What is Ingredient Branding?
Wikipedia defines Ingredient Branding as “creating a brand for an ingredient or component of a product, to project the high quality or performance of the ingredient”. Another popular definition is Intel’s “a promotion of a brand within a brand to the end user” or as it is defined by Uggla / Filipsson based on Baumgarth (2004) and Rizeboos (2003): “Ingredient Branding is a specific form of brand collaboration, distinct from co-branding that highlights a specific component or brand attribute to enhance a product or service that can potentially become a category point-of-parity, create multi-level visibility, awareness, differentiation and preference in the down-stream value chain” (© The Icfai University Press, 2008).
Other interpretations of Ingredient Branding also exist, for example from P. Kotler, D. Aaker. E. Joachimsthaler, K.Keller, C.Baumgarth and many others. Please refer to their literature for further details.
Putting academia aside, what does that mean for companies that would like to apply the Ingredient Branding model?
The vast majority of companies are not able to adequately convey the entire value they are creating for their respective value chain, as they are often locked into their role as an anonymous supplier. Their value and their contribution to the finished product is unknown to most market participants beyond their direct customer line, and therefore they are exposed to the "Lopez-effect"; named after the once famous Head of Purchasing at Volkswagen, who was known for his merciless negotiations with suppliers. Price & margin pressure, unfavorable payment terms and exchangeability as a supplier are the economic consequences. Not a great position to be in.
Ingredient Branding provides a valid Brand & Business model escape from this unfavorable position in the supply chain. The fundamental principle of it is to apply a Multi-Level Marketing Model.
By starting to communicate the benefits of the Ingredient to at least one level below direct customers, a company can start to build firstly awareness and then create demand for its component in the downstream value. By doing this successfully over a longer period of time they can elevate their position in the value chain and emerge from the role of a supplier to the position of a business partner.
After the recognition of the Ingredient Brand has been successfully established, various push-marketing activities can be executed together with direct customers and distribution channels (e.g. Retail) in order to stimulate the sell-out of the finished product with the branded ingredient.
The key question to establish an Ingredient Brand is therefore, how much increased value can a product, component or service add to the finished product to make that Ingredient relevant for the buying decision. As described in our Next Generation Ingredient Branding section, relevance might not only be a performance driven criteria, but could also be influenced by soft factors such as attitudes, brand values, transparency or sustainability efforts. What makes a component relevant for the buying decision of the final product differs from product to product, from category to category.
Finally, two very common mistakes should not go uncommented.
- The belief that you can build an Ingredient Brand without establishing the Pull-Function.
- The belief that you can build an Ingredient Brand only through Retail or Distribution
In both cases success is very unlikely. At the beginning stage, Ingredient Branding is a hen-and-egg situation. Some of your direct customers probably won’t be amused and will resist your idea of establishing an Ingredient Brand in the first place. Retailers have proven over the past 50+ years that they use any brand to their advantage that can potentially generate them more revenue and profit, but building a brand for a supplier, that’s not in their general business interest. And Distribution/distributors deliver no added value for a brand. They fulfill solely the logistics and distribution function.
Luckily, in today’s digital and content driven Marketing world, there are endless opportunities to create the pull-function through smart and meaningful communication activities, which are also an integral part of the BRAIND offering.
Are you ready for Ingredient Branding? Check your Ingredient Brand Fitness Check here.