When the economy slows down, companies have to get creative and start looking for new ways generate revenue. Some tactics simply allow a company to survive the downturn. Others, though, can actually put a business on track to thrive during a recession. One of these tried and true ways to locate untapped customers, is by partnering with another business to develop a co-branded product or service.
When we as business lawyers talk about these relationships, we focus on the legal entities, liabilities, and profit-sharing arrangements between the companies. As such, we tend to use the terms “strategic alliance” or “joint venture.” However, more and more businesses use “co-branding” to refer to this arrangement since they are focusing on marketing and brand-management.
Whether you refer to it as co-branding, a strategic alliance, or joint venture, there are pros and cons to the business partnership that you have to be aware of before jumping in. Not all partnerships go well, and you don’t want to make a bad situation worse. In order to capitalize on all the potential upsides of a co-branding arrangement, you have to avoid and mitigate the downsides.
Who Uses Co-Branding?
Co-branding is not new. It’s not a side-effect of the internet or social media like “micro-influencers.” Large retail corporations have used it for decades, as have smaller service businesses. Think the Doritos Locos Taco at Taco Bell, the “Eddie Bauer” editions of Ford vehicles, or Dr. Pepper-flavored Bonne Belle lip balm.
Although it isn’t new, the ubiquity of the internet has increased the popularity of co-branding as a strategy for introducing and generating interest in new companies, products, or services. Together with social media campaigns and other online advertising avenues, co-branded products can thrive.
The Benefits of Co-Branding Strategies
A co-branding arrangement offers several benefits over a solo product launch. Through the co-branded product or service, the companies synergize their respective strengths to seize new business opportunities that they couldn’t realize individually. Some of these benefits include:
When Co-Branding Goes Bad
As with everything in the business world, co-branding is not without pitfalls. Even if the co-branded product itself is successful, each brand risks damage to its reputation should some negative event happen to the other brand. The brand names are intertwined, and one brand’s negative publicity can cast an equally negative shadow on the other brand, resulting in a decline in sales.
When Co-Branding Goes from Bad to Worse
Companies don’t just risk their reputations when they get into a co-branding arrangement. Because it is a business partnership, if a dispute crops up (and, because it’s a business partnership, it’s almost certain that one will), your co-branding situation can quickly turn into an expensive legal nightmare.
Examples of common areas of disputes include:
- Cost Sharing: Whose responsibility it is to pay for research and development, legal and licensing fees, supply chain management, or customer service?
- Profit Sharing: How will the profits, losses, liabilities, and benefits of the co-branded product or service be shared among the companies involved?
- Operations Management: Who manages and oversees the various operational aspects (e.g. marketing, production, sales) of the co-branded product or service?
- Intellectual Property Assignment: Who owns the intellectual property that might be created in the course of the co-branding arrangement?
This is by no means a comprehensive list of all the potential areas of dispute, but most of these can be avoided with a frank discussion and comprehensive co-branding agreement.
How to Avoid Co-branding Legal Problems
The most obvious step to avoiding co-branding legal problems is to choose your co-branding partner carefully. Do your research and due diligence. Always feel free to turn down a partnership if you are concerned about the negative impact the other brand might have on your brand.
Even if you find a perfect co-branding partner, troublesome disputes can still arise. Your best route to avoiding these issues (and the expensive litigation that would follow) is to discuss the business relationship beforehand and to create a detailed written agreement outlining all of the terms and conditions.
In addition to the four common areas of dispute above, key provisions and issues for your co-branding agreement might include:
- Specific co-branding objectives
- Dispute resolution mechanisms
- Duration and termination procedures
- Restrictive covenants
Your co-branding agreement definitely should include a termination clause that allows you to dissolve the co-branding arrangement if the relationship is no longer in your company’s best interests. Without the ability to terminate the partnership, the other brand can continue to profit from or cause harm to your brand.
Get Co-Branding!
In my experience, small businesses have traditionally shied away from co-branding opportunities despite the potential they hold for optimizing costs, accessing new markets, and growing a business. However, as the economic environment grows more unstable and companies strive to become leaner, you should consider how co-branding strategies could provide new ways for your business to survive and thrive.
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Here at Alexander Abramson, we focus exclusively on business-related legal matters. We have advised business owners and entrepreneurs for over 25 years on strategic partnerships and partnership agreements.
Ensure a healthy business relationship and protect your business and your investment in the future. Call us at 407-649-7777 or email a team member to schedule a discussion about your strategic partnership or co-branding strategies.
