Teflon, NutraSlim, Dolby Digital, Gore-tex, Lycra, Shimano, Woolmark and Intel… What do they have in common? Yep. They are all ingredient brands that made millions of dollars!
Previously, we studied the brand hierarchy of Mervin Manufacturing and stated that their MTX and BTX tehcnologies are actually ingredient brands. Today, we will look at the secrets of creating a successful ingredient brand.
Ingredient brands are significantly useful when there is little to no “perceived” differentiation among brands (the word “perceived” is key here.) Think about a banana. Unless you are an expert, you cannot tell if the fruit is tasty by simply looking at the rind of the fruit. That’s when the Dole or Chiquita seal of approval becomes handy!
The same logic applies to computers. Design-wise, Dell, IBM, and HP laptops might look different. That said, when it comes to performance, most of us don’t know how to rate them. That’s why the Intel Inside marketing program has been such a success.
Likewise, consider you will buy a glove for snowboarding. You might like a certain brand or a design. Yet, to have a peace of mind regarding the performance, you would seek the “Gore-tex” seal of approval.
There you have it, an ingredient brand gives you (1) peace of mind when you are buying (2) a product that has little-perceived differentiation!
So, should you go ahead and create an ingredient brand? Not necessarily. Ingredient brands are particularly useful if your brand is weak, undifferentiated or average quality in a reasonably commoditized category. If your brand does not fall under this category, then be very careful, because ingredient brands are a double-edge sword!
By default, an ingredient brand needs a “partner.” Ideally, that should be a partnership of equals, where both the ingredient and the host get enough equity. However, a powerful ingredient brand could act like cancer for the host brand: they could suck most of the equity (think the Spiderman and the alien Symbiote.)
Let’s take Teflon, for instance. One day you wake up and realize you need a non-stick pan. You do your online research and pinpoint two models. One of them does not have Teflon, while the other one has it. Which product would you buy? Among the partner and the host brands, which one owns more equity? Where does the loyalty lie? Who makes more money?
A better way of looking at ingredient branding is considering it as “outsourcing.” Business strategists recommend, “core competencies should not be outsourced.” By the same logic, you should not accept any ingredient brands that would eat away your core competency.
If you are in bicycle business and put Shimano gears on your products, then how are you going to differentiate your bicycles? Gear is the bedrock of “performance” of the bike. If all of your competitors use Shimano gears, then in the mind of customers, do you honestly think your brand can stand out?
Instead, you can try to find an ingredient brand that “compliments” your brand. Service? Connectivity? Guarantee maybe?
Today’s actionable tip: When considering an ingredient brand “offering added value outside of your core competency” should be your mantra.
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