Dynamic co-marketing alliances: When and why do they succeed or fail?

Abstract

We investigate the dynamic aspects of a co-marketing alliance and offer guidelines to establish profitable and self-sustaining alliances. Our specific objective is to assess the attractiveness of forming a medium-term exclusive alliance between two brands or their manufacturers to produce a series of co-branded products jointly against the alternative of separate production. Relying on a diffusion framework, our study examines two questions. First, under what market-driven characteristics (e.g., size of each brand's customer base) should either brand manufacturer forge or sustain the alliance. Second, what product market characteristics should the alliance promoter (e.g., a recording company) seek or alter to increase its payoffs from the alliance. The model identifies the market-driven characteristics of the partnering brands at the start of the alliance and tracks their changes over time. Results show that a brand manufacturer would be better off not to form (or sustain) the alliance unless the market is expected to expand by an amount suggested by the model. From the alliance coordinator's standpoint, for a given overall strength, the alliance is most attractive if the strengths of the partnering brands are comparable. We demonstrate the real-world applicability of the model using survey data on three real alliances in the music CD industry. Limitations and future research directions are discussed.