Two’s company – maybe?

Trademark licensing, like any other

business activity, continues to

evolve. Over the last few years there

have been a number of advances. One

major development has been the evolution

of the concept of co-branding, sometimes

referred to as dual-branding when the operation

involves only two concepts.

The concept being discussed here is

different from the concept of concessions

in the retail sector, for example, where a

cosmetics company occupies space

within a department store, or a food court

(a concept whereby, usually, in a shopping

mall, railway or airport terminal there

is a common seating area which is

surrounded by different food outlets; e.g.

Chinese, Italian, French, hamburgers,

pizzas, etc.). In the case of a concession,

one has owners of various businesses

operating from the same location under

their own brand, franchised or otherwise.

Each operation, therefore, trades under

its own brand, but shares with the others

the same trading location and amenities

such as lighting, heating and opening

hours. Generally speaking, in the case of

concessions, the one thing which all

traders have in common (apart from sharing

premises, etc.) is that they have

similar business concepts such as fast

food, cosmetics, fashion wear and so on.

A flexible concept

Co-branding is difficult to define precisely,

partly because of its complexity in some

cases and partly also because any

attempt at precise definition would have

the effect of limiting the flexible nature of

the concept, which embraces a wide

range of possible structures and relationships.

Essentially, co-branding involves

the juxtaposition of two or more different

brands, each providing different goods or

services and each of which has a different

owner. At its most basic, the sale of

Coca-Cola at a McDonald’s outlet can be

said to be a co-branding operation. The

nature and type of relationship between

the different owners of the brands may

be limited, it may be consensual (sometimes

called ‘permissive’) as opposed to

contractual, it may be a franchisor/franchisee

relationship or some simple or

complex form of joint venture. A distinction

needs to be made between the

ownership of the brands and the operator

of the co-branded business.

Co-branding comes in various guises.

For example, co-branding operations

may exist under one roof at a single

location such as a shop within a shop

concept. A restaurant serving only lunch

and dinner, but wishing to expand to

breakfast items may find it more sensible

to form an alliance with an established

breakfast operation (rather than develop

its own menu and promote its own

brand), thereby benefiting from the experience

of brand recognition from its

co-branding partner.

Co-branding may exist side by side, as

in a convenience store adjoining a petrol

station where both operations (which may

or may not be commonly owned) share

facilities such as parking. The degree of

integration may also vary, with some cobranded

operations being partly integrated

while others may be fully integrated. An

example of a partially integrated cobranded

operation would be a petrol

station which contained a Hungry Jack’s

outlet. A fully integrated co-branded operation

would be the sort of operation where

a restaurant chain is combined within

another concept. An example is the US

restaurant concept Thank God It’s Fridays

located within a Holiday Inn hotel. This

amounts to a fully integrated co-branding

operation, where not only personnel, storage

space, etc. are shared, but also food

preparation facilities, telephone reservation

systems, and the like.

A very simple form of co-branding

which was introduced some years ago,

but which is now commonplace, is the

issue by various institutions and clubs of

credit cards under the MasterCard or

Visa brand. A number of clubs, educational

institutions, charities and others

issue their own credit cards and one

therefore sees credit cards displaying

both the Visa or MasterCard symbol and

a logo of the issuing institution.

In some cases, single brand operations

evolve into co-branded operations where

no formal contractual relationship exists

between the brand-owners, but where the

evolution takes place by tacit understanding.

An example of such a concept would

be certain music systems in certain

makes of cars. In the case of consensual

co-branding, a brand owner recognises

that co-branding is taking place even

though it is not its policy, i.e. the brand

owner is not promoting it, but allowing it

to happen. For example, Schweppes

tonic water with Gordons gin.

Pairing up franchises

Particular care needs to be taken by

Brand owners when considering cobranding

in terms of business format

franchising. Given that the fundamental

nature of franchising requires a uniform

system and marketing image, one needs

to guard against the possibility of increasing

encroachment on one branded

system by another brand. Co-branding

also has a tendency to throw into disarray

the traditional justification of restricting

franchisees from being involved in other

businesses. Each brand-owner will be

concerned to ensure that their particular

brand is adequately protected and that

each receives the anticipated benefits

from being associated with the others. It

is for this reason that any co-branding is

best done if planned and contractually

secured by the brand-owners, rather than

one which develops consensually.

Although co-branding necessarily

involves two or more distinctive brands, it

does not necessarily follow that the owners

of the trading unit must also be the owners

of one of the brands involved. One could

have two individually branded, but different

business concepts being operated under

one roof by a single legal entity that is the

owner of neither brand, as in the case of a

7-Eleven franchised store within which is

placed a Domino’s Pizza outlet. In these

circumstances, it would be usual for

7-Eleven to have a contractual arrangement

with Domino’s Pizza under which

7- Eleven (as the franchisor of that store)

has the right to sub-license the Domino’s

Pizza brand to its franchisee. Under such

an arrangement, there will be no contractual

relationship between the franchisee

and Domino’s Pizza. Alternatively, 7-Eleven

may consent to its franchisee acquiring the

Domino’s Pizza franchise direct from

Domino’s Pizza.

The pros and cons

Where co-branding and multi-branding is

part of a marketing strategy, there can be

significant advantages. A successful cobranding

operation will work to the mutual

advantage of the parties. It will help a

brand owner to reach new customers,

enter new markets, develop new products/

services, improve rates of return,

reduce development costs, increase exposure

and create greater customer traffic.

There are, of course, also disadvantages. There has to be an element of

compromise over signage etc. Each

brand owner will have to accept an

element of mutual exclusivity so that the

other will not trade in competing goods

or services or promote a competing

brand. Finally, there is the issue of quality

control and preservation of reputation.

There will always be a fear that one of the

brand owners will be running a sub-standard

operation which will adversely affect

the reputation of the other venture.

Anyone proposing to go into cobranding

needs to give careful

consideration to the legal and operational

issues involved before making a commitment.

Regard has to be had, of course,

to ensure that one’s intellectual property

is protected and one’s own-brand is not

cannibalised or its reputation eroded.

The contractual issues may be quite

complicated, depending on how many

brands are to be the subject of a cobranding

operation, whether they have a

common owner or separate owner and

whether the trading outlet is franchised

or company-owned.

Careful consideration also needs to be

given in setting out the rules of operation.

Some of the most obvious issues which

spring to mind are:

› exterior appearance, cleaning, repair

and maintenance of premises

› hours of operation

› storage areas

› product preparation and packaging

areas

› whether the premises should be

divided into exclusive retail areas for

each brand

› rules relating to the serving of

customers and taking of payment

› human resources issues

› insurance issues

› accounting and reporting procedures,

particularly where separate royalties are

to be paid by the operator of the business

to different owners of brand

› advertising, marketing and promotion

of the business

› special provisions relating to the

occupation of the premises and landlord

requirements.

As with most things, the more complex

the business, the more complicated the

issues surrounding termination.

Planning for a separation

Consideration needs to be given to what

happens in the event that a co-branding

venture has to cease for whatever

reason. What, for example, is to happen

if a franchisee is in breach of one agreement

but not the other, or if a franchisee

wishes to sell his business and his

purchaser is acceptable to one brandowner

but not to another, and so on?

It is clear that for the foreseeable future

co-branding is here to stay and is being

successfully developed as a concept.

The success enjoyed by food courts is

testament to the fact that if carefully

thought out and implemented, co-branding

can be a powerful marketing force,

benefiting not only the owner-operator of

the trading unit, the owners of the brands

involved, but also the consumer.

ENDS

BIO (RETRIVE PIC FROM P.146 JAN/FEB 2004)

Manzoor G K Ishani is a franchise

specialist with UK legal

firm Sherrards, and franchise

development director of

Stagecoach Theatre Arts PLC.

He is a former member of the

Legal Committee of the British

Franchise Association, a

member of the Forum on Franchising and the

American Bar Association and a member of the

Committee on Franchising of the International Bar

Association. Co-author of several specialist books

on franchise expansion abroad, Ishani has over

25 years’ experience in assisting businesses to franchise

in the UK and internationally in more than 25

countries. He can be contacted at ishani@ishani.net.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.

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