When some parts become greater than the whole:  Fueling growth through ingredient branding

By Ray George

Which item would you opt for on a dinner menu: Chicken cordon bleu featuring Boarshead Ham or the same entrée made with…Spam?

Of course, the chef cares about the combination of ingredients that appeals to the patron’s palate.  That balances quality and cost.  That creates a special flair, perhaps allowing the restaurant to charge a premium price for the dish.  

But customers, voting with their wallets, can have a powerful sway in the ingredient choices organizations make, whether in chicken cordon bleu, soft drinks or computers.  It is the desire to capture share of wallet as well as share of mind that drives ingredient branding decisions.

Ingredient branding, as the name suggests, is the strategy of both borrowing from and lending to the cachet of an end product by positioning your brand as one of the essential components that makes it worth purchasing.

It can protect or grow market share, particularly during tough economic times, by developing an emotional bond between the brand and formerly unaware end-product consumers, opening up growth opportunities in new products, channels, and markets. 

It can also create a win/win situation with end-product manufacturers.  In the near-term, communicating the unique benefits the ingredient offers will differentiate the end product and help both businesses grab market share.   And long-term, creating consumer understanding of the value the ingredient creates can allow the manufacturer to command a premium price for the end product.  For example, 66% of company executives will not buy a computer without Intel inside.  Those who will accept computers containing processors manufactured by AMD – Intel’s primary competitor – will demand a discount of several hundred dollars.

Ingredient branding is as effective in the business-to-business realm as in the retail customer space. Corporate purchasers apply the same filters of price and quality, particularly during difficult times.  The right ingredient allows them to make worry-free decisions and focus on successfully growing their own businesses.

One of the best-known examples of ingredient branding is the “Intel Inside” campaign, launched in 1991. It has helped fuel almost a 12-fold increase in net income, making the microprocessor a key decision-driver in the PC purchase process.  The campaign involved an $800 million in investment in 1999 alone.  But the strategy goes beyond just spending marketing dollars to drive awareness.

Three key principals guide the implementation of successful Ingredient branding programs.  Education and awareness are only a portion of the considerations behind them. 

Principal #1:  It’s a lot like building a brand from scratch

The same basic practices utilized to build a brand from scratch are applicable to building an ingredient brand. This is particularly true when the ingredient brand is attempting to reach an entirely new audience, whether comprised of consumers or businesses, and when the ingredient is not currently part of the customer purchase decision.  Companies interested in ingredient branding must consider the following:

  • The ingredient brand must reflect a compelling and profitable business strategy that leverages the strengths of the organization.  Software maker Inktomi, for example, has grown on the strength of its network infrastructure applications that enable end users to easily publish, retrieve, manage and distribute information cost effectively and efficiently.  That strength is leveraged as its applications are marketed as ingredients enhancing the functionality of offerings by such brands as RealNetworks and Microsoft.  
  • The end-customer must understand the functional benefits of the brand before deeper, more emotional associations are created.  The functional benefit should be clear, credible and easily identifiable, leveraging the ingredient to simplify a complex purchase process.  Dolby technology has a functional benefit – it reduces background noises that interfere with the quality of recorded sound.  That benefit was the basis of its “ingredient” launch in the consumer market through high-end consumer audio equipment. Over time, the functional benefit has taken on a higher-order quality.  Simply put, Dolby equals “good sound.” 
  • All potential customer touch points for the brand must be anticipated; the brand must be represented consistently and compellingly at all of them.  This can be difficult for an ingredient brand, as the number of touch points it controls is limited due to its very role.  The best solution may be to ensure a good working relationship with the end-product brand to ensure its touch points reflect, or at the least, do not hurt, the ingredient brand’s equity.  

Principal #2: Cultivate the middleman

The idea behind ingredient branding initiatives is to leverage the equities of the ingredient brand and the finished product manufacturer as well as create new positive associations for the combined entity.  Ideally, these initiatives are based on a mutually beneficial relationship, where market share and growth potential stand to be expanded for both brands.  Here are two ways to get the most out of such relationships:

  • Provide a monetary incentive for the finished product manufacturer to adopt your logo and/or company name.  One incentive is to provide an advertising subsidy based on purchase of your component.  Intel, for example, offered a 3% advertising subsidy to PC manufacturers as a percentage of funds spent on Intel processors.  Discounts on the ingredient product can also be offered to the manufacturer.
  • Find the right partners.  The right brand associations can be gained by partnering with the best the category has to offer. Dolby demonstrated the superiority of its product by licensing its B-type technology to such high-end tape recorder manufacturers as Fisher and Harman-Kardon.  Partners with market leadership also are a sound bet – as Nutrasweet found with Pepsi and Coke.  Another approach is to partner with companies that already have a close relationship with the end-customer.  For example, companies as intensely customer-focused as Dell or Charles Schwab provide a terrific opportunity to reach a captive audience.

Principal #3:  Ensure end-customers can interact with and recognize your brand

Interaction, education and recognition help ensure that the end-customer is aware of your ingredient and understands the associated benefits.  How can this be achieved when your brand is just a piece of the puzzle?  Some creative companies have experienced success with the following techniques:

  • Allow the end-customer to experience the brand visually.  Most successful Ingredient brands have used a symbol – such as the Nutrasweet swirl and the Dolby double-D. 

  • Encourage or underscore interaction with the brand.  For example, Dolby noise reduction technology has to be actively turned on and off on a cassette player.  Therefore, customers have for years actively engaged the Dolby brand and have tangible proof of its benefits.

  • Develop the brand as an implicit seal of approval.  This can be done visually.  The Intel symbol looks like a check mark in circles, as though to emphasize that a necessary component in the PC has been verified.  It can also be done through associations of reassurance and comfort.  The Good Housekeeping Seal of Approval has long been represented as brand standing for quality, for example.

Smart businesses understand the value their brand represents to the organization as a crucial asset – despite its intangibility vis-a-vis such other assets as equipment and employees.  In that vein, they will seriously evaluate ingredient branding as an effective means of leveraging and extending their brand’s equity and enhancing its value over the long run.

A version of this article was featured in the January 2002, issue of Sales, Advertising, and Marketing magazine

 

 Ingredient Branding – The Source for New Revenue Streams

Interview with Ray George

  1. Firstly, can you tell us when actually this concept of Ingredient Branding evolved? Who are the pioneers?
    1. While Intel has received much credit for the success of its “Intel Inside” campaign, other companies pioneered the concept.  The consistent theme of these companies is that they were high-tech/high-concept manufacturers with little or no end-consumer relevance.
    2. For example, Dupont’s Stainmaster ingredient, a carpet treatment which helped protect carpets from stains, became a point of difference for carpet manufacturers, shifting the frame of reference from merely style to quality and dependability.
    3. Another early pioneer in consumer electronics was Dolby in the 1970’s, whose audio quality components have become synonymous with “good sound.”  Dolby achieved this through becoming a key ingredient with top quality consumer electronics brands at the time such as Fischer and Harman-Kardon.
    4. Another early ingredient brand started in the 1980’s is the Shimano bicycle parts manufacturer.  By offering a gear-shifting and brake parts in the highest quality mountain bikes, Shimano has been able to drive a premium, high quality image that has consistently commands a premium with bicycle manufacturers and with consumers.
    5. A different view of ingredient brands could be people that are involved in delivering the product or service.  For example, Peter Lynch’s management of the Fidelity Magellan fund during the 1980’s helped to fuel US investment in mutual funds and differentiate Fidelity’s investment expertise, driving exceptional fund flows.
    6. An interesting emerging story is GE Plastics launch of its Lexan brand as a key ingredient in plastic-based products.  While it is difficult to imagine more of a commodity than plastic, GE has begun to differentiate the functional benefits of Lexan, and subsequently how this adds to the quality of the end product.

 

  1. What are the basic advantages of adopting ingredient branding?
    1. Gaining end-customer relevance opens new revenue opportunities – the vast majority of ingredient brands have a primary target of the OEM (original equipment manufacturer), not the consumer.  By expanding the frame of reference and audiences, it increases the opportunities available to these brands to reach new customer segments, channels and markets.  These new audiences can open up new potential revenue streams for the business and brand.
    2. Premium pricing – by gaining influence in the end-consumer purchase decision, strong ingredient brands merit a higher price than competitors.  This premium helps to differentiate ingredients from all competitors, ultimately helping to gain market share.
    3. Shareholders value strong brands – there is a growing body of evidence that strong brands not only fuel superior business results, but also drive shareholder value.  While the primary audiences for ingredient brands are manufacturers and end consumers, shareholders can also acknowledge the potential for By gaining brand equity
    4. Enhancing brand assets/minimizing brand liabilities – for many commoditized brands seeking differentiation, an ingredient can help build associations of innovation, quality or reliability.  For others, gaining an ingredient can help minimize liabilities that are either perceptual (stodgy/conservative) or functional (quality/reliability).
  1. Which product categories or sectors prefer this and why?
    1. The more complex the product and purchase decision, the more ingredient brands can help simplify the purchase process and differentiate from competition.  We see this occur with everything from consumer electronics (Dolby) to computers (Intel).
    2. The more commoditized the product category, the more likely a OEM is willing to gain a competitive advantage by promoting the benefits of a components.  We see this occur with carpets (Stainmaster) to kitchen appliances (Lexan) to mutual funds (star fund managers like a Peter Lynch)
  1. Why automobile component are yet to pick up this trend?
    1. While I would argue that some automobile manufacturers use ingredients today (such as the “Onstar” system in certain luxury cars), most have avoided ingredient branding since they invest so heavily in the equity of their corporate and product brands.  These brands, such as the Volkswagen Jetta, Ford Explorer and Toyota Camry, have historically controlled the customer purchase experience.  Automobiles are not commodities, and while they are complex machines, you are buying the quality of the company/brand, not the differentiation of an ingredient.
  1. Are there any studies indicating buyers purchasing preference mainly due to ingredient brand than the final product?  Won't the ingredient brand grow larger than the final product (brand)?  To what extent it adds to the Brand Equity?
    1. These questions strike at the heart of the issue facing ingredient branding.  These brands are attempting to drive decisions that benefit the end manufacturer.  Yet if it drives too much of the decision-making process, they disenfranchise the OEM – and run the risk of angering their customer.  For example, Intel was so closely tied to the PC market and drove so much of the purchase process in the late 1990’s (some would argue that people purchased a new computer only when an upgraded Intel chip was launched), that their fortunes also turned when PC sales plummeted in early 2000.  In addition, Intel’s ability to branch into other products or services has been limited since its brand is so closely tied to microprocessors.
    2. While the ubiquity of Intel has added little brand equity to OEM brands, the value proposition of ingredients to OEM’s is that they help the OEM brands gain equity with end-consumers.  Therefore, ingredient brands should “team” with the OEM brands in both word and deed to achieve this goal.  Teaming could include advertising incentives (like Intel), co-brand development partnerships and other activities that demonstrate a shared commitment to winning.
  1. Are we confusing consumer in the long run by adopting ingredient branding? Imagine a situation if all the component makers start branding their ware, and consumer has to buy a product say computer then he has to search for computers having Intel microprocessors, SEAGATE Hard Disk, RAM of X and CD ROM of Y company etc?
    1. Absolutely right – brands are meant to simplify an already complex buying process.  If every component sought to gain influence in the end consumer purchase process, it would make this purchase process more complex.
    2. Where we see ingredient brands thrive is in commodity categories (computers, rugs, soda, etc.) where OEM’s are straining for differentiation.  But as you will notice in the examples I have used, there are rarely more than one ingredient brand in any product.
    3. Therefore, ingredient brands should only be pursued when they can help accomplish the benefits identified in question 2, and when there are no “competing” ingredients that already exist

Interview appearing in the April 2003 issue of Advertising Express magazine

 

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