ingredient brands: a practical guide & examples
DESCRIPTION
A practical guide to ingredient branding with examples from a long time practitioner and speaker in the subjectTRANSCRIPT
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Ingredient BrandingA win-win situation or a zero-sum game?
Jeff Turner
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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.
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Characteristics of an Ingredient Brand
• A clear, highly differentiating functional attribute -e.g.Teflon® = non-stickDolby® = ultimate sound reproductionIntel® = microprocessor performanceGoretex® = waterproof & breathablePaypal® = 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
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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
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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
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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
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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
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“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
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“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 brandBUT:• Reluctantly returned as licensee after sales dropped
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“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
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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
19972004
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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
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• Monsanto made it a condition of purchase for the Nutrasweetlogo 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
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Ingredient Branding Dilemma
Host wants Ingredient wants
• Exclusivity• Supplier choice• Brand pre-eminence• Drive margin & turns
• Ubiquity• Specification• Category relevance• Drive margin & turns
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A Segmented Offering Approach to Ingredient Branding
MarketLeaders
(Volume) Followers
Host Brand Desires:
Differentiation
CredibilityBy Association
IngredientOffers
Preferential access & lead time on innovation
Equitable treatmentover time
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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
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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
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Ingredient Branding
A win-win situation or a zero-sum game?