Public

Ingredient BrandingA win-win situation or a zero-sum game?

Jeff Turner

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.

Public

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

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

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

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

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

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

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 brandBUT:• Reluctantly returned as licensee after sales dropped

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

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

19972004

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

Public

• 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

Public

Ingredient Branding Dilemma

Host wants Ingredient wants

• Exclusivity• Supplier choice• Brand pre-eminence• Drive margin & turns

• Ubiquity• Specification• Category relevance• Drive margin & turns

Public

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

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

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

Public

Ingredient Branding

A win-win situation or a zero-sum game?