Strategic Brand Extension: Growth & Profitability

New Product Branding & Brand Extensions

New products are often vital to the long-term success of a firm. When a firm introduces a new product, it has three choices for branding it:

1. Develop a new brand, individually chosen for the new product.
2. Apply one of its existing brands.
3. Use a combination of a new brand and an existing brand.

Understanding Brand Extensions

A brand extension occurs when a firm uses an established brand name to introduce a new product. When a new brand is combined with an existing brand, the brand extension can also be a sub-brand. An existing brand that gives birth to a brand extension is known as the parent brand.

If the parent brand is already associated with multiple products through brand extensions, it may also be called a family brand.

• Line Extension: Marketers apply the parent brand to a new product that targets a new market segment within a product category the parent brand currently serves. A line extension often adds a different flavor or ingredient variety, a different form or size, or a different application for the brand.
• Category Extension: Marketers apply the parent brand to enter a different product category from the one it currently serves.

Advantages of Brand Extensions

Brand extensions can significantly facilitate new product acceptance, making a new product introduced as a brand extension more likely to succeed. Key advantages include:

1. Improve Brand Image: Customers often have similar expectations about performance, enhancing the brand image.
2. Reduce Perceived Risk: Customers perceive reduced risk due to corporate credibility and brand longevity.
3. Increase Distribution & Trial Profitability: Brand reputation acts as a screening mechanism for retailers, increasing the likelihood of gaining distribution and trial.
4. Increase Promotional Efficiency: There's no need to create awareness of the brand itself, only the new product.
5. Reduce Introductory & Follow-up Marketing Costs: Lower costs for initial and subsequent marketing programs.
6. Avoid New Brand Development Costs: No need to develop new brand elements or conduct extensive research.
7. Allow for Packaging & Labeling Efficiencies: Similar packaging can lead to lower production costs.
8. Permit Consumer Variety-Seeking: Customers can switch products without leaving the brand family.

Feedback Benefits to the Parent Brand

Brand extensions also provide valuable feedback benefits to the parent brand:

1. Clarify Brand Meaning: Defines the types of markets in which the brand competes.
2. Enhance Parent Brand Image: Clarifies core brand values and associations.
3. Bring New Customers: Attracts new customers into the brand franchise and expands market coverage.
4. Revitalize the Brand: Renews interest and keeps the brand fresh.
5. Serve as a Basis for Subsequent Extensions: For example, Billabong extended from surfing to snowboarding and skating.

Disadvantages of Brand Extensions

Despite the benefits, brand extensions carry potential risks:

1. Confuse or Frustrate Consumers: Inappropriate launch extensions can lead to consumer confusion.
2. Encounter Retailer Resistance: Too many lines can make display impossible for retailers (e.g., in a grocery store).
3. Fail and Hurt Parent Brand Image: A failed extension can negatively impact the parent brand's reputation (e.g., Cadillac Cimarron).
4. Succeed but Cannibalize Sales: A successful extension might take sales away from the parent brand (e.g., Diet Coke).
5. Succeed but Diminish Identification: Success can reduce the brand's strong identification with any one category, potentially reducing brand awareness or identification.
6. Succeed but Hurt Parent Brand Image: If inconsistent with the parent brand's associations, a successful extension can still damage its image.
7. Dilute Brand Meaning: It's important to establish the brand through a family of brand extensions and licensing partnerships to avoid dilution.
8. Forgo New Brand Development: The company might miss the chance to develop a new, more flexible brand (e.g., Amazon's Kindle). An extension must live up to the parent brand's promise.

Why Brand Extensions Are Necessary

Brand extensions are a direct consequence of competition in mature markets and media fragmentation. Their primary justification is growth and profitability. They can increase a brand's power and profitability by allowing brands to compete in less saturated markets. The brand image must be strong enough to drive purchase in the new market.

Deciding on Brand Extension: Key Principles

When considering whether to extend a brand, three core principles apply:

1. Principle of Growth: Investments in market penetration or expansion versus product development for a brand should be made according to ROI opportunities. For example, Cisco launching a high-definition teleconferencing system.
2. Principle of Survival: Brand extensions must achieve brand equity in their categories; "me too" extensions must be avoided.
3. Principle of Fit: Fit is the feeling of perceived similarity between the core product and the extension.
   1. Product-related attributes and benefits.
   2. Non-product-related attributes and benefits.

*The perceived fit is the main variable to emerge from pioneering research. It measures the psychological and subjective gap between the extension and the brand’s typical product (its prototype). Customers' evaluations of an extension are primarily influenced by the perceived quality of the parent brand and the perceived degree of fit. Therefore, extensions are not a way of saving weak brands: a brand must have a reputation for quality before it is possible to attempt brand stretching.

The Brand-Product Matrix

The Brand-Product Matrix is a useful tool to characterize an organization's product and branding strategy. It provides a graphical representation of all the brands and products sold by an organization.

Strategic Reasons for Multiple Brands Per Product Line

Organizations often maintain multiple brands within a single product line for several strategic reasons:

• Serving Different Segments: Catering to diverse demographic, psychographic, benefit, channel, or occasion-based segments.
• Balancing Prestige & Profit: Entry-level brands attract new customers, while prestige brands build credibility for the entire portfolio.
• Financial Risk Management: Utilizing a portfolio approach where "stars" build credibility, "cash cows" generate revenue, "question marks" allow for experimentation, and "dogs" are eliminated.
• Balancing Attack & Defense: Countering flagship brands from competitors.
• Building the Market: Employing multiple entries to grow the overall product category.

When Brands Can Serve Multiple Product Lines

The decision for brands to serve multiple product lines depends on various factors:

• Brand-Specific Factors: Assessing the brand's territory based on the parent brand's identity.
• Market Factors: Considering market size, growth, product life cycle, seasonality, profitability, and Porter's Five Forces.
• Environmental Factors: Analyzing external factors using the PESTEL framework (Political, Economic, Social, Technological, Environmental, Legal).