To grow sales, more companies are teaming up to attract each other’s customers—and persuade their existing customers to buy more—by creating a positive association with another brand. Well-known alliances include McDonald’s Happy Meals with Disney toys and Dell PCs with Intel processors.
While such strategies may sound like “inside baseball,” consumer perception of co-branding—and how they respond to it—is much higher than companies assume, according to new research.
“It’s surprising how sensitive consumers are to different forms of collaboration between companies when brand names are involved—especially since research has not indicated this before,” said Casey Newmeyer, assistant professor of marketing at Case Western Reserve University.
“This has significant implications for companies and the marketplace as a whole,” she said. “Firms must recognize that seemingly strategic decisions influence consumer perceptions. ”
Negative associations created by co-branding—such as Ford’s century-long partnership with Firestone tires that ended after fatal vehicle rollovers—can become costly to each company’s reputation and bottom line.
“Each company hopes to benefit from the positive aspects of their co-branders, but the opposite can happen, too,” said Newmeyer, co-author of the study published in the journal Marketing Letters. The study was based on surveys of 360 consumers, an examination of 100 examples of brand alliances, interviews with marketing executives, and other materials.
“Our research showed that brand alliances are often launched without fully understanding the potential for the negatives of these partnerships,” she said. “Ill-conceived or executed strategies can have drawbacks perhaps unapparent without deliberate and cautious planning.”
Specifically, data showed many firms do not distinguish between the types of brand collaborations, which limits their ability to anticipate the pros and cons of joint efforts.
Six ways to co-brand
Newmeyer identified six types of brand partnerships, each structured differently and with specific goals.
Researchers suggest companies consider the various types to manage risk, achieve joint and separate goals, and manage potential crises—including the assignment of credit or blame by consumers.
“Navigating the terrain of co-branding starts with knowing exactly what the partnership is,” she said. “That can help inform key managerial decisions that have enormous stakes.”
The six forms of brand alliances are:
- Co-development: Partnering firms pool their resources to co-create the product and intentionally market it using both brand names: LG Android Nexus smartphones; Nike + iPod Sport Kit.
- Ingredient branding: The joint offering of a single item in which the brands are highly integrated in form and function: Frito-Lay chips with KC Masterpiece; Dairy Queen’s Oreo Blizzard; Samsung phone with Android software.
- Component branding: Each brand is distinguishable by the consumer and defects can be traced to a single brand; the joint offering is dependent on both brands: Airbus A380 with Rolls-Royce Engine.
- Brand building: Brands are compatible and complementary, sold as a special package; each company’s offering can be purchased and consumed independently, with customers receiving potential price discounts: iPod with Bose sound system; Bacardi Rum and Coke.
- Co-promotion: Brand offerings are separate and not necessarily complementary, and consumers may not be forced to buy both products: Starbucks and Spotify; Southwest Airlines Rewards and Hertz.
- Co-location: The lowest level of integration; brands are physically and functionally separate, with no monetary incentive to buy both brands: Starbucks locations in Barnes & Noble; Sephora locations in JC Penney.
Co-authors of the paper are R. Venkatesh and Rabikar Chatterjee, from the University of Pittsburgh, and Julie Ruth, of Rutgers University.
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