What’s an Ingredient Brand? Only the Future of Retail
Dying retail brands, disruptive entrants, and search-first shopping put a renewed emphasis on product differentiation.
Retail brands are in crisis. So far in 2017, 19 of them in the U.S. have filed for bankruptcy protection. The list includes mall stalwarts The Limited, BCBG Max Azria, Gymboree, and Wet Seal, which are seeing their preferred venue fall out of favor with shoppers. Larger footprint and big-box players such as H. H. Gregg, Toys “R” Us, and Gander Mountain as well as department stores are also flailing, with J.C.Penney, Sears, and Macy’s all announcing more than 100 store closures, and Lord & Taylor realizing its flagship New York location is worth more as the WeWork headquarters than as a department store.
The causes of retail disruption are often discussed: the rise in e-commerce broadly and Amazon.com specifically, consumer spending shifts from materialism to experiences like travel and dining out, and the bursting of the mall bubble that made the activity of shopping an unsustainable practice. Less time, however, has been devoted to the waning influence of retail brands on users’ shopping behavior, and the new opportunities that arise from a changing brand landscape. Google and Amazon have risen to claim some of the mindshare abandoned by attenuated retail brands, but their role in driving product searches creates new opportunities for ingredient brands — the brands of components featured within a host product — to provide needed differentiation that makes a product stand out in the purchasing process.
The burden of decision-making
Retailers’ brands, like any other industry’s, exist to relieve users of the burden of decision-making. When terrestrial retail brands like Sears and Sports Authority and millions of local stores were built, the retailer served as a primary filter in the product selection process. The products they offered carried the store’s tacit approval. A neighborhood hardware store that limited the selection of grills to ten products across three brands was doing its part to offer some choices for different use cases and budgets, but also scaling backs choices to stave off analysis paralysis. The need for a new grill was commonly met by simply heading down to the store, seeing what they had, making a choice on the spot, and buying.
Today’s users approach the same purchase through a very different process. First, the ready availability of product information and comparison tools online has transformed the need for a suitable grill into the quest for the perfect grill. A recent Nielsen study finds that 61% of users research a product online before making a purchase, which broadens the available options from the ten propane grills at the hardware store to the 128 at HomeDepot.com, the 515 at BBQGuys.com, or the 1,369 at Amazon.com. Where inventory and shelf space are frictionless, the online retailer need not curate options down to manage customer choice.
The resulting dynamic is that what people are buying is rising in importance compared with where they are buying it. Product brands carry a heavier load, as shoppers start with Google instead of Waze. But even the strongest product brands have their limits. Paring down grill options to only Weber and Kitchen Aid still leaves shoppers with 41 products in an unwieldy choice set and compels them to become reluctant experts on product features such as grate materials, infrared burners, and BTUs.
There is another factor limiting the usefulness of product brands to ease decision-making: there are more of them than ever. Increased user comfort in buying online has given rise to hundreds of new brands selling direct, from razors and mattresses to leather boots and pre-prepped food. Users face more options than ever, with even the newest companies able to benefit from the same democratized brand-building tools of SEO/SEM, social media, and customer reviews that established brands enjoy.
When retail brands no longer help users narrow product options, much of the burden of decision-making shifts back to the user. And the user needs to find new help in filtering out some choices, to prevent having to become the world’s leading authority on everything they’re thinking about buying.
Brands work. So why not add another one?
Where one brand dies, another can rise to take its place. Google and Amazon have stepped into some of the void left by retail brands, capturing the majority of the early product search and research activity. But there is still room for other brands to help narrow purchase selections.
Enter ingredient brands, or brands of the product components that users are considering. Intel, Vibram, and Teflon are common examples of brands whose contribution to another product makes it more appealing to a customer. Their presence provides a shortcut to understanding the host brand’s full value proposition, making choosing a product easier:
- Intel marketed its computer processors as fast and reliable, which provided a point of differentiation to the PC manufacturers that include them.
- Vibram shoe soles provide traction and durability, helping boot shoppers select their next pair.
- And in our grill example above, the availability of Teflon grates might shrink our set of 41 down to a more manageable number.
The number of ingredient brands is difficult to measure, but the shift to product-first purchase decisions coupled with an increase in competition puts them in the spotlight, anecdotally they appear on the rise, and the range of applications is proliferating. Traditionally, an ingredient brand was not available as a standalone purchase, like the Intel, Vibram, and Teflon examples above. But increasingly, established products’ brands are defining themselves by well-known ingredients, such as Breyer’s Girl Scout Thin Mints ice cream, Tide Plus Febreze Liquid Laundry Detergent, and Smuckers Jelly Pop Tarts.
Ingredient brands in the user journey
Ingredient brands’ principal role is to help differentiate their host brands’ products, but how the ingredient brand influences the purchase process varies based on the relative dominance of the ingredient and host brands to the user. Ingredient brands can provide value in both the upper funnel (driving awareness and interest in the host brand’s product or category) and the lower funnel (helping the host brand stand out from a group of competitors):
Where an ingredient brand appears in the user journey is a function of the user, not the brand. For example, a rabid Apple fan in the market for a new car may learn about CarPlay from Apple’s site and assemble a shortlist of cars from the ones Apple lists as offering the mobile iOS as an option, ultimately deciding on a Fiat 500. Alternatively, a user shopping a Fiat 500 along with a Mazda Miata might choose the Fiat because she learns about CarPlay from Fiat, likes the idea of seamless integration of her iPhone, and rules out the Mazda for not offering it. Both shoppers arrive at the same car but through very different user journeys.
Product components can also go from OEM parts to valued ingredient brands by building equity after they have a footprint in the market. Corning’s Gorilla Glass, for example, was keeping users’ phone screens from cracking long before the brand was receiving any credit for its innovation and durability. Corning built awareness of the brand through an online video series beginning with “A day made of glass,” which has logged tens of millions of views. The success of this series and growth in awareness of the Gorilla Glass brand led Motorola — already a customer — to begin touting the brand’s presence in its products, which in turn created more host brand interest. Today, Gorilla Glass boasts an impressive list of host brand partners and is even recognized by retailers as a starting point for some users shopping for a new phone.
Ingredient brands then have to be fluent in all channels across the user journey, which for many categories is predominantly digital. They need to create awareness of host partnerships on owned channels (their websites, CRM, and social channels) to drive interest in host products in which they are featured, and they need to be visible and discoverable (through campaigns and SEO/SEM), so that their value proposition in host products is easily understood.
Executing successful digital ingredient and host brand partnerships
The onus is not solely on ingredient brands to do the necessary work in the user journey, however. Ingredient brand programs are not just campaigns; they are partnerships. In order for them to work optimally, the ingredient and host brands must work in concert to support the program. Broadly, the role of the ingredient brand is to entice users independent of the host, while the role of the host is to effectively merchandise the presence of the ingredient brand to its customers.
In its pitch to host partners for its Ingredient Branding Program, Swarovski pledges “special communication support to partners who have a consumer brand that exclusively uses Swarovski crystals in their finished products.” However, it is equally important to negotiate the appropriate merchandising of the ingredient brand in the host product’s ecosystem. The ubiquitous “Intel Inside” decals on laptops are the iconic example, but understanding how ingredient brands can become visible in digital channels is also critical.
For example, all three of the jackets below are available through REI.com and feature Gore-Tex as an ingredient that provides waterproof breathability to the garment. Yet only the Norrona coat features the Gore-Tex brand in the product name, making it visible to shoppers earlier in their journey (the other coats mention Gore-Tex one click deeper, in the product description):
Because online retailers are able to offer virtually unlimited SKUs, search is a huge part of the shopping experience. An ingredient brand surfacing early in the search process could be the difference between a partnership that functions and one that flounders online. So digital merchandising — from product titles to descriptions and even meta data — should all be explicitly negotiated between ingredient and host brands, in the same way the brand’s presence on the product and packaging is agreed upon currently.
A future of brand collaborations?
Competition continues to intensify as new manufacturer brands launch with their own direct-to-consumer e-commerce initiatives and are matched by established brands more aggressively selling direct themselves in a bid for higher margins and closer customer contact. This means that the work that ingredient brands do for their hosts — helping to promote discovery among new users in the upper funnel, and creating meaningful points of differentiation in the lower funnel — will become increasingly important. This does not necessarily mean that ingredient partnerships are the right solution for every brand, but the disrupted brand landscape should at least drive every brand to explore partnerships with ingredient brands as part of their product and marketing portfolio. And for brands that already enjoy equity, considering options to become ingredient brands themselves in host products may reveal new opportunities to diversify revenues and reach new users.
Magenta is a publication of Huge.
