Ingredient Branding of Industrial Goods

Ingredient Branding of Industrial Goods: A case study of two distinct different automotive suppliers Waldemar Pfoertsch[1] / Johannes Rid[2] / Christian Linder[3] Abstract This paper concerns ingredient branding; more specifically, ingredient branding for industrial goods. Although research in ingredient branding has been quite intensive in the area of fast moving consumer goods, considerably less research has been carried out for industrial goods. In this paper, the authors provide insight into whether successful ingredient branding can be transferred to industries where it has not been a common phenomenon: automotive suppliers.Two major companies in the automotive industry are analyzed in this paper: Autoliv, a major player in car-safety supplies and equipment like seat belts and airbags, and Bosch, producers of a large variety of car components, like diesel and gasoline injection systems, braking components (e. g. ABS and ESP), and starting motors and alternators. The findings inc lude enormous potential for B2B companies in the field of ingredient branding. Car suppliers, for instance, have rarely used the option of branding their ingredients at the finished product.The authors give a historical perspective, show e. g. that ABS braking system, invented by German supplier Bosch would have been a perfect candidate for branding to the final customer. In the purchasing decision of potential car buyers, the ingredient ABS, provided by a strong ingredient manufacturer (e. g. Bosch) could have led to a preference of buying a specific car, and in the end, added to the supplier’s reputation and revenue. 1. Leveraging the brand We now live in a world where consumers receive thousands of impressions and messages every day.Ever increasing competition makes it more difficult for a message to reach the audience and target group, with the consequence that it becomes harder for a consumer to differentiate between brands. Furthermore, as competitive advantages and inn ovations are copied at a higher speed, products and services become more alike. In this kind of environment, it is important for producers to find a position for their product or service in order to focus and clarify the attributes that make their product unique to the customer.In response to this current business environment, research and best practice show that more and more firms have come to the realization that one of their most valuable assets is the brand name associated with their products or services. (Keller,2003, Pfoertsch/Mueller, 2006). Producers understand that powerful brands are beneficial to the company: â€Å"Brands, therefore, are genuine assets and, like other forms of asset, they can appreciate considerably as a result of careful management and development. † (Blackett, in: Murphy, 1989).Kotler/Pfoetsch (2006) have proved that B2B branding offers strong competitive advantages, â€Å"by implementing a holistic brand approach companies can accelerate and i ncrease their overall success† compared to companies that do not go the path of B2B branding. Brands should be seen in a holistic manner where all activities of a company should be integrated to get the maximum advantage (Kotler/Pfoertsch, 2006). Strategic success might be achieved through leveraging the brand, because the brand is one of the most strategic and worthy assets a firm owns.Possibilities to leverage the brand include line extensions, stretching the brand vertically, brand extensions, and co-branding (Pfoertsch/Schmid, 2005). Co-branding means that two brands form an alliance in one or several areas that lead to a new product branded with both brands. Ingredient branding, on the other hand, is a brand that is solely used as a component of a branded article (Riezebos, 2003). According to Norris (1992), there are two relevant criterias that must be fulfilled for ingredient branding. First, the component can only be bought and consumed by consumers as a part of the br anded article.Second, the brand name of the component is only used for such an ingredient (and not for ‘normal’ branded articles as well). 2. Can you ingredient brand where branding is not a common phenomenon? The reason companies start to co-operate is due to technological and psychological changes of the business environment. There are two reasons why this occurs (Uggla, 2000): First, technology and new distribution patterns open up new possibilities for cooperation where brand extension and brand alliances become more interesting from a strategic point of view.Second, consumers look for risk reduction, and brand extension and brand alliances might be the right strategies to reduce consumer risk. Strategies to meet the demands of a changing world are co-branding and ingredient branding. There are some good examples of ingredient branding of durable goods on the market, such as Shimano as a component supplier of cycles, and Intel in the computer industry. Intel, for in stance, â€Å"positioned itself to be the heart and soul of personal computers.The strategy was to create a brand, and it worked – for PCs† (Karolefski, 2001). In other industries that produce industrial goods, like the car industry, ingredient branding has not been a common strategy. The primary question that guides us through this paper is: Is it possible for industrial goods industry like the automotive industry to adopt an ingredient brand when ingredient branding is not a common phenomenon? 3. Analyzing with real world data In this paper, real world data from two different companies were collected and compared.A qualitative approach was chosen, which enables us to analyze, understand and interpret the situation rather than giving standardized results. The aim was to understand the strategy of ingredient branding as a whole. Research was mainly based on collecting data through interviews with decision makers (respondent interviews), which implies that the interview s are of a strategic nature. A case study approach gives the possibility of getting deeper insight into a certain problem or situation and to ascertain how interviewees perceive their situations.The presented cases are Bosch and Autoliv, two companies representing the car SUPPLIER manufacturing industries. Since this study aims to help understand why and under what circumstances companies choose an ingredient brand strategy, the case study approach was seen as the most appropriate. The Robert Bosch GmbH, Stuttgart offers a wide range of products to the market, both as a supplier to different kinds of manufactures, as well as a producer of consumer goods. It had 2007 a turnover of â‚ ¬46,7 billion and employs over 271,000 people in about 50 countries.Today, 70% of Bosch turnover is from the car industry – it is a pioneer in the automotive supplier industry, with products that include ABS and ESP, injection systems, brakes, starter motors and alternators. Another major car s upplier, Autoliv Inc. is headquartered in Stockholm, Sweden, the result of a merger between Autoliv of Sweden, founded in 1953, and the American company Automotive Safety Production, started in 1997. Autoliv of Sweden was the inventor of seat belts, which first came onto the market in 1956, and developed the first airbag for cars in 1980.Autoliv has about 30% market share in its segment on a worldwide basis, and employs about 6,000 people, with sales in 2004 of $ 5 billion. 4. Leveraging the brand for industrial goods If a company realizes that it cannot capitalize on its own brand alone, it might choose to capitalize on another brand. This implies that company A wants to â€Å"borrow† association of a brand from company B. It follows that company B in turn must also want to have something from A, since B must also benefit from its association with A.Generally speaking, three prerequisites must be fulfilled before company A and B collaborate: 1) Both companies must have suffi cient brand equity, otherwise they would not be able to â€Å"borrow out† any associations (Keller, 2003); 2) company A and B should have a common basis of associations, meaning that A and B’s identity should have a certain degree of fit (Riezebos, 2003); and 3) that company A should be able to â€Å"offer† associations which B does not have and vice versa (Park/Jun/Shocker, 1996). (1) Sufficient brand equity The first prerequisite in terms of brand identity is that both brands have ufficiently strong and unique associations; that both of the brands (ingredient and host brand) separately have enough brand equity (Keller, 2003, p. 362). In this study, the question is whether Autoliv and Bosch each offer enough brand equity so that they could be potentially interesting partners for a host brand seeking to leverage its brand identity. The brand equity of Bosch can be rated as high. Bosch has successfully leveraged its own brand with brand extensions and line extens ions. Bosch, in its beginnings, was a producer of car parts like starting motors and alternators.Over time, Bosch began to capitalize and leverage its own brand by extending their product range, including the development and production of power tools, mobile telephones, security systems, and industrial packing machines. The other company in this case study, the car safety producer Autoliv, is a well-known brand among B2B customers. Autoliv wants to work together with the best automotive companies in the field of car safety: â€Å"The identity of Autoliv is a company that always has the technical leadership in the area of car safety equipment like airbags and seat belts.Autoliv strives to always be the first with technical development in their area. † (Mats Odman, Autoliv). (2) Common basis of associations The second prerequisite is that the companies working together should have a certain degree of similarity in their brand identity (Riezebos, 2003). According to Keller (2003 ), the logical fit (image and product) between the two brands is the most important requirement for a successful collaboration between two brands.That means a) that both companies’ brand identities (host and ingredient brand) should be in correspondence with each other, and b) that the ingredient offers complementary brand associations. Main associations connected with Bosch are: quality and innovation. Most car manufacturers have these associations as well, therefore, a common basis of associations does exist. Bosch representatives say that â€Å"products from Bosch contribute key values to the brand such as a promise from Bosch about product quality. Bosch products are also innovative in the car industry which is reflected in their slogan ‘We bring innovation’, e. . Bosch was first to introduce engine injection systems with 1600 bar pressure† (Stefan Seiberth, Bosch). On the negative side, Bosch has the problem of being a supplier to virtually every car manufacturer in the world, and these car manufacturers have widely different brand identities (e. g. the brand identity of BMW is totally different than that of Volkswagen). Autoliv can be more precise in common associations. Autoliv aims to develop projects with car manufacturers that are striving for the latest technology in car safety, most likely with car manufacturers in the premium segment.A logical fit exists here because Autoliv has the same aim of technical leadership as the car manufacturers they choose to work together with. (3) Offering complementary associations Finally, cooperation between brands will only work if the partner brand offers complementary associations, which the host brand does not have, and vice versa (Park/Jun/Shocker, 1996). The concept of brand identity system is central here (Aaker, 1996), and includes the following definition: â€Å"Brand identity is a unique set of brand associations that the brand strategist desires to create or maintain.These as sociations represent what the brand stands for† (Aaker, 1996). Brand identity consists of twelve dimensions organized around four perspectives – the brand-as-product (product scope, product attributes, quality/value, uses, users, country of origin), brand-as-organization (organizational attributes, local versus global), brand-as-person (brand personality, brand-customer relationships), and brand-as-symbol (visual imagery/metaphors and brand heritage). Though not all perspectives might be appropriate for every brand, it should help firms to consider different brand elements to be able to enrich and differentiate their brand identity.The brand identity model is structured into core and extended identity. The core identity is the timeless and central essence of the brand. Therefore, it will most likely remain constant while the brand is stretched to new markets and products. The extended identity consists of brand identity elements, which complete the core identity, such a s a slogan, sub-brands, and the brand personality (e. g. reliable, American, German engineering, friendly). [pic] Figure 1: Aaker’s model for brand identity modified with results from the case studyTo be able to identify and analyze what the case companies Bosch and Autoliv have to offer to their partners (host brands) in terms of desirable attributes, the above figure based on Aaker’s (1996) model summarizes the most important advantages of the examined cases. The reader should note that this paper is based on a study from the supplier’s perspective (partner brand). Therefore, spill-over effects which the case companies might receive from the producer side are not examined. Bosch offers associations which the partner brand possibly does not have.Attributes like ‘German engineering’, ‘reliable’ and ‘innovation’ could be easily used and benefited from by car manufacturer building middle and lower-class cars. Autoliv’s contribution to collaboration is technical leadership. One could say that Autoliv is a premium brand in their field of competence, thus offering strong associations in quality. To summarize, we can conclude that brand equity is one of the most, if not the most, valuable assets a company has. The company’s brand identity is the most important factor in creating or pushing the company’s brand equity.Company’s management should continuously try to leverage the brand’s identity. Our case companies Bosch and Autoliv prove that leveraging is fully possible in the area of industrial goods 5. Fit between brands So far, the authors have analyzed whether the examined companies and the industrial goods sector could offer enough brand equity and possibilities to leverage. In other words, up until this part of the analysis, we have looked upon whether our case companies would be interesting partners for the producers in their industries, and if the case companies ful fill the prerequisites to make co-branding successful.Now let’s look closer into the fit of brands and the field of brand association base. Image transfer What does theory say about the transferring process? Riezebos (2003) defines image transfer through the term deductive inference, which is the deduction of results/conclusions from brand images already in existence. Deductive inference is important when associations from one brand or entity is carried over to another brand/entity.For the transfer process, a source, which consumers must have certain associations with in terms of where it comes from, and a target (inductive inference, meaning that the associations load the image of the target) is needed. In summary, image transfer is a positive transfer from source to target, and similarly a positive feedback from target to source (Riezebos, 2003). For transferring associations, it is both necessary that source and target have something in common (e. g. common brand name), an d that the target evokes certain brand associations.Ingredient branding and co-branding are brand-stretching strategies based on image transfer. Critical success factors for image transfer are 1) the sources’ level of brand-added value, 2) how the products are related to each other (target and source should only to a minor degree differ from each other), 3) the target group similarity (Park, 1991), and 4) family resemblance (different packages sharing the same facings). Brand association base Simonin and Ruth (1998) stress the fit between brands (and between the products), which significantly affects the attitudes towards the alliance.Leading researchers agree that companies should integrate the brands they cooperate with within their overall brand architecture. The authors have used the brand association base described by Uggla (2003) to examine the question of fit. The result can be seen in the figure below where the association base model has been modified with the finding s from the case studies. The association base is a relevant tool for this purpose – to organize brand alliances and the brand structure from a leader brand perspective and intention.The association base describes how brands can be organized together. The model contains four different core components: leader brand associations, partner brand associations, institutional associations and the customer’s brand image. In a cooperation of brands, the advantage for the leading brand is that it adds values and positive associations to the product. The partner brand gets access to the distributions channels leading to the end-consumer market. The collaboration between the leader brand and the partner will determine an association base.The customer will evaluate the perceived equity from the association base and shape a specific brand image (Uggla, 2001). Figure 2: Modified brand association base (Uggla, 2003) Bosch, as a car part producer with German quality and innovation as th eir base of associations, could definitely contribute to the car manufacturer’s base of associations as for Mercedes-Benz: Enduring Passion. Autoliv has valuable associations for a potential host brand in terms of car safety. On the other hand, Autoliv does not build brand value, Autoliv would be a weaker partner brand according to the collaboration theory.The partner brand should help to expand the base of associations of the leader brand, and the partner brand’s core identity should lead into the direction the leader brand wants to go to, and the direction should be defined by the leader brand. The partner brand should also help to strengthen the base of associations while bringing in exclusivity and differentiation. Once more, Bosch has proven to be a valuable partner when tested against this theory. Autoliv stands weaker in this respect because the company is not actively building brand equity towards the final customer.To summarize, Uggla (2003) suggests that a le ss familiar leader brand should be connected to a strong partner brand with high brand familiarity. A lesser-known and/or unfamiliar car manufacturer (e. g. Asian car manufacturers who want to enter new markets outside Asia) using Bosch in-car equipment, for example, would be a positive example of this guideline. Functional and emotional incentives for brand collaboration A way of defining the motives for collaboration is given by Uggla (2001). He suggests a model based on a matrix, which is divided into emotional and functional benefits, to be able to understand why brands engage in co-operation.The model is based upon Aaker’s theory about the brand’s identity, but focuses on how the components of the value proposition are divided and shared among partners. The model divides the brands engaged in co-operation to a leader brand and (one or more) partner brand(s). The leader brand can choose to develop own associations or choose to capitalize on other brands’ ass ociations. The partner brand’s contribution should be to expand to the leader brand’s base of associations and add critical physical and/or emotional attributes.Two different incentives for collaboration are functional and emotional benefits (Uggla, 2001). An example for a functional alliance is Intel because Intel contributes with a product (the processor for a computer) for which they have core competence. With emotional incentives, the aim of the leader brand is to endorse reputation (Cooke, 2000), which is the aim to get a better image and/or quality association with the help of the partner brand. On the other hand, the partner brand can profit from the leader brand’s functional attributes. [pic] Figure 3: Applied incentive model from leader and partner brand perspectiveThe authors have modified this model in respect to the case analysis (see Fig. 3). As mentioned above, a brand that wants to lend associations to another brand strong must have strong incenti ves that can be either functional or emotional. For car producers, working together with Bosch could gain core competence and expand the value proposition (e. g. Bosch as a technology leader in ESP, ABS and diesel technology). This is according to the theory (Uggla, 2003), which says that collaboration based on functional incentives implies that the one brand contributes with core competence.Bosch would also profit from brand collaboration through shared costs in R&D. Bosch might expand the legitimate territory for their products if the car manufactures allow Bosch to brand their ingredients. Accentuating emotional attributes are also a possibility for Bosch: â€Å"It is our strategy to position Bosch as an innovative, international, modern company† (Stefan Seiberth, Bosch). A car producer might also want to work together with Autoliv based on functional motives because Autoliv has core competency and is a leading manufacturer of car safety equipment (intelligent seat belts, irbags, etc. ). The focus for Autoliv is choosing partners who have a commitment to actively work with the development of safety in cars. As it is the case with Bosch, Autoliv would gain from collaborations by sharing costs for R&D. Emotional incentives are also important for the company and play a certain role in choosing partners for a new project, according to Autoliv. The image of the car manufacturer is important; therefore, the company strives to share development with car manufacturers in the premium segment† (Mats Odman, Autoliv).To summarize, according to the incentive model, both Bosch and Autoliv offer sufficient incentives, both from partner brand as well as from the leader brand perspective. 6. Results: Transferring successful ingredient branding to the car industry The authors have taken into account the findings from the secondary sources of Moon (2002), Aaker (1996), and Keller (2003), all of which present a deeper analysis of ingredient branding strategies, an d have compared these findings with the information from the car suppliers Bosch and Autoliv.We first want to emphasize that successful companies invest in and put the brand first. Moreover, the most effective strategy for a company is to become a brand-driven organization (Kotler/Pfoertsch, 2006). These companies not only differentiate themselves through their technology, but also through their level of service and through all employees working effectively towards the success of the brand, and thus, the company. In addition, ingredient branding is a form of multi-stage branding (Baumgarth, 2001). Therefore, the whole value chain, from (ingredient) producer to the final customer, needs to be considered.In the case of Bosch or Autoliv, the retailer, the producer of the final good, and the final customer need to be connected. This implies that all downstream markets need to be part of the strategy. Hillyer/Tikoo proved that consumers are cognitive misers (Hillyer/Tikoo, 1995). This me ans that consumers simply trust that a well-known manufacturer would not allow itself to collaborate with a low quality supplier. This has been proven with the success of Intel. Customers simply transferred the decision making to the computer manufacturers by trusting that the manufacturers have chosen the right microprocessor supplier, Intel.In terms of transferring these findings to the car industry, Autoliv could step into the shoes of Intel. Autoliv could act as a retrieval cue (Hillyer/Tikoo, 1995) for potential car buyers, where the car buyer trusts the car manufacturer to have picked a trustworthy brand in the area of car safety. Also, for a successful ingredient branding strategy, it is crucial that the right opportunity in time be identified. If we look at the success of Intel, often regarded as one of the most successful ingredient branders, one aspect that is different between Intel and the automotive industry is the timing of the ingredient branding.The computer industry matured during an era when computer sales were strongly on the rise accompanied by a period of increasing sensitivity to the value of branding (Cook, 2003). The car industry is already mature, therefore, the timing is not optimal for an ingredient brand strategy: â€Å"It would be great to replicate [Intel’s success in the automotive industry], but it’s 80 years too late to do it† (Klaus Deller, Bosch Group, in: Cook, 2003). The authors want to stress though, that even the car industry will offer windows of opportunities, especially when supplier come up with decisive inventions and innovations.Another factor to consider is that In contrast to the situation like Intel, where producers were actively looking for co-operations, car manufacturers often want to control their brand image and are currently not actively seeking brand collaboration with supplier. This fact makes the ingredient branding strategy even more complicated to implement. A solution to this woul d be for suppliers like Autoliv and Bosch to adopt a pull strategy by creating consumer demand.The pull principle is also the basic underlying concept that is best suited for ingredient branding, meaning that the ingredient manufacturer directly addresses the final customer (Pfoertsch/Schmid, 2005). Bosch is, through its automotive advertising campaigns in 2006 and 2007, on its way to utilizing such a strategy. Building strong association could even be implemented into the car industry. The OEM’s in the car industry could effectively promote their associations, which in the case of Bosch could be ‘braking safety’ (ABS, ESP), and ‘passenger safety’ (Airbags), in the case of Autoliv.The authors conclude that it is entirely possible for auto suppliers to establish an ingredient branding strategy. Bosch and Autoliv proved to have substantial possibilities for ingredient branding. This conclusion can be drawn through congruence of findings of the empirica l research with theory. It is vital to the success of the strategy, though, that the whole organization not only strives for the same objective, but also consistently delivers the brand promise. Only with this â€Å"quality thinking† in the organization, can an ingredient succeed in the final industrial good.And – not to forget – it is time-consuming to create and establish a brand. Therefore, the overall strategy needs to be a long-term engagement in the marketing and branding investment. 7. Suggestions for future research This paper has examined the question of ingredient branding as a viable strategy for producers of industrial goods. In particular, we tested automotive suppliers Autoliv and Bosch (Norris, 1992; Keller, 2003; Riezebos, 2003). Since the scope of this paper could only cover the basics of this question, it would be interesting to go deeper into other aspects.A question for further research would be to find out how a model of the appropriateness of ingredient branding could be derived. Further research could cover even more industry segments in B2B marketing, thereby giving deeper insights into why certain industries have seen companies with successful ingredient branding, while others have not. Additionally, to discuss questions about an implementation strategy for ingredient branding needs more insight and research, including a possible guideline for companies that have decided to brand its ingredient.Examples from other industries could also be examined since the implementation process is very complex and many aspects need to be considered. Literature Aaker, D. A. , and Joachimsthaler, E. , â€Å"Brand Leadership†, The Fress Press, New York, 2000 Aaker, D. A. , and Keller, K. 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A. â€Å"Is the Company known by the Company it keeps? Assessing the Spillover Effects of Brand Alliances on Consumer Brand Attitudes†, Journal of Marketing Research, Vol. 35, February 1998, pp. 30-42 Uggla, H. , â€Å"The Brand Association Base: A Model for Strategically Leveraging Partner Brand Equity†, Unpublished Paper, 2003 Uggla, Henrik, †Managing the Bra nd-Association Base†, Akademitryck AB, Edsbruk, 2000 Uggla, H. , †Organisation av varumarken†, Liber Ekonomi, Malmo, 2001 Uggla, H. , †Varumarkesarkitektur – strategi, teori och kritik†, Liber Ekonomi, Malmo. 001 ———————– [1] Waldemar Pfoertsch – Professor of Business Marketing – CEIBS China Europe International Business School Shanghai – Hongfeng Road Shanghai – 201206, China – Tel: +86(21) 28905662 – [email  protected] edu and Professor of International Business – Pforzheim University – Tiefenbronnerstrasse 65 – 75175 Pforzheim, Germany [2] Johannes Rid, National Sales Manager, Pirelli Tyre Nordic AB, Gustavslundsvagen 141, P. O. Box 14147, 16714 Bromma, Stockholm, Sweden,Tel: +46. 8. 6220850, Fax: +46. 8. 7550941, johannes. [email  protected] et [3] Christian Linder – Research Assistant – Pforzheim Business S chool – Pforzheim University – Tiefenbronnerstrasse 65 – 75175 Pforzheim, Germany – Tel: +49 7231 28-6466, christian. [email  protected] de ———————– Bosch: Expand the legitimate territory Emotional incentives Functional incentives Bosch: Expand value proposition, modify brand personality Bosch: Engineering core com Autoliv: Core competence in car petence safety Partner brand perspective Leader brand perspective Bosch: Cost efficiency (R&D), Short cut to awareness and distribution. Autoliv: Cost efficiency (R&D)Institutional Associations Image Transfer Identity Transfer Customers’ image of the brand Leader Brand Associations e. g. Mercedes-Benz: Enduring Passion [pic]*fgyz}†°S? z  Ã‚ ©? iO?  ©i? i~? i? hM8([email  protected]>zhuT;CJOJ[4]QJ[5]^J[6][email  protected]>zhuT;5? 6? CJOJ[7]QJ[8]? ]? ^J[9][email  protected]>zhuT;5? CJ,OJ[10]QJ[11]^J[12]aJ,mHsH#[email  protected]>zhuT ;6? OJ[13]QJ[14]^J[15][email  protected]>zhuT;0J6? OJ[16]QJ[17]U[pic]^J[18][email  protected]>zhuT;5? CJ,OJ[19]QJ[20]^J[21]aJ,[email  protected]>zhuT;CJ OJ[22]QJ[23]? ^J[24]aJ mHsH. [email  protected]>zhuT;5? CJ OJ[25]QJ[26]? Partner Brand Associations Bosch: Innovation, quality Autoliv: Safety Association base fit