Thursday, March 8, 2012
About Co-Branding: Advantages, Disadvantages & Risks
My topic is about co-branding. In my blog I will talk about the advantages and potential issues of co-branding. I will use 3 different examples to explain how different types of co-branding work and the potential risks which may impact the cooperation.
In nowadays more and more companies work together for different kinds reasons. One the most useful method is co-branding. Co-branding occurs when two separate organisations come together to generate unique values for their respective consumers. It involves the presentation of multiple brands and product to the public under a single marketing strategy (Reader 2011).
There are various advantages of co-branding such as risk-sharing, resources-sharing, expanding customer, more sales income, and technological benefit. Moreover, if a company is planing to do co-branding, one essential thing is to choose a partner that is closely related to the product or service that the company offering or the partner is mature. For instance, Sony Ericsson used to be a successful cellphone company, it consists of Sony and Ericsson. Sony is a leading Japanese electronic product company and Ericsson is a famous provider mobile network and mobile device from Sweden.
Sony and Ericsson made good used of their own resources and technologies to developed a series of successful products with Sony's famous Cyber-shot and Walkman technologies. However, at the end of October, 2011, Sony and Ericsson announced that they will go separate ways as Ericsson sells its 50% stake in mobile phone maker Sony Ericsson to Sony for $1.46 billion. Sony Ericsson used to be one of the leading mobile phone companies in the world, however, some reasons causes the separation of Sony Ericsson. According to this, even co-branding is a good method for two companies to run a new business in a new area or maintain and expand their own business but the uncertain risks and potential disadvantages will also impact the cooperation if the problems cannot be solved well.
Here are the common potential risks of co-branding:
1. Loss of control (lack of well communication)
2. Risk of brand equity dilution
3. Negative feedback effects
4. Organisational distraction
Furthermore, Co-branding may fail when there is a difference in vision and mission, and even value of the two companies. Co-branding may affect partner brands in adverse manner. If the customers associate any adverse experience with a constituent brand, then it may damage the total brand equity. Moreover, lack of communication and innovated product or service will also impact the quality of the partnership especially in the electronic product industry.
Sony Ericsson is a good example of the failure of co-branding and the case will be discussed in the next post.
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ReplyDeleteAlthough co-branding has many advantages, like you've stated, but I think other advantages are when it's done right, brands gain valuable access to other markets and extensions.
ReplyDeleteI like the fact that you stated brands should 'choose a partner that is closely related to the product or service that the company offering.' Sometimes, when choosing a product too far out of the company's range, it could also reduce the brand equity of both brands.
I'd like to refer to the following as an example: The Missoni for Target Line.
(http://www.retailcustomerexperience.com/article/184615/Missoni-for-Target-line-sells-out-raises-questions_ )
Missoni is considered to be a luxury Italian Fashion House, where generally a cardigan would cost around $600, or a pair of heels for $300. With the new target lines, you could have purchased the items for approx. $40 and $30 dollars respectively.
Many people waited outside in line, and the line is now sold out, yet it raises question. The brand Missoni is so luxury driven that many don’t understand why a brand as exclusive as Missoni would ever even consider doing a line with Target.
Although this merger works well for Target, we have to wonder if this was really worth it for Missoni, as it does reduce the brand equity, as well as brings a risk to the brand by diluting the brand image, as consumers struggle to distinguish the relationship.
Missioni for Target is similar with Versace For H&M. Both of the two cooperation are target the low-end customers. The first day of Versace for H&M, the sales was also hard to imagine. Nearly all products on the UK website were gone in the first day.
DeleteThis situation also happened in China. However, several days later, some of the customer were asking the return of purchase because some of the customer have found that what they buy from H&M is not suitable for them. Some products only have 1 size and each customer only have 15 minutes to try on the clothes so many of the fans bought the products without a try so when they back to home they found that the size was not fit to them.
On the other hand, the designers may not consider enough for Asians' physical condition. The dress are perfect on the models but when Asian customers put the clothe on, the style totally changed. The main reason is the physical condition difference between Eastern and Western people, the size of skeleton.
So obviously the customers will complain the problem and the brand equity of both Versace and H & M will be affected.
As you've mentioned in your post, co branding is about finding a partner that can create a mutually beneficial partnership. This means finding synergy while sharing certain elements of firm values and ideology. While the benefits are quite obvious, as you've stated, the risks and pitfalls are often understated.
ReplyDeleteWhy is it so hard to find a good partner? I think it's got to do with the fact that companies would want a partner that is equal to them, as in not too strong that the other brand might shine more, and not too weak that the other brand actually becomes a liability. But since there is no definitive metric that can see how a company measure next to each other, this process becomes quite difficult.
The idea is to present consumers with a more enticing proposition. For example, in a research done about co-branding (http://www.clickz.com/clickz/column/1704324/brand-brand-success-part-brand-marriage-failure), 80 percent of consumers said that they would seriously consider buying digital imaging product co-branded by Sony and Kodak (this was when Kodak was a household name), but if each of those company made the same product independently, only 20 percent of the same set of consumers would seriously consider buying it.
It is quite clear that in this example, each brand brings in their respective strength to strengthen the product. What I'm quite interested to know is since brand equity changes over time, how would that affect co-branded products? Or is that the reason why co-branded products tend to be more short term offerings rather than long term ones?
Sony is famous for its digital products and Kodak used to do business very traditional way. The film it produce is for the old school photographer even Kodak is also became a digital imaging product company with the rapid development of digital camera industry. One of the advantages of co-branding is resources-sharing. It is not hard to imagine the market reaction from the photographers if Sony and Kodak work together to product a product with both Sony and Kodak's technologies.
DeleteHowever, just like what you mentioned, brand equity changes over time, it is a challenge for both sides to adjust the market reaction so it is essential for one company to choose the partner with similar brand value, and the partners are closely related to the product or the service.
If the brand equity of one side is not as good as before, the cobranded procured will be affected.
Try to imaging Nokia's cellphone with Windows Mobile system. If Windows Mobile system cannot compete with Android and iOS, the sales of Nokia will decrease for sure.
I think the definition of long term is depends on different market reactions and the cooperate strategies. Sometime the cooperation is still there but just change to another way. But for 2 stable companies such as McDonald's & Coca Cola, KFC and Pepsi, the relationship is long term ones. Both sides are mature and they have similar value the target and the key thing is, beverage is essential to a fast-foot company, there is no reason for McDonald's or KFC to develop their own beverage for their meals.