Co-Branding as a brand strategy. An analysis from the resource-based view

Table of contents

List of figures

List of tables

List of abbreviations

1 Introduction
1.1 Relevance and topicality
1.2 Problem set
1.3 Research objective
1.4 Research methodology

2 Conceptual background
2.1 The resource-based view
2.1.1 Emergence and relevance of the resource-based view
2.1.2 Underlying assumptions
2.1.3 Key concepts
2.1.4 Resources and their competitive advantage generating potential
2.1.5 Criticism and confutation
2.2 The brand sphere
2.2.1 Definitions of the brand
2.2.2 Functions of the brand
2.2.3 Brand equity
2.2.4 Brand identity and brand image
2.2.5 Basic brand strategies
2.2.6 Brand alliances and co-branding

3 Alternatives to overcome organisational gaps
3.1 Resource gaps and value maximization
3.1.1 Resources as sources of sustained competitive advantage
3.1.2 Filling general resource gaps to allow for value maximization
3.2 The role of the brand within the resource system
3.2.1 Products and brands as result of resource interaction
3.2.2 The brand as a source of sustained competitive advantage
3.2.2.1 The brand as sustainable resource
3.2.2.2 The brand as a source of competitive advantage
3.3 Brand gaps and value maximization
3.3.1 The existence of brand gaps
3.3.2 General alternatives to fill brand gaps
3.3.3 Co-branding as an alternative to fill brand gaps

4 Co-branding as a value-maximizing brand strategy
4.1 Forms of co-branding
4.1.1 Levels of co-branding partnerships
4.1.2 Co-branding strategies according to key objectives
4.2 Co-branding benefits
4.2.1 General co-branding benefits
4.2.1.1 Direct consumer benefits
4.2.1.2 Direct organisational benefits
4.2.1.3 Spillover benefits for consumers
4.2.1.4 Spillover benefits for organisations
4.2.2 Particular ingredient branding benefits
4.2.2.1 The distinct supplier and manufacturer relation
4.2.2.2 Supplier-sided benefits
4.2.2.3 Manufacturer-sided benefits
4.3 Co-branding success factors
4.3.1 Key success factors
4.3.1.1 Brand equity
4.3.1.2 Product fit
4.3.1.3 Brand fit
4.3.2 Additional success factors
4.3.2.1 Brand name dominance and others
4.3.2.2 Particular success factors for ingredient branding
4.3.2.3 Market-based success factors
4.4 Risks and drawbacks
4.4.1 Collaborative risks
4.4.2 Direct risks
4.4.3 Spillover risks

5 Practical deduction
5.1 Implications for the implementation process
5.1.1 Detecting brand gaps
5.1.2 Selecting a partner brand
5.1.3 Operational implementation

6 Conclusion

Reference list

List of figures

Figure 1: Diploma thesis structure

Figure 2: Forms of brand alliances

Figure 3: House of resources

Figure 4: Smarties Gummies and co-branded Fruity Smarties

Figure 5: Forms of co-branding in contrast to co-communication

Figure 6: Organisational objectives for co-branding partnerships

Figure 7: Chain of co-branding benefits

Figure 8: Brand personality framework

List of tables

Table 1: Classification of organisational resources

List of abbreviations

illustration not visible in this excerpt

1 Introduction

1.1 Relevance and topicality

When asked what proportion of Coca Cola’s revenues comes from alliances, chairman Doug Ivester concisely replied ‘100%’ (‘The science of alliance’ 1998). Interestingly, these resource alliances are not limited to purely inter-organisational processes anymore but directly address the consumer by combining the symbolic force of more than one independent brand on a single product. Leading the global brand list for years already, Atlanta-based Coca Cola has a current brand value of 67,525 Million US-Dollars (Interbrand 2005). Compared to the current market capitalisation, the brand hereby accounts for about two thirds of the beverage giant’s value (Howard 2005). Therefore, it is not surprising that organisations focus on this key resource for further value maximization in saturated markets and increasingly engage in co-branding partnerships.

Although it is not a completely new approach in business strategies, the Betty Crocker Sunkist lemon chiffon cake mix has been available in US supermarkets since 1961 (Keller 2003, p. 360), the dramatic rise of co-branding just began in the beginning of the 90s within the US and spilled over to Europe with a 3-5 years time lag (Bliss 1996, p. 36). In Germany, co-branding started several years ago with co-branded credit cards like the Mercedes-Benz credit card from Visa (Binder 1996, p. 58). But this particular brand strategy has been spreading rapidly: Adidas sneakers with Goodyear rubber soles, Fruity Smarties from Nestlé and Haribo or a Bulgari Hotel by Marriot are just a few of the various examples (Trendwatching 2005). Co-branding benefits thus seem to be convincing, Simon Kucher & Partners consultant Thomas Haller even talks about a possible triple-win-situation for customers, participating brands and retailers (Haller 2001). Moreover, according to a study by Baumgarth (2003, pp. 3-4), management leaders in Germany expected co-branding to be the only brand enhancement strategy option with increasing relevance in the future, hereby out rating such famous alternatives as sponsoring and licensing.

However, changing market conditions in the 90s with increasing competition, faster diffusion of new technology and shortened product life cycles did not only foster the emergence of co-branding but also led to the rise of the resource-based view (RBV) (Völckner, F 2006, expert interview, 16 January). Since then the field of strategic management has undergone a crucial shift with the development of the RBV to ‘...the most influential framework for understanding strategic management at present’ (Barney, Wright & Ketchen 2001, p. 625). In the past, various theories and models have been applied to analyse the emergence and operation of strategic organisational alliances in general. Game theory, the strategic behavior model, power-dependence theory, the strategic decision-making model and particularly the transaction cost theory were the dominant theoretical frameworks to evaluate strategic alliances in general. However, the role of resource combination is not at the center of these approaches (Smith, Carroll & Ashford 1995). Particularly when aiming to analyse such a distinct form of alliance like co-branding, with the brand as key resource to be integrated, an analysis from the RBV has the potential of offering an important perspective on co-branding partnerships.

1.2 Problem set

Organisations hold a distinct resource portfolio which may qualify for competitive advantages. But there are always gaps within this portfolio which limit the value maximization of an organisation (Bürki 1996). The brand is a key resource of an organisation, but despite the increasing number of different brands, the number of familiar and accepted brands in consumers’ minds is very limited (Esch 2005, p. 27). Strong brands can therefore be powerful resources for organisations. Confronted with the innovative demand of consumers, these strong brands can also serve as basis for further value maximization. Nevertheless, even a strong brand only has a distinctive brand identity and respective consumer-sided brand associations which cannot be overstretched without negative effects (Kaufmann & Kurt 2005). This means that value maximization is limited due to existing brand gaps.

1.3 Research objective

The aim of this paper is to analyse co-branding as a brand strategy which contributes to value maximization of an organisation by filling existing organisational gaps. For this reason, the brand as distinct resource is to be analysed and alternatives for filling brand gaps are to be evaluated before guiding a structured analysis of co-branding benefits, success factors and risks from a RBV. Practical implications for co-branding partnerships are to be derived from this evaluation.

1.4 Research methodology

This paper is an analytical investigation on co-branding and its strategic role to fill organisational gaps. In order to fortify the following analysis with empirical data, the findings from five expert interviews by telephone are integrated throughout the paper. Expert interviews are used, since they are a time and cost efficient qualitative method which allows gathering area-specific knowledge (Bogner & Menz 2002). However, expert interviews bear the risk of subjectivity. This is not problematic for the academic interviews used here, since they are integrated in a comprehensive academic research. But it has to be acknowledged that the presented business case is based upon information from three company representatives and thus bears the risk of euphemism (Meuser & Nagel 2002).

Besides these company representatives, Dr. Franziska Völckner from the University of Hamburg was interviewed on the strength of her academic publications on brand extension and co-branding. She is a research assistant to Prof. Dr. Henrik Sattler at the Institute of Marketing and Retailing and received the scientific prize from the German Marketing Association^[1] for her doctoral dissertation on brand extensions^[2]. Furthermore, Dr. Jörg Müller-Lietzkow from the Friedrich-Schiller-University in Jena was interviewed on the basis of his academic work on management theories with focus on the network theory and the RBV^[3]. He is a research assistant to Prof. Dr. Wolfgang Seufert at the chair of communication studies with focus on economics and organisation of media.

Following the introduction, this paper lays the terminological foundations for further analysis in chapter^[4] two with the description and definition of the conceptual background. In the first section of chapter two, the emergence of the RBV as a result of a changing market environment is depicted and its key concepts are defined. The second section addresses the brand sphere and highlights the relevance of the effect-oriented brand definition and its derived functions. Furthermore, brand equity, brand identity and brand image as central concepts for assessing and comparing brands are presented and a first definition for co-branding is given.

Within the third chapter, the RBV is applied to the brand as a particular resource and alternatives for overcoming organisational gaps are evaluated. The argumentation starts with an evaluation of organisational resource relevance and alternatives to overcome resource gaps. Afterwards the distinct role of the brand within the resource system and its indispensable function for generating value is highlighted in the second section. Brand gaps are identified subsequently as limitations for organisational value maximization. Therefore, analogical to the alternatives for filling resource gaps, distinct strategies for filling brand gaps are developed in the third section. The following evaluation of brand gap-filling alternatives leads to a rough assessment of co-branding which allows for first assumptions on the efficiency of this brand strategy.

In order to verify these assumptions, the fourth chapter analyses co-branding as a brand strategy and underlines its value maximizing potential. First the different levels of co-branding according to the intensity of capitalization of brand equity from the associations of the partner brand are depicted before a model is presented which allows categorizing co-branding strategies according to their basic objectives. Based upon this framework, co-branding benefits are addressed in the second section. Considering the crucial role of the consumer, these benefits are divided into consumer and organisational effects. Moreover, they are divided into direct and spillover as well as into particular ingredient branding benefits in order to give consideration to the underlying basic objectives. Following this section, key as well as additional success factors for co-branding are developed and evaluated. Although analysing co-branding from a RBV, the importance of market-based success factors is shortly addressed within this section. Afterwards, risks and drawbacks are evaluated in the last section of this chapter.

Based upon the preceding argumentation, the fifth chapter presents practical implications for co-branding partnerships. Three essential steps within co-branding implementations are derived and explained. In order to exemplify the relevance of this brand strategy and support the preceding argumentation, the co-branding partnership between Audi and Bang & Olufsen is presented in the second section of the fifth chapter. Three expert interviews with organisational representatives were conducted to gather the necessary information. Due to the dominant role of Audi, two experts were interviewed to ensure depicting a complete picture of Audi’s co-branding objectives. Cooperation Manager Corporate Identity and Brand Development Markus Liegmann, as well as Product Consultant Audio/Video Dominik Grass with a rather technical background shared their information. From Bang & Olufsen International Key Account Manager Automotive Anita Eckardt was interviewed. After presenting this co-branding partnership the paper closes with the conclusion in the sixth chapter.

Figure 1: Diploma thesis structure

illustration not visible in this excerpt

Source: own graphical representation.

2 Conceptual background

2.1 The resource-based view

In general, strategic management (as well as strategic marketing) literature is built around the pursuit of competitive advantages which provide customer value and finally lead to superior financial performance of an organisation (Hooley et al. 2001). The RBV is a theoretical framework which proclaims that distinct resource combinations of organisations are the source of sustained competitive advantages. Barney’s (1991, p. 102) definition of competitive and sustained competitive advantage is certainly representative for the RBV and has therefore been adopted in this paper:

A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

The essence is that value-creating competitive advantages derive from distinct resources within the organisation. Therefore, the ultimate objective of an organisation is ‘...value maximization of a firm through pooling and utilizing valuable resources’ (Das & Teng 2000, p. 36).

In the following, the emergence and relevance of the RBV is depicted before underlying assumptions and key concepts of the RBV are described. In addition, resources and their competitive advantage-generating potential are shortly addressed and main points of criticism and respective confutation are evaluated.

2.1.1 Emergence and relevance of the resource-based view

Stockport and Chaddad (2001, p. 15) highlight the fact that ‘[r]esource-based research is a fairly young stream, which started generating a significant amount of output only in the early 90s. Nevertheless, at the end of the 50s the key concept of the RBV for explaining sustained competitive advantages had already been addressed by Philip Selznick when referring to the concept of ‘distinctive competence’ (Peters & Waterman 1982, p. 98) and by Edith Penrose’s (1959, p. 24) idea of ‘productive resources’. In the following conceptual work of strategic management, scholars like Ansoff (1965) and Andrews (1971) further developed this idea into a concept of strength and weaknesses of an organisation. Until 1980, scholars equivalently considered strength and weaknesses versus opportunities and threats in the competitive environment when analysing strategic management issues.

But Porter’s (1980) publication ‘Competitive Strategy’ shifted emphasis on external competitive issues. Focusing on external factors as sources of competitive advantage, the structure-conduct-performance paradigm was developed which proclaims that market structure determines strategy which then ultimately determines the performance of an organisation (Bürki 1996, p. 9). This framework was dominant in the 80s with its relatively static environment characterized by long product-life cycles, stable customer needs, well defined markets and easily identifiable competitors. According to this market-based framework, organisations obtain competitive advantages by responding to environmental opportunities and threats through building and defending clearly defined market segments and thereby exploiting their internal strengths and avoiding internal weaknesses (Barney 1991, p. 99). Stalk, Evans and Shulman (1992, p. 62) coined this way of competition with the phrase ‘war of position’, where the key decision was where to compete.

However, criticism on the assumptions of these market-based models of competitive advantage emerged among scholars. Barney (1991, p. 100) stated that the underlying assumption that organisations within an industry were identical in terms of their strategically relevant resources is flawed. In addition, Barney (1991) criticized the perfect resource mobility assumption of these positioning models which asserts that if resource heterogeneity should develop in an industry, this heterogeneity would be very short lived because the resources that companies use to execute their strategies were highly mobile, i.e. could easily be bought or sold in factor markets. In addition to this criticism on underlying assumptions, a purely market-based view also does not allow for a proactive strategy but only for a reactive strategy since positioning opportunities in the market determine strategy formation (Müller-Lietzkow, J 2006, expert interview, 16 January).

But the market environment has changed dramatically since the 80s. Markets fragmented and proliferated with the rise of heterogeneous demand: for example, there are now more than 1,200 different car models available in Germany (Esch 2005, p. 27). As a result of globalization breaking down barriers of trade and altering consumer values, the current market environment is fast paced and fragile in its various segments (Picot, Reichwald & Wigand 2001, pp. 2-3). The current market situation can therefore be characterized as innovation driven, resulting in decreasing product life cycles and a huge variety of products and brands. Within such a dynamic market environment, strategy has to become dynamic as well. Stalk, Evans and Shulman (1992, p. 62) called competition where it is crucial to develop products in a short time and directly introduce them to the market a ‘war of movement’. In such a market it is ’…difficult, if not impossible, to continuously find the most advantageous position for the organisation in relation to its ever-changing environment’ (Oosthuizen 2002, p. 3). Thus, the focus of the strategy cannot be on the quest for preferable market segments, but according to the RBV it is crucial to focus on organisational strengths and develop distinct resource combinations which hold the potential of competitive advantage.

2.1.2 Underlying assumptions

The RBV replaced the structure-conduct-performance hypothesis with a resource-conduct-performance chain of causation where the distinct resources of an organisation are the source of competitive advantage. Wernerfelt encapsulates this inside-out orientation by postulating that ‘...resources and products are two sides of the same coin’ (Wernerfelt 1984, p. 171). Analyzing potential sources of competitive advantage from a RBV implies two basic assumptions which are contrary to the mentioned assumptions of environmental models. First the RBV assumes that ‘firms within an industry (or group) may be heterogeneous with respect to the strategic resources they control’ (Peteraf 1993, p. 185). Secondly, imperfect resource mobility across organisations is assumed, which means that resource heterogeneity can be long lasting (Barney 1991, p. 101).

Heterogeneity as a crucial assumption of the RBV is already justified by Penrose (1959, pp. 75-76) who points out that the dissimilitude of performance outputs by using resources proves the heterogeneous resource distribution. In addition heterogeneity can be explained through inefficient factor markets of resources, whose imperfection roots in the non-transferability of resources due to distinctive resources with a high specificity of transaction costs (Collis 1991, p. 50).

The necessity of this long lasting resource heterogeneity assumption in order to generate competitive advantages is particularly shown by Barney (1991, pp. 103-105). Based on a hypothetical industry with homogenous resource possessions, Barney (1991) exemplifies that even with unique resource combinations, an organisation cannot generate a sustained competitive advantage due to the potential to replicate the chosen strategy by all other competitors. Furthermore, Barney (1991, pp. 103-105) extends this argumentation to the field of barriers of entry and first mover advantages which can respectively only become sources of sustained competitive advantage when firm resources are heterogeneously distributed. Ulrich and Probst (1991, pp. 27-30) support this argumentation with a system theoretical argumentation which focuses on the implicit internal development of unique patterns of organisation. The resource immobility assumption is the second pivotal assumption besides heterogeneity of resource distribution. But heterogeneity and immobility are intercausally related, i.e. sustained competitive advantages as result of resource heterogeneity require a degree of resource immobility and vice versa (Bürki 1996, pp. 74-87). It is important to note, however, that resources need to bear a degree of specificity which means they are inseparably tied to an organisation in order to qualify for immobile resources in contrast to mobile resources like machines or financial resources (Grant 1991). This distinction of mobile and immobile resources is tightly interwoven with the following classification of resources.

2.1.3 Key concepts

Based on the idea of explaining sustained competitive advantages on the basis of endogenous factors, scholars contributing to the RBV have introduced a plethora of labels and typologies of resources. For explaining endogenous factors, various terms have been used: competence (Lado, Boyd & Wright 1992, p. 82), core competence (Prahalad & Hamel 1990, p. 79), capabilities (Grant 1991, p. 116), core capabilities (Schoemaker 1992, p. 75), assets (Hall 1993, pp. 608-609), core skills (Irvin & Michaels 1989, p. 4) and others. This complex jungle of sometimes congruently used terms applied to the same issue on various levels of abstraction is to be replaced in the following with a framework of nomenclature which serves as basis for this paper.

Based on Fahy (1999, p. 7) resource is adopted as a general, all-embracing term which defines ‘...anything which could be thought of as a strength or weakness of a given firm’ (Wernerfelt 1984, p. 172). A ‘generally accepted’ (Stockport & Chaddad 2001, p. 7) approach allows splitting resources into tangible and intangible resources. The value of tangible resources like land, infrastructure or liquidity is usually reflected in the balance sheet as a result of conventional accounting assessments (Fahy 1999, p. 7).

More important as source of competitive advantages, however, are intangible resources which are divided into two distinct sub categories. Combining and further developing the structural approaches of Itami (1987) who defines capabilities as invisible assets and Oosthuizen (2002) who subdivides intangible resources into complementary resources and underlying capabilities, two new terms are introduced to describe intangible resources in this paper. Visible intangible resources on the one hand, include patents, trademarks, company networks and also brands which, however, as the main part shows, take a particular position in resource hierarchy. According to Grant (1991, p. 119) these visible intangible resources account for the significant differences between the balance sheet valuation and stock market valuation of publicly quoted companies. The second part of intangible resources are the invisible intangible resources which are similar to Amit and Schoemaker’s (1993, p. 35) concept of capabilities as organisational capacities to deploy tangible and visible intangible resources. Invisible intangible resources or capabilities include skills of individuals or groups as well as organisational routines such as teamwork, trust between management and workers and organisational culture (Grant 1991, pp. 122-123).

Table 1: Classification of organisational resources

illustration not visible in this excerpt

Source: own graphical representation.

Moreover the concept of competency as integrating term is crucial for further analysis. Hofer and Schendel (1978, p. 25) see in competency a pattern of ‘...resource and skill deployments that will help it [the organisation] achieve its goals and objectives’. More precisely, competencies in this paper are, based on Collis (1991, p. 51), understood as unique combinations of tangible and intangible resources which may bring an organisation advantage. It is important to note that competencies can thus be functional or emotional, and for most organisations competencies are a mix of both. For instance Virgin has a high level of innovation and service competency but also a high entertainment competency (Aaker & Joachimsthaler 2000, p. 46). Adjectives like core or distinct simply exemplify the strength of a competency.

In addition to that, within the RBV the financial results of a competitive advantage creating resource combination are referred to as rents instead of profits. Such a distinction is applied because rents allow for a more precise analysis of resource-performance alignments. The danger of cross-subsidizing inferior resources, not detecting the combinative potential of superior resources and inadequately protecting superior resources is diminished by applying the rent concept (Dierickx & Cool 1989). In general rents are understood as ‘...the surplus revenue over the real or opportunity cost of the resources used in generating that revenue’ (Grant 1991, p. 134). However, with regard to the focus of this paper, the purely financial rent concept is deferred in favour of the integral value maximization objective as ultimate focus of organisational conduct from a RBV.

2.1.4 Resources and their competitive advantage generating potential

Not all resources of an organisation possess the same value-maximizing potential as a source of competitive advantage and therefore require different handling. In order to select resources according to their competitive advantage generating potential, Barney (1991) proposes that resources have to meet four conditions, namely, value, rareness, inimitability and non-substitutability. Grant (1991) argues that durability, transparency, transferability and the potential to be replicated are the key determinants, while Collis and Montgomery (1995) introduce five conditions, namely, inimitability, durability, appropriateness, substitutability and competitive superiority. Thus imperfect imitability is the essential condition in all frameworks. Since Barney’s four condition framework is the most often cited in literature (Bürki 1996, p. 112), this crucial test for resources is readdressed below and also applied to the brand as particular organisational resource.

2.1.5 Criticism and confutation

After having presented the theory of the RBV and key academic contributions, a short summary of most relevant criticism and confutation follows to guarantee an integral depiction of the RBV. When analysing the criticism, the debate actually boils down to two major issues. Firstly there is a debate on RBV and its position in the intellectual marketplace with one side arguing for its paradigm status (Peteraf 1993, p. 189), and the other side challenging even the theory status of the RBV due to its nebulous definition and explanatory power (Priem & Butler 2001). At least with regard to the scope of this paper, however, terminology has been clearly defined above. Nevertheless due to the inconclusiveness of the debate, Peng’s suggestion to accept the RBV as an ‘innovation’ (Peng 2001, p. 806) is pragmatic and does not hurt the explanatory power of the RBV within this paper. The second set of arguments highlights the risk of ignoring the nature of market demand by negating environmental influence on an organisation’s performance (Priem & Butler 2001). However, various scholars accentuate the links between internal resources and the market environment with particular focus on the consumer as decisive element in RBV as depicted later (Amit & Schoemaker 1993; Collis & Montgomery 1995).

2.2 The brand sphere

Grasping the impact of the brand sphere on organisational value is vital for further analysis of the brand as key resource of an organisation and as crucial element within a co-branding partnership. In spite of the large amount of scholars who have published academic work on brands and brand management since the mid 80s, the brand sphere has not lost its inherent fascination and therefore Sommer (2000, p. 18) correctly observed that ‘the brand is one of the grand myths in our times’^[5].

The organisational fascination with brands is certainly to a large part due to the immense value creating potential of brands. Within a McKinsey study, the companies observed with strong brands generated a return to shareholder 1.9% above industry standards whereas companies with a weak brand portfolio generated 3.1% below average (Court, Leiter & Loch 1999, p. 101). In order to allow for a structured analysis of the brand in the following, first definitions and functions of brands are highlighted. Then the basic concept for determining the value of a brand is depicted which refers to brand equity with its determinants brand awareness and particularly brand image. Moreover, an overview of brand strategies follows and finally brand alliances and co-branding as brand strategies are defined.

[...]

^[1] Wissenschaftspreis des Deutschen Marketing-Verbandes.

^[2] For a list of publications and awards received refer to:

http://www.henriksattler.de/z_voelckner.html

^[3] For a list of publications refer to:

http://www2.uni-jena.de/oeko/Material/Publikationen_joerg_05.pdf

^[4] Chapter refers to the content within the first level of classification.

Section refers to the content within the second level of classification.

Part refers to the content within the third level of classification.

^[5] Original citation: ‘Die Marke ist eine der großen Mythen unserer Zeit’ (Sommer 2000, p. 18).