Creating Profit Through Alliances - business models for collaboration E-book | Page 78

brand reputation. The collaboration may also be
restricted to a small number of highly exclusive
products, for instance a Ferrari car with Louis Vutton
upholstery.
Third, parties can arrange a settlement for their
marketing efforts. If the producing brand advertises
the product, the added brand enjoys the benefit of a
greater name recognition. In that case the costs of
the campaign can be shared.
A combination of arrangements may mean that the
added brand ends up making a net contribution. This
could be justified if its brand value is inferior to that
of the producing brand, in combination with the right
to supply its own product as an ingredient at a
favourable price. This may well have been the case in
the collaboration between Dr. Pepper cola with
NutraSweet sweetener.

The modularity of the product also affects the
coordination costs and the risks of research and
development. This applies particularly during the
exploratory phase, during which the product concept
is selected based on a large number of ideas and
options.
In the commercialisation phase, the product is more
or less determined, but then it's a matter of choosing
marketing approaches. Here parties often rely on a
Stage-Gate model, as described by Cooper. This
means that parties must decide in each stage which
concepts to pursue, and whether they wish to
continue investing. New insights derived from the
innovation process can result in changing attitudes
towards the alliance, however. This may prompt new
arrangements about the income and cost distribution,
or even to a different alliance structure32.

Joint R&D

The possible variations in contract design pertain both
to cost distribution and revenue distribution, as well
as the period for which the parties accept obligations.

In making arrangements for joint research and
development, an important consideration is the
extent to which the parties aim to generate shared
revenue. It could be that the parties work to produce
a single new product and arrange a particular
distribution of the revenue, as General Motors and
Mercedes Benz have done in the development of a
hybrid automobile.

As regards cost distribution, in many development
collaborations the parties will arrange to each bear
their own development costs; certainly if both parties
largely have their own income. Where the parties
work to develop a single product, it will generally be
more obvious to define a development budget and
arrange cost sharing accordingly. This cost distribution
will often be coupled to the revenue distribution.

A second scenario is that the parties work to produce
complementary products, as did Heineken and Krupps
with the Beertender, for which Heineken sells the
beer kegs and Krupps sells the home tap. Finally, the
parties may engage in joint research but then
develop and market their own product, perhaps even
in competition with each other.

The period may encompass the entire development
process, or it may involve just one or two
development stages. In the latter case, the contract
may contain a provision that if one of the parties
decides to pull out, that party will be liable to pay a
penalty as compensation for the possibly wasted
efforts of the other partner.

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