The Inside on Ingredient Branding - Waldemar Pfoertsch

<strong>The</strong> <strong>Inside</strong> on
Ingredient Branding
Waldemar Pfoertsch
2006

Agenda
• Defining Ingredient Branding
• Understanding Ingredient Branding
• Implementing and Managing
• New Application and Future Research
• Brand Management at CEIBS

<strong>The</strong> most famous example
of the “Brand in the Brand”
Using the concept of
Ingredient Branding
Jackson, Tim (1997)
or short: “InBranding”

Other Ingredient Branding Examples
• Microban
• Makrolon
• GoreTex
• Dolby Stereo
• Nirosta
Pfoertsch/Mueller (2005)

Brand Extension Examples of
Ingredient Branding
• Beechnut baby foods with
Chiquita banana
• Ben and Jerry's Heath Bar
Crunch ice cream, and Fat Free
Cranberry Newtons with Ocean
Spray cranberries
• Kellogg’s Pop-Tarts with
Smucker’s jam
(Rao, Qu, and Ruekert 1999; Shocker, Srivastava, and Ruekert 1994)

Company Owned Ingredient
Brands
David Aaker, 2003

Basic Motivation for Using
Ingredient Branding
• Enhances the differentiation of the host
brand from competition
• Improves competitiveness
• Enhances equity of host brand and “selfbrand”.
David Aaker, 2003 Desai/Keller (2002) McCarthy/Norris (1999)

Effects of Branded Ingredients
Norris/McCarthy (1999)

Change of Competitiveness
through Branded Ingredients
Norris/McCarthy (1999)

Ingredient Branding Executes a
Multilevel Marketing Policy
Ingredient-
Supplier
Selling
Sourcing
Multi Level Marketing
First Level
Marketing
Original
Equipment Mfg
Selling
sourcing
Baumgarth (2001)
Second
Level Marketing
Third
Level Marketing
Selling
Distribution
Souring
End user

Push und Pull by InBranding
Sales-promoting from the
Ingredient supplier to the
final customer
Pull
Demand pull
Incentives for the
demand creation of a
certain ingredient in
the final product
Kotler/Pfoertsch (2006)
Demand
Demand
Ingredient-
Producer
Final Product
Producer OEM
Final User
Supply
Supply
Sales-promotion to the
B2B Customer
Supply-push
Incentives to
demand creation
at the B2B customer
Push
Supply-push
Incentives for
demand creation
at the final customer

Distinction between InBranding and
CoBranding
Branding
Approach
branded
product
singular
Classic
branded
finished
product
Not
possible
Intel
Microban
Makrolon
self branded
ingredient
cobranded
product
in
cooperation
Tide &
Downy
VISA &
Citibank
Intel & Dell
NutraSweet
& Coca Cola
Makrolon &
Uvex
Lycra
&
Woolmark
cobranded
ingredient
Ingredient
Branding
Baumgarth (2001)
Final
products
Final products
& Ingredients
Ingredients
CoBranding

Implementation Steps for InBranding
1
2
3
4
Steps
Raising of credit,
exploitation of
reputation
Break-through
and market proof
Repayment of
credit, synergy
Fiesco 1 -Effect
Description
Unknown ingredient brand profits on the
back of well-known brands
Unknown ingredient brand becomes known
and famous
Known ingredient brand is helping ist
supporter and other are benefiting from it
Ingredient brand is present anywhere and
could not be used as a differentiator and is
pushing former supporters into price wars
1) Named after „<strong>The</strong> conspiracy of Fiesco “, 1783 written by Friedrich Schiller: „Er
hat seine Schuldigkeit getan, er kann gehen“. „He paid his tribute, now it is time for
him to go". Bugdahl (1996)

1 Raising of credit,
exploitation of reputation
2
2Break through
Start of the "Intel <strong>Inside</strong>"
campaign. <strong>The</strong> unknown
ingredient brand profits on
the back of the PC
manufacturers (OEMs) by
co-operation advertisement
<strong>The</strong> acceptance of Intel rises
one year after start of the
"Intel <strong>Inside</strong>" campaign of
60% to over 80%, it
develops a demand pull (Pull
Through effect)
4
Fiesco-Effect
3
Repayment of
credit
Intel processors are used by
majority of all PC
manufacturers, thus a
differentiation is no longer
possible. While Intel
determines the market prices,
the PC manufacturers must
enter into a price war again.
<strong>The</strong> acceptance of Intel
helps the co-operation
partners (OEMs) win more
customes.
Kleinaltenkamp (2001)

Situation of Component Supplier
for InBranding
Opportunities
Become known by the public
Create chances for competitive
differentiation
Establish entry barrier for
competitors
Increase of customer loyalty and
demand pull
Establish means against
replaceability
Positive image of OEM brands
Price-/Volume premium
Pull-creation
Creation of Brand Equity
Increase of market power versus
OEMs
Risks
Increase of dependency against
quality problems from the OEMs
Higher cost and time
Increase need for quality
assurance
Visible target for competitive
attacks
Negative Image of OEM brands
Resistance of industrial
customers

Risks and Opportunities for
Suppliers and OEM
Supplier
OEM
Opportunities
Increased demand
Better prices
Chances for growth
Lesser risk for substitution
Creation of entry barriers
Positive Image creation
Differentiation
Less marketing cost
Increased product value
Possible
win-win
strategy
.
Risks
Potential conflicts with OEM
Higher financial burden on
enduser communication
Higher risk of image damages
through product failure
Image risks
Weakening of own products
Increase of branding around
or in the core product
Increased
risk and
conflict
potential

Application Conditions of
InBranding
Complexity of components
in relation to final product
High
Example:
Micro processors (Intel)
ABS, ESP (Bosch)
Textile coding (Teflon)
Laminate (GoreTex)
Bicycle gears (Shimano)
Low
Schiesser & Ariel
Deutsche
Bahn AG
&
Citibank
Important for
functionality of final
product
High
Unsuitable for
Ingredient Branding
Low
Suitable for Ingredient Branding
Pfoertsch/Mueller (2005)

More Insids on Conditions of
InBranding
Number of OEMs
High
Example:
Micro processors (Intel)
ABS, ESP (Bosch)
Textile coding (Teflon)
Laminate (GoreTex)
Bicycle gears (Shimano)
Low
Schiesser & Ariel
Deutsche
Bahn AG
&
Citibank
High
Low
Number of supplier
Unsuitable for
Ingredient Branding
Suitable for Ingredient Branding
Pfoertsch/Mueller (2005)

Success Stories of InBrands
Intel <strong>Inside</strong>
Firma: Intel Corporation
Branche: Halbleiterindustrie
Produkte: Mikroprozessoren
Umsatz: 38,82 Mrd. US $(2005)
Gore-Tex
Firma: W.L. Gore & Associates
Branche: Bekleidungsindustrie
Produkte: Textillaminate
Umsatz: 1,35 Mrd. US $ (2003)
Lycra
Firma: INVISTA
Branche: Textilindustrie
Produkte: Elastikfasern
Umsatz: 6,9 Mrd. US $ (2003)
Makrolon
Firma: Bayer MaterialScience
Branche: chemische Industrie
Produkte: Kunststoffe
Umsatz: 10,7 Mrd. € (2005)
NutraSweet
Firma: NutraSweet Company
Branche: Lebensmittelindustrie
Produkte: Süßstoffe
Umsatz: 0,25 Mrd. US $ (2002)
Teflon
Firma: DuPont
Branche: Chemieindustrie
Produkte: Antihaftbeschichtung
Umsatz: 26,99 Mrd. US $ (2003)
Shimano
Firma: Shimano
Branche: Sportartikelindustrie
Produkte: Fahrradkomponenten
Umsatz: 1,6 Mrd. US $ (2004)
Tetra Pak
Firma: Tetra Pak
Branche: Verpackungsindustrie
Produkte: Verpackungssysteme
Umsatz: 7,3 Mrd. US $ (2003)

New Applications are on the Horizon
soy protein
Z-Trim all-natural fat replacement products

Open Research Questions
• Better understand how competitive
advantage can be achieved through the
use of ingredient branding .
• Establish brand metrics for multi-level
branding.
• Track and predict ingredient branding
success.

Future of Ingredient Branding
Importance
of
branding
Relative decrease in importance of
consumer brands
Industrial
Revolution
Increase of importance
of new branding
concepts
1300 1850 1900 1950 1970 1990 2000 2050
time
= Guild brands
= Service brands = OEM brands (industrial)
= OEM brands (consumer) = Retail brands (consumer) = Ingredient brands
Havenstein (2004):

<strong>The</strong> Future of Brand Management
at CEIBS
• Offer a series of dedicated Brand
Management Courses and Seminar
• Initiate and Supervise Research Work
• Establish a Center for Business Brand
Management (CBBM) at CEIBS and
• Organize the first Business Brand
Management Conference in 2008

Literature
• David Aaker, <strong>The</strong> Power of the Branded Differentiator, MIT Sloan Management Review
45 no1 83-7 Fall 2003
• Baumgarth, C Freter, H.;. (2001): Ingredient Branding . Begriff und theoretische
Begründung, in Esch, F.-R. (Hrsg.): Moderne Markenführung, 3. Auflage, Wiesbaden
2001, S. 317 - 343.
• Bugdahl, Volker (1996): Ingredient Branding – eine Markenstrategie für mehrere
Nutznießer, in: Markenartikel, Nr. 3/1996, S. 110-113
• Havenstein, Moritz (2004): Ingredient Branding. Die Wirkung der Markierung von
Produktbestandteilen bei konsumtiven Gebrauchsgütern. Gabler Edition Wissenschaft,
Wiesbaden
• Kalpesh Kaushik Desai & Kevin Lane Keller (2002), <strong>The</strong> Effects of Ingredient Branding
Strategies on Host Brand Extendibility, Journal of Marketing Vol. 66 (January 2002), 73-
93
• Kleinaltenkamp, Michael (2001): Ingredient Branding: Markenpolitik im Business-to-
Business-Geschäft, in: Köhler, R./Majer, W./Wiezorek, H. (Hrsg.): Erfolgsfaktor Marke,
München 2001, S. 261 . 270.
• Kotler, Philip and Pfoertsch, Waldemar (2006) B2B Brand Management Springer 2006
• Levin, A.J., Davis, C. and Levin, I. (1996), ``<strong>The</strong>oretical and empirical linkages between
consumers' responses to different branding strategies'', Advances in Consumer
Research, Vol. 23, pp. 296-300.
• McCarthy Michael S., Norris Donald G. (1999) Improving competitive position using
branded ingredients, JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 8 NO.
4 1999, pp. 267-285
• Narasimhan, C. (1999), ``<strong>The</strong> new appeal of private brands'', Harvard Business Review,
May/June, p. 41.
• Norris, Donald G. (1992), "Ingredient Branding: A Strategy Option with Multiple
Beneficiaries," Journal of Consumer Marketing, 9(3), 19-31.

Literature
• Osselaer van, Stijn M.J. (2004) Of Rats and Brands: A Learning-and-Memory
Perspective on Consumer Decisions, Journal of Economic M:Business Administration and
Business Economics, Oct 2004
• Jackson, Tim (1997): <strong>Inside</strong> Intel: Andy Grove and the Rise of the World's Most Powerful
Chip Company. New York: Dutton (Penguin Books), 1997
• JANISZEWSKI, CHRIS and OSSELAER VAN Stiin M.J. ' (2000), A Connectionist Model
of Brand-Quality Associations, Vol. XXXVll (August 2000). JOURNAL OF MARKETING
RESEARCH. AUGUST 2000
• Pfoertsch, Waldemar and Mueller Intrajanto (2005) Marke in der Marke Ingredient
branding, Springer 2005
• Rao, Akshay R., Lu Ciu, and Robert W. Ruekert (1999), "Signalling Unobservable Product
Quality through a Brand Ally," Journal of Marketing Research, 37 (May), 258-68.
• Shocker, Allan D., Rajendra K. Srivastava, and Robert W. Ruekert (1994), "Challenges
and Opportunities Facing Brand Management: An Introduction to the Special Issue."
Journal of Marketing Research, 31 (May), 149-58.
• Simonin, B.L. and Ruth, J.A. (1998), ``Is a company known by the company it keeps
Assessing the spill-over effects of brand alliances on consumer brand attitudes'', Journal
of Marketing Research, Vol. 35, February, pp. 30-42.
• Spethmann, B. and Benezra, K. (1994), ``Co-brand or be damned'', Brandweek, Vol. 35,
No. 45, pp. 20-5.
• Vaidyanathan, R., Aggarwal, R. and Brown, M.G. (1999), ``Intel inside, generic outside:
implications of ingredient branding for national and private label brands'', working paper,
University of Minnesota-Duluth.
• Vaidyanathan, Rajiv Aggarwal, Praveen (2000) Strategic brand alliances: implications of
ingredient branding for national and private label brands, JOURNAL OF PRODUCT &
BRAND MANAGEMENT, VOL. 9 NO. 4 2000, pp. 214-228

谢 谢 !
Prof. Dr.
Waldemar A. Pfoertsch
International Business
Pforzheim University
+49-171-536 8998
+1-224-388 2702
waldemar@pfoertsch.com
www.pfoertsch.com