When your component improves the brand of others

Does your company have a product or technology that can be part of and strengthen other companies’ end products? Then you should build a solid IP strategy, which secures your component and provides increased negotiating power

Component marketing is a special form of collaboration in which your product or service forms part of a third party’s offering. The role of the component is to improve the final product. Potentially, the component may become a standard, a hygiene factor or a common element within a category.

To establish your component as essential, you should have a clear IP strategy on how to differentiate yourself from other providers. brand protection, design and technical solution. This way, you get a solid foundation and can build preference for your component, despite several intermediaries between you and the end user.

Perhaps the world’s best-known example of component marketing is from the IT company Intel.  Through its «Intel Inside» marketing campaign, the company has reached out to end customers with their message, even though they never sell directly to them. Intel has managed to build its brand as a key component of several of the world’s strongest brands. These include IBM, Lenovo, Dell, Compaq and Packard Bell.

Marketing your component throughout the value chain

There are many examples of companies that have succeeded with a component marketing strategy. Common to all of them is that they have worked strategically to showcase the component downstream in the value chain, also to the end user, preferably through customer marketing.

To succeed in strengthening the brand of others with your component, it is important to ensure awareness, differentiation and preference for the component throughout the value chain. The goal is for the end customer to demand your brand, in a product category where the product of your company account for only a small part of the final product.

Think of how many people buy shoes or outdoor clothing partly because they know Gore-Tex is constituent of that product. Also, think of those looking for a Teflon frying pan in the store, or want a Shimano gear system on their bike.

By communicating the benefits of your component, even beyond your direct customer, you build awareness and demand for your component throughout the value chain. The goal is for end users to understand what specific benefit your component contributes to the final product. This makes it easier to measure what increase in value your individual component provides. If you measure and develop these end-user preferences over time, you may create leverage for future negotiations.

An IP strategy that secures the differentiation factors

In a component marketing strategy, there are several elements that create dependency and demand for your component. For the end user, it can be anything from a strong brand and a concept, to a unique design, or a unique technical solution. In the customer relationship itself, your component’s compatibility and integration with the final product can also be an opportunity to build high exit barriers for the benefit of your component. This interface between the component and the customer’s product will be very important to secure. Other areas in which the component can add value for the customer are, for example, guarantees, service level and customer experience.

It is therefore crucial for a “component company” to have a solid IP strategy, which secures differentiation factors such as brand, design and technical solution. This also includes a conscious strategy that ensures increased dependence for the customers and increased demand from the end user regarding your component.

Complete Onsager’s IP-sjekk  to map your differentiation factors and find out what you can do to secure and strengthen them.

An IP strategy should also state which markets the company’s rights should be registered in. It is essential that trademarks, logos, designs and patents are registered in the company’s name in all relevant markets. Agreements with customers and partners should therefore include notification requirements if a product incorporating your component is to enter new markets.

Agreements ensure good cooperation

Thorough agreements with direct customers and partners are crucial for the success of a component marketing strategy. The agreement should regulate the degree to which and how your component should be included in the overall market mix. One should also secure the right to use the customer’s final products in marketing and market research efforts. The way in which product names and slogans are used in marketing must also be regulated and followed up closely to avoid improper use that can lead to dilution or, in the worst case, degeneration.

Other areas that should be regulated are quality requirements, with approval processes on products in which the component is to be included. This can be anything from production country requirements, material use or standards and certification requirements.

Companies which succeed in component marketing have often chosen to become specialists in a small niche. By offering a single component, the company can to some degree avoid competition between players and in this way offer the same component to competing companies. It is therefore advisable to avoid exclusive agreements with customers, and rather to go for cooperation agreements with clauses regulating joint innovation and further development of the customer’s product.

Build a partnership with the customer

If you want to maintain momentum as a subcontractor of a component, you must invest in innovation and further development. This development will benefit both your company and your customers. The goal must be that you, together with your customers, can drive innovation, where you contribute directly to the customer’s innovation strategy by offering further development of the component, as well as sharing market insights and cutting-edge expertise for the customer’s own innovation work. If you manage to drive the customer in the right direction, with your own accumulated insight and expertise, you can gradually transform the customer relationship into a long-term partnership.