Marketing goods or services under two or more trademarks of different companies is a popular way to broaden an existing or new brand’s exposure in the marketplace and can be used in many ways.
Although co-branding is not a new concept, it remains crucial to consider the strategic objectives of the project and to address all the possible risks before it is launched.
While one participant in a co-branding exercise may have in mind to increase revenue or brand recognition, another participant may wish to penetrate new markets or introduce new products or services. Whichever objective is applicable in a particular situation, each participant should be absolutely certain from the outset that his specific objectives coincide with the actual opportunities that will arise from the intended marketing campaign.
To ensure that all participants benefit from the campaign, it is important to identify the right partner — the compatibility of potential partners plays a crucial role in the success of the project.
The parties need not necessarily be of equal size or reputation. When a dominant partner joins forces with a smaller brand, the smaller partner usually benefits from the trust and loyalty that attach to the bigger brand, while the latter may use the smaller brand to penetrate new market sectors.
Co-branding by two or more small players can be more strategic and creative in nature.
In this kind of situation parties should ensure that the sum total of the joint marketing effort results in greater brand recognition than what would have been achieved with individual campaigns.
After a compatible partner has been identified, the risks of the co-branding project must be considered and addressed. The following situations could pose serious risks for a participant and should be addressed in the co-operation agreement:
- The failure of the project because of financial or other strategic objectives not being achieved.
- A change of strategy or withdrawal of products.
- A breach of contract, insolvency or change in control of one of the participants.
- The sudden degeneration of a participant’s previously stainless reputation.
- The unauthorised use of a participant’s trademark.
It is particularly important that appropriate contractual measures be put in place to ensure that participants retain ownership of, and quality control over, their individual trademarks. This can be accomplished with properly worded, reciprocal trademark licences incorporated into the co-operation agreement. These licences should not only stipulate what would constitute authorised use of the parties’ trademarks, but also which restrictions and limitations apply.
A serious risk which all trademark proprietors should guard against is the dilution of their trademarks, where use of the trademark on products other than those in respect of which the mark is registered or renowned for will tarnish or damage its distinctive character or reputation. For instance, it is conceivable that Coca-Cola restaurants, Coca-Cola motors, Coca-Cola paint and the like could eventually dilute or destroy this well-known mark.
The risk of dilution is inherent in co-branding and the contract should therefore provide a participant with the option to terminate the licence in appropriate circumstances.
Co-branding is not to every company’s liking. It is interesting to note that BMW forms strategic alliances only in exceptional circumstances. However, despite the risks involved, co-branding participants can derive enormous benefits from such an exercise, given the right circumstances and provided it is planned and managed with the necessary care.