John A. Quelch
Professor at the Harvard Business School on ingredient branding using the example of Shimano
John A. Quelch is the Charles Edwin Wilson Professor of Business Administration at Harvard Business School and Professor in Health Policy and Management at the Harvard T.H. Chan School of Public Health. From 2011 and 2013, he was Dean, Vice President and Distinguished Professor of International Management at CEIBS, China’s leading business school. Prior to 1998, he was the Sebastian S. Kresge Professor of Marketing and Co-Chair of the Marketing Unit at Harvard Business School.
The Shimano corporation holds about 50 percent of the market for cycling components worldwide. Its logo embellishes brake levers, crank sets, or gear shifters of various bike brands. Thus, the company is a prime example of ingredient branding, where an essential component or ingredient is branded, first to indicate its own quality but also to underscore the quality of the product it is a part of. Yet, as the bike market continues to grow, product ranges become more complex as does their marketing. We spoke to Harvard Business School Professor John A. Quelch about ingredient branding and its potential for the brand.
Mr Quelch, what exactly is ‘ingredient branding’?
John A. Quelch: Let me explain it with an everyday example. Why do we pay more for an orange with a Sunkist sticker? Because inspecting the outside of the orange doesn’t guarantee the quality of what’s inside. We need the additional promise of quality the brand gives. A variant on this theme is ingredient branding: putting the brand of an ingredient on the outside of a product to increase its appeal.
Why does it not work similarly for all product cooperations?
J. A. Q.: Often, the brand strength of the ingredient is inadequate to compensate for the product’s brand weakness or low customer familiarity with, or esteem for, the carrier brand. Because one ingredient alone cannot elevate an unknown or low-quality product.
What do you have to be aware of if you want to enter such a market? What conditions have to be fulfilled in order that the cooperation is worthwhile for both sides?
J. A. Q.: The strategic alignment of both brands has to be consistent. The collaboration has to be of equal strategic importance to both the ingredient and carrier brands. For this to work, both brands must ideally operate on the same level of quality.
Where are the risks?
J. A. Q.: The risk to the ingredient brand is to be associated with a poorly marketed or low-quality carrier brand. The risk to the carrier brand is that customers buy it because of the ingredient, not because of any differentiation of the carrier brand. Both have to protect their own brand-building efforts.
For the provider of the final product or service to be willing to compromise its own brand building to add the ingredient brand on the package as well as in advertising, four conditions must be met. This means that first, the ingredient is highly differentiated, usually supported by patent protection, and so adds an aura of quality to the overall product, like Gore-tex for example. Apart from that, the ingredient is central to the functional performance of the final product. This is true for Shimano gear systems on performance bicycles. Furthermore, the final products must not be well-branded themselves, think about all of Dupont’s ingredient brands for clothing, from Rayon through Lycra. And: if the final products are complex and assembled from components supplied by multiple firms who may sell the ‘ingredients’ separately in an aftermarket, the chance for successful ingredient branding is higher. An example are Michelin tires, Dolby stereo systems and Champion spark plugs.
What has to be considered in marketing if the respective product does not only carry the name of a company as the originator?
J. A. Q.: As in any merger, there is a risk of fragmentation among the carrier brand and its sub-brand when trying to successfully build a brand.
An example for particularly successful ingredient branding is the Japanese bicycle specialist Shimano. What is this brand’s secret?
J. A. Q.: The gear system is considered by cyclists to be one of the, if not the, most important ‘ingredient’ of a quality bicycle. So the brand of the gear system carries great significance. From the 1980s, Shimano managed to position itself firmly in the high end market through innovation. It thus increased its appeal to bike manufacturers to include its products in their bicycles.
With what attributes is Shimano anchored in people’s heads?
J. A. Q.: Shimano is focused on gear systems for bicycles. They are seen by customers as the global specialist in this category, with a track record of quality and innovation. The company itself reinforces its brand and integrated character with marketing campaigns bearing slogans like ‘Made for each other’.
What other brands do you consider exciting in terms of this type of cooperation and why?
J. A. Q.: The classic case is Intel microprocessors marketed as ingredients in PCs and laptops – Intel inside. This ingredient branding effort did more to build Intel’s brand value than the value of the carrier brands. Teflon as a coating for pots and pans is another example.
How do you think ingredient branding will develop in the future?
J. A. Q.: Because the cost of brand building continues to escalate, the appeal of ingredient branding – two brands collaborating for a common benefit – holds much appeal. Therefore, ingredient branding will continue to increase.
Shimano is a maker of bicycle components, fishing tackle and lifestyle and rowing gear and was established in 1921. Today, bicycle components account for over 80 percent of its net sales of €2.2 billion year-to-date. With headquarters in Japanese Osaka, Shimano is listed on the Tokyo Stock Exchange and operates offices in the USA, Germany and other markets.
Shimano und Osudio
Osudio is proud to have helped the world class brand of Shimano setting up and rolling out their global Product Information Management solution. With such a strong brand and high quality products, uniform and relevant product information throughout all channels is a key requirement from both a branding and product usage perspective.
Osudio Deutschland GmbH
This article was published in The Produktkulturmagazin issue Q4 2015. Picture credit © Harvard Business School