By exploring new areas for business growth, brand extensions can bring businesses advantages from multiple perspectives. Nielsen notes that brand extensions are up to 5 times more successful than new launches. This is because the extension of a brand is based on the recognition and reputation existing in the original brand. The problem is that brand extension strategies aren’t always as simple as they seem.

In reality, we all use brand extensions in our everyday lives, but it may not be something we always recognize. Before we get into the process of brand extension, let’s be clear about the concept and what it looks like in practice.

 

What is a brand extension?

Brand extension refers to the use of an established brand in new categories or product segments, whether they have a direct or indirect relationship. When a brand expands into new categories, the first thing that must be clear is the positioning of that brand, what it is in the market for, and what associations people make concerning the brand. Logically and in parallel, it is important to determine what contributions are sought by entering the new category.

The goal of a company using brand extension is to leverage its existing customer base and brand loyalty to increase its profits with a new product offering. For brand extension to be successful, there usually needs to be some logical association between the original product and the new one. A weak or non-existent partnership is sure to result in brand dilution. Even worse, if a brand extension isn’t successful, it can hurt the core brand.

Even the most recognizable brands don’t always get it right. The failures of Harley Davidson and its cologne, Pepsi and its purest version Crystal or Colgate and its foray into ready meals, to name a few, are famous.

At this point, the first questions marketers ask are always: Do we use an existing brand or create a new one? If we decide to use an existing trademark, does it require modification or can it be used “as is”? If we build a new brand, should it have some clear reference to an existing brand, or should it be freer?

It’s critical to understand all the implications of these decisions beforehand and requires a fair amount of strategic analysis. The answers to these questions must be decided on a case-by-case basis, based on considerations specific to each.

 

Why Brand Extensions

A brand is a mental construct based on people’s perceptions, beliefs, feelings, memories, and attitudes. In other words, a brand is a meaning in people’s minds. Brand extensions seek to elevate that mental conception. If a brand has a well-defined set of perceptions in a given category, it can be very difficult for them to expand those perceptions into a new product, even if they are related in some way.

Just look at the case of McDonald’s. Its McPizza product failed because consumers thought its value proposition was too similar to that of its already established competitors like Pizza Hut. On the contrary, his McCafé concept is working because it’s perceived as something different, especially among teenagers, for whom Starbucks might be too expensive.

Many well-known companies have had both successes and failures with brand extensions. And the main reason why some brand extensions fail is simple: they don’t bring significant value to the consumer.

Companies use brand extensions to have more influence on customer decisions. This would be a strategy that would facilitate entry into new categories by taking advantage of the reputation of an existing brand. But Product Extension, Line Extension, and Category Extension… are not the same, although they have many common features.

 

Types of Brand Extension

The best brand extensions will depend on the DNA of the brand itself, its market segment, and, of course, the customers. Below, I detail the types of brand extensions along with some everyday examples to make it easier to understand.

There are 3 main types of extension, although other variants can be considered:

    1. Category extension. It involves entering sectors that are different from those of the original brand. The examples clarify the situation: BMW extended its brand prestige to the products it launched in the clothing and accessories industry. Bic, did the same from his pens to the lighters; two worlds apart. She even dared to wear underwear. And there it failed miserably.
    2. Product extension. Perhaps the most classic and logical evolution does not imply entering another sector, but rather an extension of the same existing product category. The world of beverages is full of examples. Carlsberg offers its standard pilsner in bottles, cans, taps, and many more forms. It’s the same product, just in different variations.
    3. Line extension. Associated with an extension of the existing product category but slightly dislocating its position to evolve in addition to its traditional line: Nescafé with Nespresso (also with Nestea), IKEA with IKEA Prefab HousingZARA with ZARA HOME.

 

Among the variants we can find:

    1. Lifestyle extensions. Your strategy is based on building a strong culture or community around your brand. A lifestyle extension allows you to use the brand community and sell new products to your audience, even if they are not related to the original product of the main brand. We could include it within the category extension. Redbull and its many facets is a magnificent example.
    1. Extension by transfer of the component. If the brand is known for a distinctive component, it can be used in the brand extension strategy. As a variant of the product extension, a component transfer extension allows you to offer a new product with the core component that the audience values. Dyson and its move from vacuum cleaners to dryers is one example.

 

Vertical Brand Extension vs. Horizontal Brand Extension

On a formal level, when creating a brand extension strategy, it is possible to propose a vertical brand extension or a horizontal brand extension.

    • It uses the same brand and the same product category, although it allows you to address different price segments. A company with a vertical brand strategy uses a technology, material, structure, or process that makes the product better on some objective measure. Hyundai chose a vertical brand extension strategy for its IONIQ car by touting it as “the most fuel-efficient car.”
    • A company with a horizontal branding strategy uses design, engineering, and marketing to make its product uniquely appealing to the needs of certain types of people. There is no objective way to classify your product; some people will like it; and others won’t. For example, GoPro made a rugged camera. Robustness is a subjective measure; It’s up to the person if they would define a rugged camera as a better camera. An action sports enthusiast will appreciate a tough GoPro, while a portrait photographer wouldn’t. That photographer might prefer the Nikon.

Advantages of a Brand Extension

    • It facilitates the acceptance of the new product, reducing the risks of the launch and increasing interest in the trial.
    • It can increase the brand image as long as it is a complementary categories.
    • It increases the efficiency of investment in distribution and promotion. Improves economies of scale.
    • You save on the costs of developing a new brand. It can improve the image of the parent brand.
    • It revives the brand and increases market coverage by attracting new customers to the brand.

 

Dangers of a Brand Extension

    • Extending a brand into unrelated markets can lead to loss of reliability.
    • There is a risk that the new product will generate implications that damage the image of the main brand/origin.
    • If you don’t have enough investment in your launch, the expected initial test effect may not be generated.
    • If brand extensions don’t have any advantage over competing brands in the new category, then it will fail.

 

The brand is what’s important

On every occasion above, the brand is the crucial factor. It’s not the product or the category that spreads, it’s always the brand with the implications that this has. The endorsement of the original brand with its ability to convey values, personality, and reputation is as important or more important than the new product or service. In short, it’s just another test point for the brand’s promise, strengthening what it stands for.

 

 

Carlos Puig Falcó

CEO of Branward