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Fueling Growth Through Ingredient Branding

By Ray George

Which item would you opt for on a dinner menu?

Chicken cordon bleu featuring Boarshead Ham or the same entrée made with spam?

Pictured: a ball of dough and several different ingredients, including tomatoes and orange, green, and yellow peppers. Because it features choice ingredients to be added to a certain reciple, the image symbolizes ingredient branding - companies should try to make their brand be one of the key ingredients in a product or experience.

Of course, the chef cares about the combination of ingredients that appeals to the patron’s palate. That balances quality and cost. That creates a special flair, perhaps allowing the restaurant to charge a premium price for the dish.

But customers, voting with their wallets, can have a powerful sway in the ingredient choices organizations make, whether in chicken cordon bleu, soft drinks or computers. It is the desire to capture share of wallet as well as share of mind that drives ingredient-branding decisions.

Ingredient branding, as the name suggests, is the strategy of both borrowing from and lending to the cachet of an end product by positioning your brand as one of the essential components that makes it worth purchasing.

It can protect or grow market share, particularly during tough economic times, by developing an emotional bond between the brand and formerly unaware end-product consumers, opening up growth opportunities in new products, channels, and markets. 

It can also create a win/win situation with end-product manufacturers. In the near-term, communicating the unique benefits the ingredient offers will differentiate the end product and help both businesses grab market share. And long-term, creating consumer understanding of the value the ingredient creates can allow the manufacturer to command a premium price for the end product. For example, 66% of company executives will not buy a computer without Intel inside. Those who will accept computers containing processors manufactured by AMD – Intel’s primary competitor – will demand a discount of several hundred dollars.

Ingredient branding is as effective in the business-to-business realm as in the retail customer space. Corporate purchasers apply the same filters of price and quality, particularly during difficult times. The right ingredient allows them to make worry-free decisions and focus on successfully growing their own businesses.

One of the best-known examples of ingredient branding is the “Intel Inside” campaign, launched in 1991. It has helped fuel almost a 12-fold increase in net income, making the microprocessor a key decision-driver in the PC purchase process. The campaign involved an $800 million in investment in 1999 alone. But the strategy goes beyond just spending marketing dollars to drive awareness.

Three key principals guide the implementation of successful ingredient branding programs. Education and awareness are just a portion of the considerations behind them. 

Principal #1: It’s a Lot Like Building a Brand from Scratch

The same basic practices utilized to build a brand from scratch are applicable to building an ingredient brand. This is particularly true when the ingredient brand is attempting to reach an entirely new audience, whether comprised of consumers or businesses, and when the ingredient is not currently part of the customer purchase decision. Companies interested in ingredient branding must consider the following:

1) The ingredient brand must reflect a compelling and profitable business strategy that leverages the strengths of the organization. Software maker Inktomi, for example, has grown on the strength of its network infrastructure applications that enable end users to easily publish, retrieve, manage and distribute information cost effectively and efficiently. That strength is leveraged as its applications are marketed as ingredients enhancing the functionality of offerings by such brands as RealNetworks and Microsoft.

2) The end-customer must understand the functional benefits of the brand before deeper, more emotional associations are created. The functional benefit should be clear, credible and easily identifiable, leveraging the ingredient to simplify a complex purchase process. Dolby technology has a functional benefit – it reduces background noises that interfere with the quality of recorded sound. That benefit was the basis of its “ingredient” launch in the consumer market through high-end consumer audio equipment. Over time, the functional benefit has taken on a higher-order quality. Simply put, Dolby equals “good sound.” 

3) All potential customer touch points for the brand must be anticipated; the brand must be represented consistently and compellingly at all of them. This can be difficult for an ingredient brand, as the number of touch points it controls is limited due to its very role. The best solution may be to ensure a good working relationship with the end-product brand to ensure its touch points reflect, or at the least, do not hurt, the ingredient brand’s equity.

Principal #2: Cultivate the Middleman

The idea behind ingredient branding initiatives is to leverage the equities of the ingredient brand and the finished product manufacturer as well as create new positive associations for the combined entity. Ideally, these initiatives are based on a mutually beneficial relationship, where market share and growth potential stand to be expanded for both brands. Here are two ways to get the most out of such relationships:

1) Provide a monetary incentive for the finished product manufacturer to adopt your logo and/or company name. One incentive is to provide an advertising subsidy based on purchase of your component. Intel, for example, offered a 3% advertising subsidy to PC manufacturers as a percentage of funds spent on Intel processors. Discounts on the ingredient product can also be offered to the manufacturer.

2) Find the right partners. The right brand associations can be gained by partnering with the best the category has to offer. Dolby demonstrated the superiority of its product by licensing its B-type technology to such high-end tape recorder manufacturers as Fisher and Harman-Kardon. Partners with market leadership are a sound bet – as Nutrasweet found with Pepsi and Coke. Another approach is to partner with companies that already have a close relationship with the end-customer. Companies as intensely customer-focused as Dell or Charles Schwab can provide a terrific opportunity to reach a captive audience.

Principal #3: Ensure End-Customers Can Interact With and Recognize Your Brand

Interaction, education and recognition help ensure that the end-customer is aware of your ingredient and understands the associated benefits. How can this be achieved when your brand is just a piece of the puzzle? Some creative companies have experienced success with the following techniques:

1) Allow the end-customer to experience the brand visually. Most successful Ingredient brands have used a symbol – such as the Nutrasweet swirl and the Dolby double-D. 

2) Encourage or underscore interaction with the brand. For example, Dolby noise reduction technology has to be actively turned on and off on a cassette player. Therefore, customers have for years actively engaged the Dolby brand and have tangible proof of its benefits.

3) Develop the brand as an implicit seal of approval. This can be done visually. The Intel symbol looks like a check mark in circles, as though to emphasize that a necessary component in the PC has been verified. It can also be done through associations of reassurance and comfort. The Good Housekeeping Seal of Approval has long been represented as brand standing for quality, for example.

Smart businesses understand the value their brand represents to the organization as a crucial asset – despite its intangibility vis-à-vis such other assets as equipment and employees. In that vein, they will seriously evaluate ingredient branding as an effective means of leveraging and extending their brand’s equity and enhancing its value over the long run.

Originally published in Sales, Advertising & Marketing magazine