Ingredient Brands- From Differentiation towards Parity

Submitted by:-

Kushal Tiwari

Roll Number 155

PGDM Marketing

Guided by:-

Prof Isaac Jacob

Faculty

SIMSR, Mumbai

Contents Abstract ...................................................................................................................................... 3

Introduction ................................................................................................................................ 4

Need for the Study ..................................................................................................................... 5

Literature Review....................................................................................................................... 6

Research ..................................................................................................................................... 7

Conclusion ............................................................................................................................... 13

References ................................................................................................................................ 14

Abstract

Popular brands that are well established and widely recognized have found additional

marketing strength and success by hosting and partnering with ingredient brands. DELL

computers have “Intel Inside ®.” North Face jackets are made with Gore-Tex ®. These

examples of ingredient brands complement the power of their host product showing that

brands, like people, may also be favorably judged by the company they keep. Ingredient

branding can deliver powerful results in the market and their influence continues to grow as

more respected brands embrace ingredient brands.

In the ever competitive era of business, companies are leaving no stone unturned in building

successful brands. A brand once established is of great strategic importance and companies

have realized this well on time. Established brand bring monetary benefits to the companies

through price premium, brand extensions, increased sales, better market reputation etc.

Of the many recent branding strategies, Ingredient branding is a marketing strategy that is on

the rise in the marketplace. This strategy, a special brand alliance, is used to help firms gain a

foothold in a new market or strengthen their position in current markets through the

development of ingredient branded offerings (henceforth called IBOs). An IBO involves a

branded ingredient residing within another branded product. However, in spite of the benefits

provided by ingredient branding, there are many unanswered questions regarding the use of

this strategy.

The paper looks into how the brand equity is increased through ingredient branding by

combining the transfer effect model and push/pull effect model for ingredient branding in

three specific cases that are

The host brand is much more popular than ingredient brand

The ingredient brand is much more popular than the host brand

Both the brands have popularity in the market

It is concluded that ingredient branding adds equity to the participating brands but some very

popular ingredient brands (also referred as inbrands) have become a point of parity for the

host product category. For example Gorilla glass is the part of almost all the popular

smartphones and tablets and is no more a point of differentiation in the category.

Hence these popular brands need to find newer category of products where their product is

relevant as an ingredient. This is what Teflon has done by entering into the category of

decorative paints.

Introduction

Ingredient Branding is the modern marketing concept of branding the ingredients of a product

or using branded ingredient for the product which adds to the credibility of the main product

and hence its brand equity. Ingredient branding is one of the most important ways of co-

branding. According to Marie-Helene Abbo (2005), Co-Branding consists of marketing a

product representing two brands so as to capitalize on the brand equity of both the brands.

This has been seen as a very important branding tool for both established as well as non

established brands. There are two types of co-branding majorly – Symbolic Co-Branding and

Ingredient Branding.

This research paper will focus majorly on the Ingredient Branding technique. The value of

branding has been understood by the ingredient makers who produce high quality ingredients

for final products (Norris 1992). Ingredient branding help the host brand to derive equity not

just by the product as a whole but also by the respective ingredients. Several industries like

automobile, food, electronics etc are using aggressive ingredient branding techniques.

Ingredient brands sometime have very strong brand associations in the minds of customers

like Teflon with scratch resistance, gorilla glass again for robustness and scratch resistance.

Ingredient branding has been the new talk of the town and brands have rightly found out the

potential that lies with ingredient branding. But ingredient branding has been beneficial not

just for the host brands but for ingredient brands too. Intel (Donald Norris 1993) is one of the

biggest ingredient brands of recent times. Intel has been able to literally monopolise the

microprocessor market and has become indispensable part of computers. Brands like

Nutrasweet, Dupont, Oreo, Teflon etc are some of the major ingredient brands.

The most important advantage of ingredient brands lies in the brand associations they bring

along (Lance Kohli Suri, 2002). These associations help the host brand to create or reinforce

its brand associations. For example, if Dell stands for High Performance PCs, Intel helps its

customers to make this association even stronger in the minds of customer. This synergy of

brand associations adds to the brand equity of the host brands. Intel also gets benefitted from

the association because customers get high performance- Intel relationship reinforced in their

minds.

Need for the Study

As the benefits of the ingredient branding have already been discussed in the previous

section, there has been a lot of research done in this area. Most of them deal with the two

issues(Lance Kohli Suri, 2002) : First , How the perceptions of parent brands influence the

perception of the co-branded product and vice versa. Second, how co-branding fairs when

compared with other latest branding techniques like product placement, line extension and

brand extension etc.

As more and more research has been done in the area of brand equities of host and ingredient

brands, most of the research papers see ingredient branding in a very positive light. But as

businesses are growing across boundaries and have realized the benefits of ingredient

branding , it is being practiced by the almost all the competing brands in any particular space

in the market. For example, Gorilla glass from Corning is a very well established brand in the

display protection space. The material has direct associations with robustness, strength and

clarity. The benefits of this ingredient brand have been realized by almost all the smartphone

and tab manufacturers like Samsung, Apple, Micromax, HTC etc. Now all these companies

feature Gorilla Glass in their product.

When all the brands have this ingredient, it is no more a distinctive feature for any of the

brands. Continuing with the Gorilla Glass example, we see that the customers still associate

all the positive features like strength, robustness etc with Gorilla Glass but the product when

added as an ingredient to the final product, does not add to its brand equity in a distinctive

way.

We can see that the ingredient brands like Intel, Oreo, Gorilla, Teflon have high brand equity

as individual brands, they do not add much to the equity of the products they are added to.

The ingredient brands are becoming the Hygiene factor rather than motivating factor in the

buying decisions of the final product.

HP, Dell, Acer, HCL etc all have intel chips inside them, so having an intel chip is not a

distinctive feature for their products and hence do not add to the product choice motivators.

This paper aims to analyze the contribution of Ingredient Branding to brand equity of

host products and gradual commoditization of the ingredient brands.

Literature Review

Until recently the focus was directed toward tangible resources, but now we see a

consideration shift toward intangible resources, such as brands and customer loyalty.

Companies and organizations embrace branding efforts, which can create value for both the

consumer and the company. With several new strategies at their disposal, There has been an

increasing number of firms which have "considered co-branding ventures in preference to

single-handedly undertaking risky and expensive brand extension, expansion or

diversification plans" (Boad, 1999).

Ingredient branding is a specialized way of co-branding where one brand goes as an

ingredient in the other brand. There are several research papers present on the topic which

carefully examine the contribution of Ingredient branded offerings on the participating

brands. An IBO involves a branded ingredient within/of another branded product (e.g. Betty

Crocker cake mix with Hershey’s chocolate). Through the use of a brand partner, brands are

able to increase their visibility and credibility in markets.

There are also papers available on cases of specific brands like Hershey’s Syrup, intel

microprocessors etc. These brands have developed a big name for themselves as ingredients

to some the most high quality products. Intel invested a lot of money into marketing to

educate the customer that a microprocessor is the most important part of any computer and

how intel makes the performance of any computer above par. In the paper when Hershey met

Betty, it has been explained how the unison of Hershey with Betty brownie mix was

beneficial for the host brand.

There have been an extensive theoretical research in this area and several models and

frameworks have been developed to examine how ingredient branding helps the participating

brands and how customers’ buying behaviours are influenced through efficient ingredient

branding.

The push pull model and the feedback effect model are the two most important frameworks

to understand these effects. The research involves analysis of a few cases of ingredient

branding keeping these two frameworks in mind and finding the brand equity contributions of

inbranding.

The research done on the topic also explains how the IBO initiator decides which ingredients

could be branded so as to derive more positive effects from the alliance. The accessibility-

diagnosticity model along with the feedback effects model explain how the initiator could

impact inbranding feedback effects. The accessibility-diagnosticity model examines the

influence of information cues on evaluations and highlights the process that consumers

undergo when attempting to sort through competing cues (Feldman and Lynch 1988). In

other words, when exposed to multiple cues, the model explains which cues are used to make

an evaluation. For instance, when evaluating a product (e.g. sneakers), the accessibility-

diagnosticity model explains which cues (e.g. price, color, cushioning) are influential in

making the evaluation.

Research

Apart from some detailed theoretical study in the area, two very comprehensive models have

been presented in papers from (Luczak, Cheryl A; Pfoertsch, Waldemar; Beuk, Frederick;

Chandler, Jennifer D, 2011) and Jeffrey P. Radighieri‘s feedback effect model of ingredient

branding. These two models have been a great supplement in understanding the brand equity

dynamics of ingredient branding. For the presented research it is very important to undsertand

the models in detail.

The PUSH PULL model

The push and pull concept is crucial to understanding InBranding and the motivations behind

it. The push strategy involves directing the marketing strategy toward the original equipment

manufacturers. A pull strategy involves appealing directly to the consumer. One implication

of this view is that the marketing mixes for an InBranding strategy involve both push and pull

effects. It is the distinction between consumer and manufacturer behavior that separates them.

Consumer behavior creates pull and manufacturer behavior creates push.

Consider push and pull effects as effects of marketing mix decisions. Supporting pull with

push increases the probability of coordination. So it is very important for ibrands to

strengthen both their B2B and B2C models. The supplier offers a component or service to his

customer, the OEM. Thus, the supplier has a B2B relationship with the producers of such

products as automobiles and electronic products. The OEM produces a product that is to be

used by their customer, the final user. The final user buys the product or service in a pure

B2C relationship with the OEM. According to this principle, there are two separate stages of

customer relationship: supplier with OEM, OEM with final user. In InBranding, the two

stages are interconnected: Step (2) follows step (1), and step (3) occurs, where the supplier

tells the final user that a particular ingredient is part of the final product offering, which

makes the final user choose this product over competitive offerings. In this step (4), the final

customer "pulls" the product because the particular ingredient component is desired. This is a

continuous process of push and pull, with a high success rate if done appropriately.

The above model clearly explains how InBranding adds equity to the host brand and also

build its own brand equity at different level of the value chains.

The Feedback Effects Model

Linkages between the two high equity brands have a significant impact, as it creates transfer

effects between the involved brands. The transfer effect theory in ingredient branding has

been applied taking analogies from brand extension transfer effect theory.

Forward transfer. Forward transfer effects are directionally specific and move from the

parent brand to the brand extension. For instance, quality perceptions of the Polo brand

generated by its reputation create a forward transfer effect to their line of home furnishings,

which utilize the same brand name. This allows Polo to extend into a new category and

increase revenues. If Polo attempted to enter this category with a new brand name, they

would not be afforded the advantages of leveraging their brand name, and thus revenues and

sales growth would likely be much lower. Prior research has shown that a parent brand name

impacts evaluations of brand extensions via forward transfer effects (Aaker 1996; Aaker and

Keller 1990; Park, Milberg, and Lawson 1991). This link between the parent brand and

extension occurs through forward transfer. This dynamic also exists for IBOs (see Figure

1.3). Specifically, the addition of a branded component enhances evaluations of the new

product (e.g. McCarthy and Norris 1999; Park, Jun, and Shocker 1996; Rodrigue and Biswas

2004; Simonin and Ruth 1998; Vaidyanathan and Aggarwal 2000; Washburn, Till, and

Priluck 2000). This implies that associations of the ingredient transfer to the new product,

resulting in increased evaluations and ultimately brand equity.

Feedback effects. The second type of transfer, the feedback effect, is also direction specific

but moves in the opposite path: from the extension to the parent. As per previous example,

The quality of Polo’s home furnishings can create a feedback effect back to Polo, thus

strengthening the core brand. Research indicates that evaluations of a brand extension can

impact evaluations of the parent brand via feedback effects in both a positive (e.g.

Balachander and Ghose 2003; Swaminathan, Fox, and Reddy 2001) and negative (e.g. Lane

and Jacobson 1997; Loken and John 1993; Park, Milberg, and Lawson 1991) manner under

certain conditions. This relationship between parent brands and brand extensions serves as a

foundation for research on feedback effects in IBOs. As with forward transfer, feedback also

exists with IBOs .The literature on feedback in IBOs indicates that attitudes toward the IBO

impact attitudes toward the parent brands (Simonin and Ruth 1998). More favorable attitudes

toward the IBO lead to more favorable attitudes toward the involved parent brands. This is

consistent with the notion that the IBO is an effective brand building strategy. Additional

research finds that brand order matters, such that feedback effects are different based on

which brand name is listed first in an IBO (Park, Jun, and Shocker 1996). Other work finds

that an ingredient brand is enhanced when involved in an IBO (Van Osselaer et al. 2001), and

an IBO provides parent brands protection from dilution under certain conditions (Janiszewski

and Van Osselaer 2000).

Lateral transfer. Despite the parallels between IBOs and brand extensions in forward

transfer and feedback effects, IBOs are more complicated than extensions because they

involve a second parent brand. The presence of multiple parents creates a third type of

transfer: lateral transfer effects. Shown in Figure above, this final type of transfer effect

moves between the parent brands. This type is not directionally specific: they move in both

directions: from the host parent brand to the ingredient parent brand, and from the ingredient

parent brand to the host parent brand. Since parent brands are linked due to their presence in

an IBO, they become associated with one another through these lateral transfer effects. For

instance, Dell and Intel have become connected due to lateral transfer effects between the two

brands. Attributes of Dell are transferred to Intel, thus conceptually linking them. Attributes

of Intel are also transferred to Dell, further strengthening the linkage.

Combining the models to understand the push and pull due to feedback effects

When we combine the two models to understand the different cases of ingredient branding

we get to see three cases of brand equity sharing.

The host brand is much more popular than ingredient brand

The ingredient brand is much more popular than the host brand

Both the brands have popularity in the market

Case I The host brand is much more popular than Ingredient brand

When the host brand is very popular and the ingredient brand aims to capitalize on its equity,

the push force of the inbrand should be very high to increase its full force ultimately. For

example , Customers know the automobile brands but usually not the brands of their parts

like spark plugs. So if a spark plug company X wants to establish itself as a popular

ingredient brand, it must push its product and associate it with top auto manufacturers like

Bajaj, Honda etc.

Association with such popular auto brands helps company X to come up as a popular

ingredient brand and customers gradually start associating X with premium quality which

increases its pull in the market. We can see by feedback effect model that the effect from

forward transfer effect is higher in this case.

Case II The ingredient brand is more popular than the host brand

When the ingredient brand is more popular, the pull force of the ingredient brand in the

market motivates the OEM manufacturers or host brands to capitalize on its brand equity.

Thus we can see that a stronger pull force leads to a larger push force in this case as opposed

to case I.

If we take the example of Intel microprocessor we see that it is an ingredient brand with a

very high pull force from the customers. They truly believe that Intel microprocessors

enhance the performance of their computers which makes it almost mandatory for the host

brand of computers to include Intel in the product. The feedback transfer effect from the

ingredient brand to the host brand is higher than the forward transfer effect.

Case III Both ingredient and host brands are almost equally popular

In this case both the brands have sufficient pull in the market and the brands do not increase

the equity of the other drastically. But still the brands participate in inbranding because the

resulting IBO has equity more than each of the participating brand. For example when

McDonald’s comes up with McFlurry Oreo where Oreo is a very popular ingredient brand, it

does not have a drastic effect on McDonald’s equity because it is already a very popular

brand.

Both forward and feedback transfer effect are equally strong in this case as both the

participating brands contribute equally to each other’s equity.

Conclusion

In the above model that combines the transfer effect model and push/pull model, we have

seen how the brand equity is contributed by participating brands in the IBO.

Case I When host brand is more popular Push > Pull Forward transfer effect stronger

Case

II

When ingredient brand is more

popular

Pull > Push Feedback transfer effect is

stronger

Case

III

When both are popular Pull = Push Both transfer effects equal

This means it is proved that an IBO arrangement always adds to the equity of the

participating product thereby increasing the credibility of the IBO. The brands have realized

this positive effect which has increased inbranding tremendously over the years.

But with very popular ingredient brands (i.e. case II) there has been an issue observed during

the course of the study. All the host brands want to associate with such popular ingredient

brand which decreases the differentiation of the host brands on the basis of inbrand.

For example Gorilla glass from Corning glass is a very popular ingredient brand in the

display devices these days like tabs and mobile phones. But looking at the popularity of this

brand, almost all the manufacturers have partnered with Corning to get Gorilla glass in their

products.

Gorilla glass which was initially a point of differentiation (POD) initially has gradually

become a point of parity (POP) in all the smartphones and tabs. Customers find Gorilla glass

to be a must have these days and do not base their positive decision on it but the negative

decision can be very well driven by absence of Gorilla glass. It is therefore justified to say

that very popular ingredient brands ultimately become a POP for the category rather than

being the POD.

Hence these popular brands need to find newer category of products where their product is

relevant as an ingredient. This is what Teflon has done by entering into the category of

decorative paints.

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