is highly recommended.

However, the real challenge is not with static displays or packaging, but with interactive communications, especially social media. Decisions need to be reached about:

  • whether to use social media platforms, and if so, which ones;
  • which kinds of communications should be permitted and which should not;
  • who should respond to consumer postings and who should post from the brand side;
  • what tone, brand personas and strategies should be used;
  • who should manage the postings and how such management should be executed; and
  • how problematic issues should be resolved.

There is nothing new here from a strategic perspective – it is simply that now there are two masters instead of one, and each needs to be fully involved since there are rarely small mistakes in the social media environment – consumers, competitors and critics are quick to make any content that is inconsistent with the brand or made in error viral. There are known examples where single communication gaffes made in tweets have led to the brand being completely undermined.

Quality control can take on a whole new meaning when it comes to celebrity co-branding

Quality control can take on a whole new meaning when it comes to celebrity co-branding, especially when the celebrities are not used to knowing about or addressing control over their behaviour. The typical problem is not so much in obtaining approval for celebrity likenesses and signatures – these are usually pre-approved in advance as authorised likenesses and signatures – but in the area of promotion and social media. Scheduling live celebrity promotional events is often complicated by the busy schedules or, in some cases, vibrant lifestyles of the celebrity concerned. Making sure that the celebrity’s social media comments (tweets in particular) and public behaviour are consistent with the image of the co-brand may be a challenge, depending on the celebrity. Also, a celebrity may have endorsement deals with other products or services which may be inconsistent with the co-brander’s image – thus, some control over what other products or services the celebrity endorses is an important deal point.

Branding execution

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In the food category, the co-branding of ingredients has created new versions of existing brands, such as Philadelphia cream cheese with Cadbury chocolate

A brand, as we know, is more than the word trademark or the logo. It is the imagery, messaging, reputation, history, content and any other factor that comes to mind – consciously or subconsciously – when one thinks of the brand. Ensuring that one’s brand is well represented in a co-branding relationship, meaning that all important aspects of the brand are properly included and experienced, is critical. If one of the brand partners is new to the other’s marketplace and is co-branding in an effort to move into that marketplace or gain a greater share of it, it will likely need to be flexible about how the brand will be presented in this new marketplace. For example, a brand with an established consumer base of people aged 35-plus will need to do some adjusting to entice millennials through the co-brand relationship. Thus, not only will a mutually effective branding strategy be important, but processes and procedures for approvals, testing and the like will need to be worked out in advance and made part of the co-branding agreement.

One of the more interesting and challenging decisions that will have to be made for promotional purposes is whether to use online video content and YouTube video stars and other social media influencers, and if so, what the content and messaging will be. Many brands are reaching out to this new brand of celebrity – people with popular shows on YouTube and thus a large consumer reach – as well as social media influencers with large numbers of Facebook and/or Twitter and other social media platform friends. A survey commissioned by Variety in July 2014 evidenced that the five most influential persons among 13 to 18-year-old Americans are all YouTube stars, eclipsing mainstream film and television celebrities.

It is not just a question of deciding whether to use these video stars, but also whether to create content for social-media based alternative programming. Not only are there regular show series on YouTube that can be sponsored but, in a bold move, YouTube produced its own half-time Super Bowl show this year, hosted by one of its own stars, Harley Morenstein, host of stunt cooking series Epic Meal Time. According to YouTube, the show was designed to appeal to viewers who care more about the ads than the actual game.

Social media-based alternative advertising opens up new considerations for brands. For some, it is whether they want to alienate network partners which might view this alternative advertising as a platform for ambush advertising. Ambush advertising traditionally occurs when brands competing with the sponsor of a major event use advertising and promotions that connect them with the event, but not officially. For example, imagine a major competitor of Budweiser – a major sponsor of the Super Bowl – sponsoring the YouTube half-time show. It would enjoy the benefit of being associated with the Super Bowl without being an official sponsor of the event. It could be argued that this is ambush advertising. Then there is the issue of deciding on content that would appeal to consumers of social media – the co-branding partners will have to decide on what the content will be, how extensively it will be used and how the respective brands will play a role in it. There are many decisions to be made about this new area for brand marketing, yet decision making becomes even more complicated when two or more brands are involved.

Revenue sharing and cost allocations

Co-branding relationships are business relationships, which means that profits need to be made for the relationship to endure. This means that revenue needs to be maximised and costs minimised. Assuming that these generalities can be achieved, a major issue for co-branding is deciding on how revenues and costs are to be allocated. Co-branding deals are not by their nature 50/50 partnerships; thus, extensive haggling is often required when it comes to deciding who pays for what and how derived revenues are to be shared. For example, in the entertainment arena, in which one of the author’s clients is the producer of famous celebrity-driven television competitions, much of the cost of the co-branding for the shows and nearly all of the cost of producing social media content and other promotions is borne by the other brand(s). The thinking here is that the shows are a portal for the product co-brand to reach millions of potential new consumers in the allotted territories; thus, bearing the lion’s share of advertising and promotional expenses is the opportunity cost for the other brand. Remember: once the co-branded relationship ends, the product co-brand continues to have an enlarged consumer base in which the series producer may share less over time or not at all. Similarly, celebrities rarely share in development or marketing costs. The same is true in mixed ingredient and other relationships where one of the co-brands hopes to benefit from the other’s reach. And of course, cost allocations for trademark enforcement and other legal issues which may affect only one of the co-brands need to be properly addressed.

Revenue sharing must also be negotiated. If, for example, one of the parties is co-branding to seek the benefits of the other’s established reputation and base, there is a strong argument that the revenue should not be shared equally. Similarly, if it can be shown through analytics that one party’s brand in online advertising and promotion is more responsible than the other’s in driving customer interest and revenue, the door is open for an uneven allocation of revenue and profit. If the co-branded advertising permits visitors to link to one of the co-branded company’s websites or single ads, or allows them to register for more information about that brand, there is room to negotiate a formula for revenue sharing resulting from those transferred visits or registrations. And there is always a negotiation over whether all or certain costs should be deducted from revenue in determining profits – one can argue that opportunity costs, for example, should not be deducted from revenue in determining profits. These are but a few of the issues relating to the financial side of co-branding.

Termination

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To celebrate the LV monogram, Louis Vuitton and Christian Louboutin teamed up to offer co-branded products such as this $23,300 shopping trolley at Louis Vuitton Boutiques

Picture: christianlouboutin.com

IP and customer ownership

Since co-branding relationships are by their nature finite, one must consider issues relating to ownership of intellectual property and new customers resulting from the relationship, and who will continue to own them after the relationship terminates. The branding partners will be creating a host of new advertising and promotion content and packaging look and feel as part of their relationship. Thus, who will own the rights in the intellectual property in these elements such that they can be used after the relationship ends is an important negotiating point. For example, a successful YouTube campaign featuring new YouTubers or a series of successful interactive banner ad campaigns may and likely will have vitality after the relationship ends, and one or both of the partners likely will want to continue benefiting from this success. Similarly, various promotional campaigns will lead to the acquisition of new customers – who owns them for purposes of ongoing contact and solicitation is a significant negotiating point. Successful packaging in which customers delight and in which trade dress rights have developed also has post-termination significance. Having invested in and developed this content which adds to the overall brand persona and reach, as well as in the acquisition of new customers who can be targeted for information and solicitations for new products, each brand partner will often want to have rights to continued use and access. The who, what, when and how of these allocations will play a significant role in creating the relationship.

What will trigger the end of the relationship (other than uncured breach) and who determines it is also a major negotiating point. Establishing these parameters before the relationship begins is critical. For example, one party may not want to have an exclusive relationship with the other for more than a year, while the other may believe it will take two years or more for the co-branding effort to work, especially if a lot of new advertising and promotional content must be created, implemented and tested. Revenue expectations also need to be mutually agreed – one party may believe that not reaching X dollars in the first year should trigger termination, while the other may believe that X2 dollars is the appropriate measure after two years. Similarly, the parties may have differences over how much money needs to be invested in marketing before success can be measured. Or one party may decide that the co-brand relationship really is not working for it, or may be acquired by a third party, which decides to take the brand in a different direction.

Summary

Co-branding can be an excellent way for brands to achieve a number of business goals, including increased revenue and exposure. Effective co-branding requires that fairly complex business issues be addressed legally in agreements which can then serve as road maps for all material ‘what ifs’ that might befall the two partners.

Steven Weinberg is a founder and principal of Holmes Weinberg [email protected]

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