Ingredient Branding

Ingredient Branding is an accepted marketing concept (Norris, 1992; Dover, 1997) that has only recently started to thrive (Kotler and Keller, 2006; Kotler and Pfoertsch, 2006). In today’s global economy, companies have to find 

ways and means to establish and to maintain their competitive advantage, and create commercial success in their market and differentiation criteria for their customers (Bartlett, Ghoshal and Birkinshaw, 2004, Trinquecoste, 1999). Until recently the focus was directed to tangible resources, such as products and services, but now we see a considerable shift toward intangible resources, such as brands (Kapferer, 2001) and customer loyalty. Companies and organizations embrace branding efforts, which can create value for both the consumer and the company. With the establishment of brand management they want to attract and keep customers by creating and promoting value, image, lifestyle or other values which are important for the understanding and the use of the product. By including brand identity in the offering companies can differentiate themselves in the continuously over-crowed market. With the entry of new market participants, for example Chinese passenger car manufacturers, the existing manufacturers continually look for new means of exploiting their existing brands, a capital which has to be managed appropriately.

According to recent publications, strategies which are mostly used to leverage the potential of brands are brand extensions and co-branding (Rooney, 1995, Vaidyanathan/Aggarwal. 2000). Without a doubt, brand managers tend to recognize that all branding strategies have their limitations. In the first half of the 20th century, chemical companies started to market well-known dyestuffs and synthetics as brands to buyers of the next stage in the value chain (Kemper, 1997). This encouraged an increasing number of firms to “consider co-branding ventures in preference to single-handedly undertaking risky and expensive brand extension, expansion or diversification plans” (Boad, 1999). Other forms for enlarging the branding effects were endorsed brands or the establishment of various form of brand portfolios (Aaker, 2003).Early research in this area has shown the positive (Norris, 1992) and negative effects (Shocker, 1995) of such a strategy for the brands involved, or its impact on consumer product evaluations (Hillyer and Tikoo, 1995). Newer research has illustrated that one particular form of branding has to offer some unique advantages. Ingredient branding offers a potential for successful brand management and increased profits for companies with product offerings that have features which create a customer value added (Havenstein, 2004, McCarthy?/Norris, 1999). If the customer understands and knows the function, features and benefits of a component (ingredient), he or she will pay more attention to this offering, and if it creates a unique product offering this can lead to a loyal, profitable customer relationship (Desai/Keller,2002). This approach also surpasses the limitations and dangers of a too narrow and single-sided customer-supplier relationship (Kleinaltenkamp, 2001). The traditional Business-to-Business (B2B) brand strategy of all marketing activities is geared only to the next level of the value chain of the OEM (original equipment manufacturer). The ingredient branding approach can overcome this burden. Certain hints we learned from the microprocessor manufacturer Intel corporation in the beginning of the 1990s (Jackson, 1997). They revealed the marketing possibilities that ingredient branding could provide to both component manufacturers as well as to the manufacturers of finished goods, (Dover, 1997; Baumgarth, 2001). Since then, numerous suppliers have tried to implement their own marketing concepts modeled on the Intel case in order to escape the anonymity and exchangeability of a supplying part or component.