Ingredient Brands: A practical guide & examples
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A practical guide to ingredient branding with examples from a long time practitioner and speaker in the subject
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Ingredient Brands: A practical guide & examples
- 1. Public Ingredient Branding A win-win situation 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 an Ingredient 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’s Story • 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’s Story • 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: The Final 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’s Story • 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 made it 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 Host wants Ingredient wants • Exclusivity • Supplier choice • Brand pre-eminence • Drive margin & turns • Ubiquity • Specification • Category relevance • Drive margin & turns
- 15. Public A Segmented Offering Approach 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: What Next? • 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-win situation or a zero-sum game?