Take these “Magnificent 7” essentials for effective co-branding program licensing for a ride

Co-branding programs—where two or more brands partner on a product or service—can be found in many industries, from automotive, fashion, retail, and food and beverage, to cosmetics, toiletries, electronics, and household cleaning. These programs add that extra spark of an idea previously unimagined and enhance the participating brands while driving millions of dollars in royalties.

Examples of successful co-branding programs include:

1. Lacoste and Polaroid
2. Doritos and Taco Bell: Doritos Locos Taco
3. Auntie Anne's and Jamba Juice
4. Apple Watch Nike
5. Harley Davidson line of Ford trucks

There are 7 essentials found in every successful co-branding program, resulting in new products, greater brand visibility, and increased profits.

1. A sensible fit

Is the partner brand a good fit? If the brands don’t fit together seamlessly or invoke a positive consumer reaction, there’s no point in co-branding.

Brand owners will not collaborate if the relationship will in any way degrade their brand(s). It would be odd to have a brand like Raid^® Ant Killer as a new scent for candles at Bath and Body Works. The relationship between these two brands in particular makes for an odd fit.

2. Quality control

The brand owner needs to ensure that the standards required for the partner brand meet or exceed the standard for its own brand. If the quality standards are not consistent between both companies/brands, then co-branding should not be considered.

3. Revenue sharing (royalties)

This is a negotiable term in a co-branding-allowed agreement. A typical brand owner will define whether their brand(s) can be used with other brands on a licensed product. When it is allowed, there will be some sort of royalty rule in place to control the revenue from the brand. The reason this is so negotiable is because the brand owners and brand users must mutually agree to the importance of each brand on the finished product.

An example is Febreze^®-scented, Arm & Hammer^® Baking Soda treated, Glad^® garbage bags. There are multiple brands here and the royalty will typically be based on how much each brand controls the consumer demand. Glad would argue that the main product is the garbage bag. Church & Dwight Co., the owners of Arm & Hammer^®, would argue that the sales will only be made because of the sanitary/cleanliness of the bags due to their baking soda. And Febreze^® would argue that consumers will buy any garbage bag, but if they want the Febreze scent, they must buy Glad^®. In the end, the parties will need to negotiate and agree.

4. Exclusivity

Continuing with the garbage bag example, if Febreze^® agrees to only allow their scents and trademarks to be used by Glad^®, then they can also expect a larger share for granting that exclusivity.

As in any licensing, exclusivity can be useful and usually garners a higher royalty. Exclusivity is much more common in co-branding than in non-co-branded licensing. One of the main benefits of co-branding is that the combined brands create a unique selling proposition (USP), so each of the brand owners must agree to exclusivity terms. For example, if I could get crushed Oreo^® cookies on my generic-label breakfast toaster treats, what is my incentive to buy Pop Tarts^® with the same crushed Oreo^® cookies?

5. Mutually fair terms

All each brand owner can do is determine whether or not a co-branding proposition is beneficial. While they may not have a fiduciary responsibility to the other brand, they do want to ensure the other brand owner is happy with the partnership.

Naturally, the licensors in this process do their best to protect their own brand first. The genesis of the co-brand starts with either the licensee—who wants to make the product—or with one of the brand owners who are trying to further exploit the brand for mostly financial reasons. The party originating the co-branding idea must convince the other party or parties that it is a worthwhile endeavor.

6. Leveraging the licensed brand in a sustainable, long-term partnership

This depends on the end product more than anything. If the product is an evergreen product (consumable, necessary and replaceable) then chances are better. Society will always need to eat, keep things clean and feel safe, so products in support of those needs have leverage.

Demand provides significant leverage. Non-evergreen products can deliver long-term demand if there is an emotional attachment for the end user and there is a history of product quality. For example, Coca Cola^® has been around and successfully licensed for decades, but there is no part of Coca Cola^® that is absolutely necessary for anyone’s physical existence, save for fulfilling an emotional need.

7. Protection, protection, protection

The main thing licensors and licensees need to keep in mind while working on legal contracts/agreements for a co-branding effort is protection. Co-branding means playing the long game. Short-term gains will not be worth it if the brand is ultimately degraded because of the co-brand.

The increase in co-branding comes down to consumer boredom—a phenomenon that can be attributed in some part to the global pandemic. The marketplace is finite, so for each new co-branded product that appears, there is usually an older, less successful co-branded product that fades out at the same time.

In my next blog, I will focus on the pros and cons of co-branding.