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Article - Is Co-Branding the Right Opportunity Right Now?

Is Co-Branding the Right Opportunity Right Now?
September 2013

For the children’s products industry, the end of summer means more than leaves falling off trees, colder weather and shorter days ahead. It signals the beginning of the fall trade show season. Kind + Jugend is just a few weeks away, and the ABC Kids Expo returns to Las Vegas in October.
 
Trade shows present many opportunities beyond sales meetings. They are an occasion to see new products, spot trends and network. While it is natural to line up your sales team in a phalanx when a competitor strolls by your booth, there may be benefits in meeting other vendors, speaking with them about their successes, and being open to synergistic prospects not possible for your company to achieve on its own.
 
Like licensing*, co-branding will expand your product line and can introduce your brand to a new segment of retailers and their customers, thus extending your brand’s visibility.
 
What Is Co-Branding?
 
Co-branding is the alliance of two or more companies to make products (or provide services) bearing each company’s brand.
 
“The whole is greater than the sum of its parts.” ? Aristotle
 
There are different versions of co-branding relationships, including: (i) component co-branding (think of a Dell computer with an Intel processor running Windows); (ii) vendor-retailer co-branding (vendor provides an exclusive product version for a retailer with both brands); (iii) celebrity/designer co-branding; and (iv) vendor co-branding.
 
What Are the Benefits of Co-Branding?
 
Co-branding trades on the good will of two (or more) brands. It can be a cost effective and speedy way of introducing your brand and products to someone else’s loyal customers who otherwise may never even see your products. By co-branding, these new customers should feel the same trust and confidence in your brand as they feel for your co-branding partner’s brand.
 
“A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.” ? Jeff Bezos
 
What Types of Co-Branding Options Exist?
 
Component Co-Branding: Before the “Intel inside” campaign, many consumers did not know (and did not consider) the processor’s manufacturer in deciding which computer to buy. BASF, one of the largest chemical companies in the world, is famous for its tagline “At BASF, we don’t make a lot of the products you buy. We make a lot of the products you buy better.” These marketing campaigns have led many consumers to recognize component manufacturers’ brands, which may factor into their purchasing decisions.
 
Component co-branding is not limited to physical additions to a product. A print driven children’s apparel vendor may find that its designs (the component) work well on a variety of products outside its core product line. That apparel vendor may do well to partner with established vendors of complementary products (bedding, diaper bags, home furnishings, etc.) to use its print designs and both companies’ brands on those products. The co-branded products trade on the good will of both brands.
 
The apparel company’s product line is extended into new categories which will be carried by new retail stores and reach new customers. The co-branding partner may also have its core line picked up by retailers that carry the apparel company’s core line. This is a win-win.
 
Vendor-Retailer Co-Branding: By partnering with a retailer, a children’s products vendor may increase its sales to that key retailer and may open new doors with retailers who prefer their co-branded product over a competitor’s (not co-branded) product. This benefits the partnering retailer, who gets an exclusive line and associates its store with a strong children’s products brand. This may also help a luxury brand avoid the concern over discounting (which can tarnish a luxury brand) because the retailer does not have to compete with other retailers and e-tailers for sales of the exclusive co-branded product.
 
Celebrity/Designer Co-Branding: For a vendor, associating with a celebrity or well-known designer can rocket sales, both of the co-branded product and of the vendor’s core line. This can also work for retailers, as Target and H&M have proven with a series of top designer programs (sometimes a single season) whose lines would otherwise not be affordable for many consumers.
 
Vendor Co-Branding: This formula is similar to a licensing arrangement. Like the children’s apparel company example, a vendor may benefit from extending its product range into areas that it does not itself fulfill. Here, two (or more) strong brands may team up to produce a new line of products that complement each other’s existing lines. Each company can market the co-branded products to its own accounts, which may open new doors for its co-branding partner resulting in additional sales of each company’s individually branded products.
 
“Suppliers and especially manufacturers have market power because they have information about a product or a service that the customer does not and cannot have, and does not need if he can trust the brand. This explains the profitability of brands.” ? Peter Drucker
 

What to Consider Before Jumping In
 
As with licensing*, it’s important to know your goals. Don’t just jump on the first opportunity that comes your way; be strategic. Some important considerations are: (i) what product extensions make sense for your brand (and which don’t); (ii) what distribution channels will help build (and which could hurt) your brand; (iii) will the benefit of partnering with a retailer outweigh the potential damage to relationships with other retailers; and (iv) will co-branded products add to your total sales or merely take away from sales of your core line?
 
What Are the Co-Branding Partners’ Obligations and Concerns?
 
Because both parties’ names will be on the co-branded product, each must insure the success of the venture. In some instances the entire process is an entirely cooperative one, while in other cases one party may take most of the responsibility for key facets of the co-branded program. In either case, a clear division of labor and control is crucial. For example, the party lending its name to the product (i.e., the one who does not produce the finished product) may want some control over the design and manufacturing process beyond the right to approve or reject. The parties have to agree who will take the lead on each step in the process, including design, manufacturing, marketing, sales, product support and even compliance. Too many cooks may spoil the broth, but coordinating your efforts will be cost effective and boost sales.
 
Co-branding is not without its risks. The decision to share a company’s confidential and proprietary information (from manufacturing sources to buyers’ names and e-mail addresses) with co-branding partners should be assessed very carefully, as the decision to share this will undoubtedly be viewed in retrospect as a mistake if the venture fails. It is very important to understand these risks and address them in the co-branding agreement.
 
The parties also must consider what will happen at the end of the relationship (though difficult, it is crucial to identify post-termination issues even before the relationship has begun). Neither party should be permitted to use the other’s brand name on post-termination product lines. But should either party be denied the goodwill associated with the co-branded product line? Should either party be prevented from soliciting consultants or accounts introduced as a result of the co-branding agreement?
 
Is Co-Branding the Right Opportunity?
 
Whether co-branding is the right path for you is unique to your situation. Perhaps the right opportunity will be at the next trade show in a booth just down the aisle.
 
*Look at Jeremy Richardson’s article, “Licensing in the Children’s Fashion and Products Industry”, which is also applicable to licensing and co-branding agreements.


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Jeremy D. Richardson is a partner in the Fashion and Intellectual Property Practices at Phillips Nizer.  "Is Co-Branding the Right Opportunity Right Now?" was also published on The Giggle Guide (www.thegiggleguide.com), an electronic publication geared to designers, manufacturers and retailers of children's products, apparel and accessories.  Mr. Richardson has been an editorial contributor to the Guide for over 3 years.

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