Ingredient Branding

The fact that consumers are willing to pay more for a branded product is a well-accepted phenomenon in the business to consumer (B2C) industry. Whether it is for long-lasting quality, superior workmanship, or merely as a status symbol, brands like Mercedes-Benz, Chanel, and Sony command premium prices and exclusive reputation for their products.

Ingredient Branding has only started to thrive1 since the late 1980s as an accepted marketing concept.² In the global economy, companies need to not only establish, but also maintain, their competitive advantage, as well as create commercial success in their market and provide criteria for their customers to differentiate them from their competition.3 Until the early 80s, most companies were focused on tangible resources due to material or production technology restraints. Now, however, we see a considerable shift towards a focus on intangible resources such as brand management4 and customer loyalty. Many current publications consider one of the most valuable assets for any firm as the intangible asset represented by its brands.

In 2008, more than sixty years after the invention of transistors, the fundamental component used to build computer chips, Intel is the leading provider of the ‘brains’ for the personal computers (PC). Intel, the B2B component provider, revolutionized the electronic industry and the marketing concepts of components. In January 2006, thirty-seven years after the introduction of the Intel Inside logo, Intel changed its approach again–Intel wanted to become a final product company and aimed to reach 100 billion USD in 2020 (with 40 billion USD revenues in 2007).

Building a distinctive product offering can be challenging in many industries. Proliferation, commoditization and other factors contribute to diminishing margins, and other threats exist to the development of a lasting and valuable brand. One opportunity to counter this is through Ingredient Branding, the emphasis of a recognizable ingredient in your products or services, or the promotion of your products or services as a component in a third party’s products or services.

After the Intel Corporation applied the Ingredient Branding concept and launched such a success, many other component manufacturers in the computer industry jumped on the bandwagon. They started to revise their strategy and initiated to communicate their product offerings and performance differences to end consumers. These included brands like AMD, MSI, ATI and nVidia (CPU, main board and graphic cards manufacturers). These companies have succeeded in securing partnership agreements with PC manufacturers to have their logos shown on the computers. They also convinced the retailers and final users that their component is superior and makes a difference for them. It should be pointed out, though, that there are limits to the number of brand labels that can be featured on a computer. Currently, the main logos that appear on the PC are the processor, graphic card and operating system software since these are perceived as having the greatest impact on either the computer’s performance (processor, graphic card) or its quality in terms of user friendliness or security (operating system software).

In this chapter, we would like to present in detail several examples of successful brands of industrial companies that illustrate best practices.

In today’s fast-changing markets, Ingredient Branding had become a major marketing strategy as demonstrated by the increasing number of products sold with embedded branded components. Despite its success in generating positive effects on participants in the value chain, the effect of Ingredient Branding in business markets has not been evaluated in relation to brand equity¹. Various academic and consulting organizations are offering different measurement approaches and apply them also to InBrands. Some companies such as Intel and Dolby have developed their own measurement systems and use them as an integral part of their brand management system as highlighted in the case studies. Now, we would like to shed some light on managing and understanding brand evaluation methods, and suggest valuation tools for assessing brand equity from the component supplier’s perspective for InBrands.

With the introduction of a new brand strategy, companies face both risks and opportunities. Establishing a brand with an Ingredient Branding strategy can enhance the brand awareness and the image of the product, but it comes with a considerable investment if companies want to have a recognizable reputation and an individual brand personality. Any company considering such an approach has to be aware of the financial investment and management resources they must put in, in order to have a successful result. Yet even despite these financial requirements, a large number of companies have opted for Ingredient Branding concepts in the last twenty years. Since the importance of branding in general as well as customer sophistication in specific increased,¹ the decline of relative importance of consumer brands has created a great opportunity for InBrands.