Ingredient branding refers to the concept where a product has a distinct brand name (host brand) associated with the product as a whole but where one or more of its constituent attributes is associated with different brand names (ingredient brands). Some well-known examples include Dell computers with Intel processors (where Dell is the host brand with Intel as an ingredient brand), cookware brands with Teflon coating, and Diet Coke with NutraSweet.
From the perspective of the host brand, the primary motivation of ingredient branding is to leverage the value of the branded ingredient to position the product as superior from among competing product offerings. It is well known that trusted ingredients can greatly simplify consumers’ decision making, especially for new to the market products that have not been experienced before. For example, April 2012 marked the first trans-Atlantic commercial flight by Japan Airlines in the new Boeing 787 Dreamliner jet. The well-known design features and in-cabin innovations of this Boeing provides commercial airlines (the host brand) with a variety of competitive advantages, including the ability to charge higher prices and reduction in promotion costs.
From the perspective of the ingredient brand owners, who are generally (but not always) suppliers to the business markets, strong brand equity for ingredients would mean better profit margins, stability of demand and long term relationship with product manufacturers. Manufacturers who traditionally pursue lowest cost for fixed quality specifications when it comes to supplier selection can no longer pursue that approach as the suppliers’ brands directly influence their customers’ choices. Apart from benefiting ingredient suppliers and new product marketers, ingredient branding can benefit other downstream marketing channel members like wholesalers and retailers. Provision of shelf access and promotional resources is a non-trivial exercise for retailers and new product marketers can use their association with well-known ingredient brands as signals of success.
While ingredient branding has promise for competitive advantage, whether to pursue the strategydependson the nature of the product or ingredient being marketed and the potential pitfalls of such a multi-brand association. If you are a supplier of the ingredient it is imperative to ascertain whether the promotional cost for brand building is viable given the nature of your business market. Many successful examples of high value ingredient brands are based market leaders with enviable discretionary budget for promotion. Second, it is important to analyse the growth potential of the product categories where the ingredient is likely to be used. There is reason why high technology firms spend heavily on ingredient brand; they serve a wide variety of business markets that are on the verge of a growth phase. Third, success of direct-to-consumer promotion of an ingredient brand might put immediate pressure on order pipelines. It is important to plan for demand spike and increase in production capacity. Finally, as consumers have the last say in the success of a brand, it is wise to employ market research to identify the key determinants of choice when it comes to purchase of products that employ your ingredient. For example, sugar content in food, processors in computers and operating system in smartphonesare key attributes for consumer choice and are natural candidates for ingredient branding.
Recent research has investigated the benefits of ingredient branding in different types of product portfolio expansions. The general consensus is that ingredient brands benefit host brands for new products that incorporate an entirely new feature as opposed to changing the level of an already well known attribute. For example, a detergent host brand with a new scent ingredient brand may not benefit as much as a chocolate host brand with a diet food based ingredient brand because scent is not as radically new to the detergent category as diet food is to the chocolate category. In such cases, an ingredient brand that is completely owned by the host brand might cut the risks of failure.
More research into market place instances of ingredient branding practice is essential to identify key determinants of success. Marketers meanwhile need to precede an ingredient branding arrangement with a thorough cost-benefit analysis based on their role in the marketing channel, nature of the ingredient, type and life-cycle phase of the host brand’s product and legal safeguards in the branding arrangement.
Lonnie L Ostrom Chair in Business & Professor of Marketing,
Arizona State University, W P Carey School of Business