Price Premium Profitability Through Ingredient Branding.
What are Ingredient Brands?This is the first of a series of articles on ingredient branding. In this first article we introduce the concept of ingredient branding and a model for the understanding the utility of their brand equities for building businesses. In subsequent articles we will discuss how to manage - and avoid pitfalls - in guiding ingredient brands profitably from their early life cycles all the way to their mature stage.
Ingredient Brands are those product components that not only add functional value, their logo on a main branded product or service adds to its own brand power to retain customer loyalty, evoke customer preference, and support premium price points. An ingredient brand not only adds value to a host brand's equity, in mature markets it can also create or enhance differentiation.
Intel® is arguably the most famous of all ingredient brands that has enjoyed a long and continuing life. Others include Microban®, Kevlar® and Goretex®.
How Ingredient Brands Are BornWhen an upstream manufacturer develops a new breakthrough product, they diligently commercialize and promote the brand identity in order to obtain increasing market acceptance of the product. Since it is a breakthrough, the branded product becomes accepted by direct customers and often famous for the benefits it brings to the downstream market. When promoted properly it also becomes desirable to consumers because of the publicity it generates as a source of "new" perceptions for older brand names that incorporate it into their product lines.
The name the manufacturer gave the product is generally intended to both simplify the conversations with specifiers, production managers, and others whose beliefs about its value prompt them to include it in production processes and to assist purchasing agents in requesting the right product. Most often this value is discussed in terms of how it is functionally advantageous. This is a common practice in industry. However, its value as a public indicator of host brand commitment to quality innovation should not be overlooked.
As a new ingredient brand becomes familiar among downstream specifiers the name not only becomes more recognizable, it also develops its own meaning. The ultimate constituency that fosters an iconic meaning for any brand is consumers who assign daily-life significance to it. At that point - when a labeled component of an end product like a computer or a fashionable garment becomes a familiar name that influences consumers' choices - an ingredient brand is born.
Strong brands often hesitate to publicly identify an ingredient brand because of concern about compromising their own strong host brand's perceptions. History has shown however that a powerful ingredient brand, whose provider is committed to maintaining its perceptual equity long term, continue to be enhanced by identifying their investment in publicly recognized quality components. The smart branders take full advantage of the popularity of a famous ingredient brand, further enhancing the equity of their original brand.
The 10 Challenges of Managing an Ingredient Brand
Many ingredient brands have successfully passed the value-adding test of time including Intel®; Kevlar®; Micro-Ban® and Stainmaster®. The key to achieving this marketplace status is managing the brand well beyond its functional value. Accomplishing this is much more complex than managing a consumer brand. Ingredient branders have challenges which must be met in order to fully capitalize on ingredient brand potential for value. They must:
1. Develop organizational understanding of the difference between the product and the brand to multiple constituencies, each with their own mind-set and calculation of interest.
2. Effectively communicate the brand downstream from the direct customer without creating unmanageable friction with that customer, who may perceive the ingredient brand building effort as inevitably reducing their profit margins.
3. Educate their own leadership to the value of creating and maintaining brand equity and the need to market the brand benefits that exist beyond its functional contribution to product features.
4. Educate the main brand's leadership on value of brand equity and the need to market the brand on benefits beyond the product features.
5. Articulate an integrated marketing strategy with a balanced emphasis beyond product performance value to include benefits and emotional brand image that drive differentiation and preference. And implement it consistently over time.
6. Coordinate all management functions to contribute to consistent brand message - to "walk the brand talk" in all decisions.
7. Assure that the internal organization, channel organizations, and customers always use the brand icon and extensions correctly. They must police misuse of the brand by others or risk commoditizing the brand and diminishing its financial value to that of a generic.
8. Capture and retain price premium, avoiding the temptation to trade off long-term premium for short term share.
9. Gain and maintain organizational commitment to improving product performance that is consistent with what the brand means to members of its value chain and end-users.
10. Brands have life cycles that operate somewhat differently than product life cycles. Both product and brand lives have youth, maturity, and "old age." Unlike humans, both can be rejuvenated and returned to their youth - usually by renewed relevance accomplished by capitalizing on new end-user trends. The classic example is Maytag whose "dependability" positioning in the 1930's reassured homemakers that the new-fangled electric motor eliminating women's hours at a washboard was going to last. By the 1970's this was irrelevant; Maytag lost consumer attention.
The arrival of the "lonely repairman" renewed the relevance of Maytag's dependability to homemakers who now worked at jobs out of their homes full time and whose faulty washer might cost them a day of work. Maytag shows the opportunity careful management of a branded product's life cycle offers.