COBRANDING IN SERVICE INDUSTRY
- the partners in growth


By
Dr. Padma Srinivasan
Head-HR & Company Secretary
Sindhu Cargo Services Ltd.
Bangalore
E-mail :
hrd@sindhucargo.com
 


COBRANDING IN SERVICE INDUSTRY - the partners in growth

Co-branding is a strategy greatly perused by firms for the matchless benefits they bring forth. It is a marriage of two entities with different backgrounds, systems and values. The consensus could be relating to competitive advantage 1, cost efficiency, organizational system, strategy, skill, staff, style, structure and strategic significance. More so, a lot of activity is visible in this arena in recent years due to the choice of multinational corporate as an entry mode into India in newer ventures with lesser risk concerns.

According to Michael Porter, to redefine the competitive advantage and the strategy, following segments are worked on by the service industry, for instance by a hotel, namely

1. Overall cost leadership: This is mostly applicable to low budget hotels, where the hotels work hard to achieve the lowest cost of production and distribution, so that they can price their tariff and rates lower than their competitors and win a large market share.

2. Differentiation: Here the hotel concentrates on achieving superior performance in some important benefit areas valued by the market as a whole.

3. Focus: The hotel focuses on one or more narrow market segments, rather than going after the whole. A hotel can adopt one or more of the following strategies in connection with its survival and sustenance in normal circumstances:

      (1) Lower its tariffs and boost its advertisement expenditure
      (2) Develop better accommodation, food and beverage facilities and services
      (3) Lower its costs of production
      (4) Reduce its level of involvement.

But contradicting this ideology the ad legends Jack trout and Al Ries point out  based on the research happenings  that "Confusion has set in. In many categories customers no longer perceive any large differences in products. Thus a brand choice will not be based on a rational search of all the brands in that category but on a brand that was previously tried. Or the leader.  Or the one positioned to the prospect' segment." In these circumstances, cobranding with a related service is the best bet for evolving the increased sale. With the backing of value additions, costs are shared between partners and co-branding gives the partner organizations more velocity in market takeover with minimal cost. Of course, it takes considerable effort and funds to scout for a suitable partner. It has been never an easy task to pin the strategic choice. It is done systematically as if a new project is chosen with professional care and vision.

SERVICE INDUSTRY & COBRANDING:  The service industry in recent times has lapped up all kinds of partners to give a wholesome experience to its eager and affordable clients. So, it has become imperative to evaluate the possible criteria, determinants, modes and viability of such a deal based on firms and situations.

In the words of Paul F. Nunes, Stephen F. Dull and Patrick D. Lynch , "By focusing on combining the best capabilities of both partners, innovative and durable co-branding programs can create significant value for companies and their customers. And they can be particularly useful in an environment of spending constraints".

SERVICE PARTNERS: Cobranding is not a new concept, it has been tried by Holiday Inns way back in 1930s. It has evolved to the present scenario with modifications to suit the requirements of the issuer and user. In the Indian market, three service industries have mercilessly embraced this concept to enlarge their catchment area. They are

    * Financial services
    * Hotels
    * Airways

Roughly around 192 cobranded cards are available across these sectors. The most successful such card has been Jet Airways-Citibank Card. The hospitality research consultants like PKF, HVS and Interbrand have reviews on hospitality services cobranding. The service impact can be studied when the firms are categorized into

    I. Service Factory: Services with limited contact with customers
    II. Service Shop: Services with huge contact with customers
    III. Mass Service: Services with unlimited contact with customers enmass.
    IV. Specialized service: Services with contact with limited customers.

Based on the above inherent nature of service dependence and ambitious plans to enhance serviceability cobranding is increasingly used. To mention a few, co-branding of credit cards between Citibank and Jet Airways, Standard Chartered Bank and Indian Railways, Indian Oil and Citibank and Citibank and The times of India.

The benefits of co-branded cards to the cardholder is that he gets points whenever he uses it and he can get these points redeemed for additional products or services for free. Thus it builds loyalty to the brand or service in use by the customer. This is a sort of affiliate marketing between three brands viz a payment service franchiser (MasterCard, VISA), a bank and a product or service. This kind of interaction result in economy in operations and quicker lapping of the market share. For the user, multiplicity of service offerings at no extra cost (frills marketing) and motivation to increasingly possess value additions and up gradations for free.

Yahoo India and Naukri.com have entered into a strategic partnership to re-launch Yahoo India careers. The tie-up would further strengthen the career channel of Yahoo India. Through this tie up with Yahoo India, naukri.com is hoping to grab 30 million registered Indian users of Yahoo India and on the Yahoo network. Already in existence, Yahoo India Career receives numerous hits from Yahoo visitors. On the other hand, CV registrations at naukri.com have significantly increased. Therefore, careers channel has been re-designed with the objective of offering a superior user experience to visitors.

Yahoo India generated revenue to the tune of Rs 20 crores last year and is expecting 40 percent growth this year. The company has redefined its Indian strategy and is concentrating on three focus areas that include the co-branding exercise for online media sales, which is currently contributing 50 percent of the total Yahoo India' revenues.

The second focus area for Yahoo would be mobile content and delivery, extended communication platform from online to mobile that contributes another 45-50 percent revenue. Thirdly, Yahoo is now going to start its own search technology 'Yahoo Search Technology'. Till now yahoo was using the Google technology 'Algorithmic search tool'.

Similarly, Oberoi hotels 2 (East India Hotels Ltd.) has opted for a strategic alliance and cobranding relation with Hilton, where a % of room sales is being given to Hilton and nearly 1900 rooms of Oberoi are available to Hilton. Oberoi benefits with optimum utilization of facilities, higher room occupancy, highest premium pricing and enhanced brand value. This kind of cohesive working will result in quicker achievement of Organization's vision, mission, plans to the service providers and internationalization of operations.

Recently Bank of Maharashtra has introduced a Kisan Credit Card, as reported in the Economic Times 3, with the alliance with Emergent Genetics India. The rural sector and farmers, with the issue of cobranded plastic card accepted by all public sector and rural co-operative banks, will stand to benefit significantly. It is a great way to finance the small time farmers who are plagued with monsoon failure to increase in prices f fertilizers. Similar cards will surely be issued in future by large farm input companies (fertilizers and seeds) to facilitate nearly 5 crore farmers. State Bank of India, Syndicate Bank ad Punjab National Bank are heading in this direction especially in Punjab, Haryana and U.P.

The co branding alliances, tie-ups and tie-ins are effective in enhancing loyalty and business valuation along with sales enhancement. However brand synergy is based on

Instantaneous, instinctive and perfect fits occur among group identities.

    * Brand synergy depends on the brand missions and amplification essentially happens when there is an instinctive fit of the partners.
    * Most hotels prefer such arrangements for enhanced service delivery and valuable revenues.
    * Value additions to clients enhance sales and thereby the organizations are able to reap the benefits over a long period of time.

Thus cobranding alliances are gaining importance with their wider applicability.

Bibliography:
1. Dr. Padma Srinivasan, Brand amplification model using co-branding alliances-a study on recent trends, a research paper presented at AIMS 16th Annual Convention, 2004 at Goa.
2. www.oberoiotels.com
3. Economic Times dated 17/08/200

Brief Resume' of the Author:
This original research work on Strategic Management is being submitted by Dr. Padma Srinivasan, Head-HR & Company Secretary, Sindhu Cargo Services Ltd., Bangalore concerning the environmental issues occurring in Karnataka and the appropriate strategies devised by the respondent Hotels. She has been teaching MBA programs as a faculty in many leading management colleges in Bangalore. She has won a silver medal for a Best Research Paper in the recently concluded 16th Annual Convention, 2004 of AIMS in Goa.


Dr. Padma Srinivasan
Head-HR & Company Secretary
Sindhu Cargo Services Ltd.
Bangalore
E-mail :
hrd@sindhucargo.com
 

Source : E-mail September 21, 2004

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