Co-Branding: A Worthwhile Investment or an Unnecessary Hindrance?

Co-Branding: A Worthwhile Investment or an Unnecessary Hindrance?

Lauren Sternbach

Binghamton University

Executive Summary

Co-branding is a marketing strategy in which two brands join together to create a product or offering that combines aspects of both brands. Co-branding is implemented in the hopes that the combination of the brands will produce a synergy effect, whereby the two brands are more successful together than apart. This strategy is known to provide a multitude of benefits to both parties, such as increased brand equity, awareness, and customer reach. Although co-branding may seem like a great strategy at first glance, it is important to consider whether or not it is truly worthwhile to pursue, as it may potentially limit the success of the companies rather than help them. For example, co-branding can be risky because it requires each brand to depend on the other brand, in which it has little control over, to help maintain their reputation and success. However, after looking at previous research on co-branding and analyzing four separate case studies, it is clear that co-branding is a worthwhile marketing strategy. Although there are risks, the benefits definitely outweigh the drawbacks, and marketers can work to reduce or perhaps prevent the occurrence of potentially unfavorable outcomes.

Co-Branding: A Worthwhile Investment or an Unnecessary Hindrance?

It is the responsibility of marketers to determine the most effective ways to raise awareness about the product they are promoting. Fortunately, there are an abundance of strategies that can be used by marketers in order to accomplish this goal: print ads, web ads, product placement, sponsoring events, line and brand extensions, etc. One of the less utilized, yet more innovative strategies, known as co-branding, has been used intermittently over the years to increase brand awareness in the market. Co-branding occurs when two brands form a partnership in the hopes of creating a synergy effect. Although this sounds like an impressive tactic, it is important to consider the potential drawbacks that come with co-branding, which may also help to explain why it has been so underutilized. This paper, therefore, seeks to answer the question: Does co-branding lead to positive effects for both companies, making it a worthwhile strategy, or is it more limiting and risky than it’s worth? To answer this question, co-branding is first defined. Then, the advantages and disadvantages of co-branding are weighed in order to analyze the overall effectiveness and value of this strategy. Finally, by analyzing past research and four case studies, a decision is made regarding the efficacy of co-branding.

What is Co-Branding?

Co-branding is a unique method of brand extension in which “two brands form a partnership to benefit from the power of both” (Hoyer, MacInnis, & Peters, 2012). More specifically, co-branding combines two brands into a single product in the hopes of raising awareness about both brands. This pairing of brands can occur within advertisements, promotions, the products, product placements, and distribution outlets (Leuthesser, Kohli, & Suri, 2003). Some examples of companies that have co-branded are Betty Crocker and Hershey, Apple and Nike, and Pizza Hut and Pepsi. Using co-branding, these brands come together through a variety of marketing mediums in the hopes that it will create a synergistic effect and increase their brand awareness and brand equity (Leuthesser et al., 2003).

Advantages of Co-branding

1. Builds Brand Equity: Brand equity is the commercial value or level of worth given to a brand name, derived from consumers’ perceptions of that brand. Brand equity is important to build because it is considered to be a huge competitive advantage, it improves customer loyalty, and it can increase a company’s bottom line (Washburn, Till, & Priluck, 2000).
2. Builds Brand Awareness: Brand awareness is the degree to which consumers are familiar with the unique qualities and image of a specific brand. Companies want to build brand awareness because it increases the likelihood that a consumer will buy their product and helps to promote growth of the brand. Co-branding enhances brand awareness by increasing market exposure, which lends itself to attracting a larger customer base (Leuthesser et al., 2003). This increased market exposure particularly benefits lesser-known companies by helping them more effectively introduce unfamiliar products into the market. Co-branding is especially helpful for these unknown brands if they are paired with a more familiar brand (McKee, 2009).
3. Enhances Consumer Perception of Brands: In addition to the aforementioned benefits, co-branding enhances the consumer’s opinion of both brands. This is most likely to occur when one of the brands is well-known and has a good reputation already established. The reputation of the one brand carries over to the other brand, a phenomenon known as the spillover effect (Washburn et al., 2000).
4. Cost-Saving Strategy: Lastly, co-branding serves as a cost-saving strategy because the companies can split the marketing and promotional costs, as well as operating costs (McKee, 2009; McDonough, 2011).

In conclusion, by working together, two separate brands are able to more effectively introduce a product into the market using the combined array of expertise at their disposal. With all of these benefits, it is clear why companies would want to co-brand. However, no strategy is perfect and there are inevitably going to be some negative consequences to co-branding.

Disadvantages of Co-Branding

1. Dilutive Effect: One potential consequence of co-branding is that it can have a dilutive effect on the brands, meaning it can lessen the association built with each brand individually. The dilutive effect occurs because the positive connotation consumers have with a brand becomes spread over two brands, instead of one (McKee, 2009). This effect is unfavorable because it can decrease brand equity for the parent brands.
2. Incompatibility of Brands: Another potential consequence of co-branding relates to the compatibility of the brands. If the two brands are not compatible together, then co-branding them could be harmful for each of the brands. For example, Coca-Cola and OPI (a nail polish company) began co-branding in 2014, using the slogan “delivering happiness in a bottle” (Marion, 2014). Although this slogan applies to both brands individually, these two brands seem fairly incompatible together; one company sells beverages, while the other sells cosmetics. This incompatibility could cause an issue for Coca-Cola when the two brands are paired together because consumers might interchange the toxic components of nail polish with Coca-Cola’s beverages (Marion, 2014). This is an inherent risk that Coca-Cola is taking by aligning their brand with OPI. Therefore, co-branding can be dicey because it is impossible to know how consumers will respond to the combination of certain brands.
3. Inherently Risky/Lack of Control: In addition to the dilutive effects and the potential harms of incompatible brands, co-branding is risky because it requires each company to depend on another company in which they have very little control over (McDonough, 2011). This could become problematic if a customer has a bad experience with one of the brands because it could hurt the perception of the other brand, even though the other brand was not involved with the poor experience (Leuthesser et al., 2003). Therefore, another potential issue with co-branding is the extra element of uncertainty it adds to the marketing of a product.
4. Costly and Time-Consuming: Lastly, co-branding can be costly and time-consuming to implement because it requires the formation of a complex joint-venture partnership and a profit-sharing agreement (Magloff, n.d.).

With all of these potential risks and challenges to implementation, it is important to analyze relevant case studies in order to assess whether or not co-branding is a worthwhile strategy.