A practical guide to ingredient branding with examples from a long time practitioner and speaker in the subject

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Ingredient Branding
A 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-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

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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 brand
BUT:
• 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
1997
2004

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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 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

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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
Market
Leaders
(Volume) Followers
Host Brand
Desires:
Differentiation
Credibility
By Association
Ingredient
Offers
Preferential access &
lead time on
innovation
Equitable treatment
over 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?