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How: Brand the product through a component with a clear and highly differentiating attribute important to the functional performance of the end-product. Create a component yourself or lend brand value from a popular component of another supplier.
Why: Build a symbiotic relationship providing tangible benefits for both the host and ingredient brands.
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A collection of business models that will help you understand the key drivers of business model success. The card deck will be ready for purchase in the end of 2023 and is now undergoing rigorous testing.
Reserve your deck!Ingredient Branding is the practice of branding a product that can only be purchased as a component of another product: A brand within a brand. This means that the ingredient product cannot be purchased individually, but is instead advertised as a key feature of the final product, creating the appearance of “a brand within a brand.” By supplying such an ingredient, a company can enhance the profile of its brand and attract end customers.
The brand awareness generated by Ingredient Branding can reduce the likelihood of substitution by other products and give the company more bargaining power in its negotiations with the manufacturer of the end product. Ultimately, Ingredient Branding can create a mutually beneficial situation in which the positive attributes of the ingredient product are transferred to the end product, increasing its appeal to consumers.
For Ingredient Branding to be effective, the supplied ingredient product must fulfill an essential function in the final product and be significantly superior to competing products. Without these attributes, it will be difficult to persuade customers that the ingredient is a valuable and integral part of the final product.
Where did the Ingredient Branding business model pattern originate from?
Ingredient Branding has been utilized by managers since the mid-20th century, with chemical companies particularly recognizing the benefits of this business model in popularizing their dyes and plastics with consumers. One notable example of this is DuPont de Nemours, an American chemical company that developed the polymer polytetrafluoroethylene, more commonly known by its brand name Teflon. Teflon is a highly versatile synthetic material that is useful in a wide range of industries due to its low coefficient of friction and non-reactive qualities. By establishing Teflon as a brand associated with practicality and high quality, other companies can enhance the appeal of their own end products by incorporating Teflon as an ingredient. The recognition level of the Teflon brand is over 98%, thanks in part to its presence on numerous pots and pans sold today.
Intel’s Success with Ingredient Branding
Intel, a US-based semiconductor chip maker, is another pioneer of Ingredient Branding. In the 1990s, the company launched its “Intel Inside” campaign to increase brand awareness. Under this campaign, PC manufacturers agreed to advertise Intel processors on their PCs in exchange for Intel covering some of their advertising costs. Simultaneously, Intel independently produced a series of ad campaigns to raise consumer awareness of the importance of microprocessors. This strategy greatly contributed to increasing demand among end consumers, leading to Intel becoming the top brand of microprocessors globally. In the more than two decades since the launch of the campaign, Interbrand has rated Intel as one of the world’s ten most valuable brands.
Applying the Ingredient Branding business model
Ingredient Branding can be especially beneficial for products that have high brand awareness among customers and are of high quality. This is particularly true when the ingredient product is synergistic or complementary to the final product.
When to consider Ingredient Branding
If your business does not yet have sufficient visibility to be branded as an ingredient, you may be able to benefit from incorporating a well-known ingredient into your product or service. By including a highly recognized ingredient, you can signal to consumers a level of quality that is already familiar to them.
There are four conditions (John Quelchm, 2007) under which the provider of a final product or service may be willing to compromise its own brand-building efforts in order to include the brand of an ingredient on the package and in advertising:
- The ingredient is highly differentiated, typically through patent protection, and thus adds an aura of quality to the final product. An example of this is Gore-tex, a material used in water-resistant rainwear.
- The ingredient is central to the functional performance of the final product. Examples of this include Shimano gear systems on performance bicycles or Monsanto’s Nutrasweet, which is added to Equal sweetener.
- The final products themselves are not well-branded, due to factors such as being in a relatively new category, having infrequent purchases, or having low perceived differentiation among options. An example of this is the various ingredient brands for clothing offered by DuPont, such as Rayon and Lycra.
- The final products are complex. When the product is assembled from components supplied by multiple vendors who may sell the “ingredients” separately in an aftermarket. Examples of this include cars with Michelin tires, Dolby stereo systems, and Champion spark plugs.
Many companies struggle to effectively communicate the full value they create in their value chain and are relegated to anonymous supplier status. This exposes them to the “Lopez effect,” named after the former Head of Purchasing at Volkswagen, who was known for his tough negotiations with suppliers. This can lead to price and margin pressure, unfavorable payment terms, and the risk of being replaced as a supplier. Ingredient Branding offers a solution to this challenging position in the supply chain by applying a multi-level marketing model in which the ingredient is promoted to at least one level further down the demand chain than its direct clients. This creates a “pull” for the specific ingredient throughout the demand chain, allowing the supplier to reduce its reliance on its direct customers and escape the economic pressure they may exert.
Proper application of the Ingredient Brand business model
To successfully apply the Ingredient Brand Model, a company must consistently communicate the benefits of its ingredient over a longer period of time, building awareness and eventually insistence for its use in the downstream value chain. This helps the company elevate its position in the value chain and move from a supplier to a business partner.
Once the Ingredient Brand has been recognized by the relevant target audience, various push-marketing activities can be carried out in conjunction with direct customers and distribution channels (e.g. retail) to stimulate the sales of finished products made with the branded ingredient.
Ingredient Branding vs. Co-Branding
Ingredient Branding focuses on highlighting a specific component or brand attribute in order to improve a product or service. It is a long-term process in which the ingredient becomes an integral part of the final product, helping to create awareness, differentiation, and preference for the final product in the downstream value chain.
Co-branding, on the other hand, involves the use of two finished consumer products in a single product or service. The goal of co-branding is to capitalize on the equity of each brand and boost the success of the overall product. It is more promotional in nature and is oriented towards the short- to mid-term. Examples of successful co-branding include Omega and Biosteel, Panzerglass and Swarovski, McDonald’s and KitKat, Nike and Apple, GoPro and Red Bull, and Adidas and Five Ten.
Advantages and Risks of Ingredient Branding
Ingredient Branding offers several advantages, including the ability to move beyond the role of a supplier to become a business partner in the eyes of customers. This allows a company to differentiate itself competitively and capitalize on the positive image of end products made with its ingredient. Ingredient Branding can also increase brand awareness and loyalty among customers and create barriers to entry for competitors in the sector.
However, acting as an Ingredient Brand also comes with significant responsibilities and risks. The brand becomes more visible, making it easier for competitors to adopt similar business or marketing approaches. Additionally, there may be increased costs and the need for additional resources for marketing, customer service, and quality management. There is also the risk that collaborations with inappropriate brand partners could dilute the equity of the company’s own brand over time.
To determine whether Ingredient Branding is a viable strategy, it is important to consider how much added value a product, component, or service can provide to the finished product in order to make it relevant to the buying decision. The relevance of a component can vary from product to product and category to category, and may be influenced by both performance-related factors and softer elements such as attitudes, brand values, transparency, and sustainability efforts. To address these considerations, we have developed the Next Generation Ingredient Branding Model.
Trigger Questions
- Will adding a highly differentiated brand to your products spill over positively to your own brand?
- Will adding a second brand to your product lend your brand needed credibility?
- How can we ensure that the ingredient brand does not detract from the overall appeal of the final product?
- How can we prevent competitors from utilizing the same ingredient product and diluting the uniqueness of our offering?
- How do we distinguish ourselves from original equipment manufacturers and assembly companies?
Examples
Gore-Tex
Using the patented water-resistant fabric in clothing is a sign of quality marketed through labels, hang-tags, PoS, etc.
Oreo
The popular cookie is often seen as a branded ingredient in other products such as ice cream, chocolate bars, and coffee.
Shimano
The Japanese multinational manufacturer of cycling components, has managed to secure an 80% share of certain sectors of the bicycle market through ingredient branding. By recognizing the potential of this approach for the bicycle component industry, Shimano has successfully built a strong brand. Other companies that have employed similar strategies include Remus for motorcycle exhaust pipes.
CEWE
The German engineering and electronics company and major supplier of automotive components, has innovated the use of ingredient branding in the automotive industry. The company’s reputation for high quality and reliability has attracted vehicle manufacturers who incorporate the Bosch brand into their designs and market vehicles with high visibility of the Bosch brand. As a result, Bosch benefits from increased demand for its components without having to enter the vehicle manufacturing business. Some car manufacturers in developing countries, such as Tata, have even begun advertising “Bosch inside.
- Business Model Navigator by Karolin Frankenberger and Oliver Gassmann
- Ingredient Brands: A practical guide & examples by Jeff Turner
- What is Ingredient Branding & How Does It Work? by Mark Beebe
- How To Brand an Ingredient by John Quelch, Harvard Business Review
- What is Ingredient Branding by Tomas Vucurevic