Case Scenario: Using Co-Branding to Reduce Costs and Boost Sales

Have you ever stopped at a gas station and caught a quick lunch at an Arby's or a Blimpie sub sandwich inside? Or have you ever noticed that Baskin Robbins and Dunkin' Donuts often share the same building? If either of these two scenarios applies to you, then you have witnessed co-branding firsthand. Co-branding takes place when two or more businesses are grouped together. Co-branding is becoming increasingly common among franchise organizations that are looking for new ways to increase sales and reduce expenses. As we describe next, there are two primary types of co-branding arrangements that apply to franchise organizations. two Franchises Operating side by side The first type of co-branding arrangement involves two or more franchises operating side by side in the same building or leased space. This type of arrangement typically involves a franchise like a donut shop that is busiest in the morning and a taco restaurant that is busiest at lunch and dinner. By locating side by side, these businesses can increase their sales by picking up some business from the traffic generated by their co-branding partner and can cut costs by sharing rent and other expenses. Side-by-side co-branding arrangements are not restricted to restaurants.

Sometimes the benefit arises from the complementary nature of the products involved, rather than time of day. For example, a franchise that sells exercise equipment could operate side by side with a business that sells vitamins. By locating side by side, these two businesses could realize the same types of benefits as the donut shop and the taco restaurant. two Franchises Occupying the exact same space The second type of co-branding arrangement involves two franchises occupying essentially the same space. For example, it is increasingly common to see sub shops inside gasoline stations and other retail outlets. The relationship is meant to benefit both parties. The sub shop benefits by opening another location without incurring the cost of constructing a freestanding building or leasing expensive shopping mall space. The gasoline station benefits by having a quality branded food partner to help it attract road traffic and by collecting lease income. Having a sub shop inside its store also helps a gasoline station become a "destination stop" for regular customers rather than simply another gas station serving passing cars. important Considerations Although co-branding can be an excellent way for franchise organizations to partner for success, a firm should consider three questions before entering into a cobranding relationship:

¦ Will the co-branding arrangement maintain or strengthen my brand image?

¦ Do I have adequate control over how my partner will display or use my brand?

¦ Are there tangible benefits associated with attaching my brand to my partner's brand?

For example, will my partner's brand have a positive effect on my brand and actually increase my sales? If the answer to each of these questions is yes, than a co-branding arrangement may be a very effective way for a franchise organization to boosts sales and reduce expenses.

Questions for Critical Thinking

1. Do you think co-branding will continue to gain momentum, or do you think it is a fad that will wane in terms of its popularity? Explain your answer.

2. What are the potential downsides of co-branding? What might make a franchise hesitant to enter into a co-branding relationship with another franchise organization?

3. Consider the Uptown Cheapskate opening profile. Suggest some co-branding relationships that Uptown Cheapskate might consider forming.

4. Make a list of the types of businesses that might work well together in a co-branding relationship. Several initial examples include

(a) a quick oil change and a tire store,

(b) a bakery and a coffeehouse, and

(c) a florist and a candy store.