Ingredient Branding with Branded Service

Ingredient Branding with Branded Service

Juan Zhang (University of Science and Technology of China, China), Qinglong Gou (University of Science and Technology of China, China) and Xiaoyan Li (University of Science and Technology of China, China)
Copyright: © 2014 |Pages: 10
DOI: 10.4018/978-1-4666-5202-6.ch111
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Abstract

Owing to the huge success of ingredient branding in industrial practice, an issue with increasing importance is how the pricing strategy affects the implementation of ingredient branding strategy. Noting the rapid development of the service industry, this chapter considers a situation in which a manufacturer selling tangible products procures complementary service products from a service firm, and consumers have to purchase them together. The complementary service firm builds up its goodwill through advertising efforts, which may finally influence the sales by an ingredient branding strategy. We propose an analytical model to make a joint decision on the ingredient branding strategy and pricing strategy of channel members. The service firm's advertising efforts on its goodwill levels are modeled in a modified Nerlove-Arrow framework. We provide in feedback form the optimal advertising and pricing policies for the service firm and the manufacturer. Managerial implications are also given.
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Introduction

In today’s global economy, the customer service industry, which provides service to customer before, during and after a purchase for enhancing the level of customer satisfaction, has shown huge market potential. As the service level shows increasing power in influencing consumers’ purchase decisions, more and more service firms separate from the host firms to become independent agencies, and even form their own brands for the service product. We limit our study to service products which satisfy the following characteristics: (i) complementing tangible products; (ii) having brand image; and (iii) having a significant effect on differentiating the product. Examples can refer to post-sales service and logistics transportation services. When consumers purchase the bundled product of tangible product and service, the total price of product and the service level will play an important role in sales. We consider the goodwill of a service firm among consumers as a signal of service level. It is intuitive that consumers are usually willing to pay a higher price for the product with higher brand awareness. Because of that, many service firms have started to improve their service brand reputation by using some innovative marketing strategies. Ingredient branding strategy is a widely used approach to achieve this purpose, under which the important ingredients such as key components or services, are branded in the tangible products.

As a well-known marketing strategy, the ingredient branding strategy has attracted much attention among both practitioners and researchers. The most famous ingredient branding program is the “Intel Inside” campaign launched by Intel in 1991. This campaign is supported by thousands of PC computer firms who are licensed to place the Intel Inside logo on their computers. The Intel firmhas obtained huge success owing to this program and dominates the computer processor market. Besides the tangible ingredients, ingredient branding strategy also occurs between service firms and end product manufacturers, such as Microban and its original equipment manufacturers. Microban is a full service antimicrobial solution company. It provides its partners or manufacturers with full service support including regulatory assistance, quality assurance, etc. The Microban brand stands for high quality and reliability, so Oreck, Sunbeam and other manufacturers who cooperate with it through an ingredient branding strategy benefit from its well-known brand image and display added value to their end users. Similar examples can also refer to BestBuy’s use of the Geek Squad brand to sell after-sales service. In general, the purpose of the ingredient branding strategy is that the end product manufacturers utilize the well-known brand image of the ingredient or component to show added value to their end users. In academic area, there exist numerous publications on ingredient branding strategy, such as Norris (1992), Rao and Ruekert (1994) and Rao et al. (1999), Bartlett et al. (2004), Luczak et al. (2007), and Erevelles et al. (2008). However, most of them focus on the conceptual framework while rarely making an empirical study or proposing an analytical model. To contribute to the ingredient branding research, this chapter proposes an analytical model to investigate both the ingredient branding strategy and channel members’ pricing strategy.

Extending the traditional ingredient branding strategy, this chapter investigates the InBranding strategy which has been referred to by Luczak et al. (2007). In a supply chain consisting of a manufacturer selling the tangible products and a service firm offering complementary services, the service firm advertises directly to consumers and the manufacturer labels the service brand logo in the tangible product to capture the halo effect of the goodwill of the service product. We assume that consumers are required to purchase the product and service together, thus the InBranding strategy of the service firm can directly influence the final product sales. The two channel members’ dynamic pricing strategies are considered as a coordinated tool to implement the service firm’s InBranding strategy and the service firm’s advertising efforts on its goodwill levels are modeled in a modified Nerlove-Arrow framework. A differential game model is utilized to formulate the above issues and the feedback form of the optimal price and the advertising efforts are finally obtained.

Key Terms in this Chapter

Decision Marketing: Decision making can be regarded as the mental processes (cognitive process) which results in the selection of a course of action among several alternative scenarios.

Supply Chain Management: Supply chain management (SCM) is the management of a network of interconnected businesses involved in the provision of product and service packages required by the end customers in a supply chain.

Differential Games: Differential games are a group of problems related to the modeling and analysis of conflict in the context of a dynamical system.

Pricing Strategy: Make a price for the product so that a firm can achieve its optimal objective.

Ingredient Branding: Ingredient Branding is strategic brand management for materials, components, parts, or services, in which ingredients or components are labeled in the end product.

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