Brand Extension: Recipe for Success
Brand Extension is a wonderful way to achieve business growth by exploiting the untapped equity of a brand to enter new product categories. A well-executed brand extension strategy can lead to several benefits- Increased brand visibility and consumer connections, Incremental shelf space at retail, Entry into new distribution channels and Enhanced brand associations.
Research indicates that brand extensions of existing brands are five times more successful than launching a new brand. By setting up positive consumer expectations about performance and better retailer focus due to the anticipated consumer demand, brand extensions reduce the risk of failure. Also from a marketing perspective, it is easier to focus on just the new product rather than creating awareness for both the new brand and the new product. Thus, overall, brand extension can be a very effective brand and business growth strategy.
However, a significant proportion of brand extensions are unsuccessful and thus it requires careful analysis to determine the right Categories for extension as well as the Approach to enter those categories.
Some key things to consider while evaluating the Categories for extension:
Existing brand associations and imagery need to have a good ‘fit’ with the proposed categories. For example, Horlicks’ brand extension into noodles did not find success in the Indian market due to the brand’s strong association with health (rather than taste, which is critical for the snacking category).
It is easier to extend a brand with abstract associations into multiple categories. For example, the brand Porsche has been successfully extended into several unrelated categories such as eyewear, luggage, watches, electronics etc. due to its abstract association with style and design rather than just sports-car expertise.
The proposed extension must offer a clear differentiation from the competitors while staying true to the brand’s core values and equities. For example, Godrej Consumer Products (GCPL) recently launched a premium hair-colour range in India under the salon brand BBLUNT. With its services expertise, a cool and funky image along with a strong foothold in Bollywood, the brand extension offers a strong differentiation in a segment dominated by international brands.
Size of the proposed category and degree of saturation should be assessed to determine the chances of success. It is relatively easier for a new entrant to sustain and thrive in a large category.
Some categories are fragmented and have no major players with significant market shares. This could present an attractive opportunity for brand extensions.
After short listing the categories, the brand owner needs to evaluate the right approach to enter those categories. One approach is for the brand owner to manufacture and market these products themselves. An alternative approach is for the brand owners to allow another company to produce and market these products and in return for the use of their brand, charge the manufacturer a royalty fee. Such an arrangement is called Brand Licensing and can be a very lucrative yet low-cost and low-risk brand development strategy. Several global brands including Philips, Honeywell, DuPont, Armani, Versace, Calvin Klein and Ferrari have embraced the Brand Licensing approach to extend into non-core categories and grow their brands.
The right brand extension Approach could be determined using the following factors:
Product development capabilities: Entering a new category could involve significant investments in product design, development and manufacturing infrastructure. In such cases, a brand licensee with product expertise relevant to the new category could be better suited to manage the brand extension while the brand owner maintains control over the brand image through a rigorous approval process.
Size of the category: In some cases the market size of the proposed category for brand extension is quite small and unattractive for the brand owner to invest their own time and resources which could be better utilized in the expansion of the core business. In such cases, the brand licensing approach could be better suited.
Distribution channels: Sometimes the brand extensions are better suited to be sold through channels which are not being reached by the brand owner with their core products. In such cases, a brand licensee with an existing distribution network in the new category is critical to achieving faster retail placement, wider distribution and hence better results.
Brand extensions can be a significant boost to your company’s bottom line but only if you choose the right categories as well as the right brand extension approach.
Also published at: Economic Times