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Ingredient Brands: A practical guide & examples
The document discusses ingredient branding, which involves promoting a specific component of a product with its own brand identity, offering benefits to both the ingredient and host brands. It examines the trade-offs and perspectives from both ingredients and hosts, including how ingredient branding can enhance product perception but may also limit future strategic options. Key examples like Intel and Lycra illustrate the challenges and opportunities in leveraging ingredient branding for market success.
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Ingredient Brands: A practical guide & examples
- 1. Public Ingredient Branding A win-winsituation or a zero-sum game? Jeff Turner
- 2. Public Why Ingredient Branding? •An ingredient or component of a product which has its own brand. • At its best, a symbiotic relationship providing tangible benefits for both the host and ingredient brands.
- 3. Public Characteristics of anIngredient Brand • A clear, highly differentiating functional attribute -e.g. Teflon® = non-stick Dolby® = ultimate sound reproduction Intel® = microprocessor performance Goretex® = waterproof & breathable Paypal® = simple on-line cashless payments • Important to the functional performance of the end-product • Adds associations of quality & performance • High target audience relevance and preference
- 4. Public The Ingredient’s Perspective •A natural progression of branding the ingredient – Involves extending the brand franchise beyond the direct customer, ultimately to the final consumer – Part of competitive marketing strategy – Industrial trade-names can evolve to become consumer brands over time - e.g. Teflon®, ABS • A leadership characteristic • Reinforces strategic relationships with key partners
- 5. Public The Ingredient’s Trade-off. +Builds sustainable advantage through preference and specification + Supports price premium + Secures business versus competition + Potential to transfer positive equity from host brand - Can limit future strategic options - e.g. Intel in consumer electronics - Adds cost and complexity to business - Brand management is rarely an ingredient supplier’s core competence - Risk of transfer of negative image from host brand - Can become a limit on revenue growth if business model & partner selection poorly executed
- 6. Public The Host’s Perspective •Ingredient brands provide reassurance of content & product performance • Allows host brand to concentrate on building “lifestyle” image, unencumbered by need to communicate physical attributes & benefits • Relative ingredient brand strength, positioning and life-cycle all factors in decision
- 7. Public The Host’s Trade-off. +Leverage ingredient brand to increase perceived value, quality and performance + Gain market acceptance where ingredient brand profile is stronger than host’s + Especially true for smaller brands, followers & new entrants + Increased distribution channel acceptance + Preferential access to technology & marketing support from supplier + Potential for higher margins & faster inventory turns - Higher costs (ingredient price and/or license fee) - Risk of negative image transfer from ingredient - e.g. Teflon® - Ingredient’s image dominates host’s - e.g. Intel - Who else gets it? - Lack of control - Differentiator becomes leveler
- 8. Public “Intel Inside”: The Ingredient’sStory • Late 1980’s: product naming (286,386) not protected, copied • Needed to become distinctive • Studied other examples (Teflon®, Dolby®, Nutrasweet®) • Launched “Intel Inside®” in 1991 with 200 OEMs, including premium brands IBM & Compaq • Awareness soared from 24% to 80% in 12 months, now consistently over 94% • By 2007: 1000 OEM licensees, 80% customer preference for Intel in PCs
- 9. Public “Intel Inside”: The Host’sStory • An initial launch OEM, but withdrew after 18 months • Perspective: legitimized smaller brands with inferior products • Threatened by strength of ingredient brand BUT: • Reluctantly returned as licensee after sales dropped
- 10. Public “Intel Inside”: IBM: TheFinal Chapter • Failed with planned extension into consumer electronics – “Over-association” with microprocessor category a limitation • Launched sub-brands in core microprocessor market • Expect more sub-brands for new bundled products or “platforms” • Market for PCs fast becoming commoditized - low margin, virtually identical products • IBM quit PC business: sold out to China’s Lenovo Key learning: Don’t allow the ingredient to eliminate differentiation for host brands
- 11. Public Lycra®: The Ingredient’sStory • Product invented in late 1950’s • Synonymous with stretch • Consumer profile built over decades • By early 2000’s, 90%+ target consumer recognition, top10 Apparel brand (Interbrand study) 1959 1974 1980 1997 2004
- 12. Public Lycra®: Host’s Story •Until mid-1990’s: stretch .vs. rigid – DuPont drove elastification of garments, category by category – Targeted market leaders first, then volume followers • Post 1995, alternative sources of stretch – Major investments in consumer promotion to build brand preference • Post 2005 – Over-exposure with private-label and discount retail has undermined brand equity – Market-leading host-brands increasingly reluctant to share brand equity – Disinvestment by new owners led to rapid decline in identification, then price & share erosion
- 13. Public • Monsanto madeit a condition of purchase for the Nutrasweet logo to appear on customers’ packaging • With considerable reluctance, Coca-Cola agreed, BUT… • As soon as a generic alternative was launched, Coca-Cola ditched Nutrasweet • Monsanto quit sweetener business shortly after + Key Learning: Don’t abuse your position of power, it will back-fire
- 14. Public Ingredient Branding Dilemma Hostwants Ingredient wants • Exclusivity • Supplier choice • Brand pre-eminence • Drive margin & turns • Ubiquity • Specification • Category relevance • Drive margin & turns
- 15. Public A Segmented OfferingApproach to Ingredient Branding Market Leaders (Volume) Followers Host Brand Desires: Differentiation Credibility By Association Ingredient Offers Preferential access & lead time on innovation Equitable treatment over time
- 16. Public Ingredient Brand Strategy •Plan for the long term • Segment the market – Be structured in your approach – Avoid the temptation to do spot deals • Target “trendsetters” for launch • Distinguish between positioning & use • Explicit licensing contracts for optimum control
- 17. Public Ingredient Branding: WhatNext? • Increasing leverage of established ingredient brands into new categories – Lycra® in nail polish • More examples of ingredients becoming main brands – Gore-tex® Bikewear • Increasing development of in- house ingredients – Many of the advantages, few of the disadvantages
- 18. Public Ingredient Branding A win-winsituation or a zero-sum game?