Brands are often forced to introduce new products in order to remain competitive. To capitalize on their brand equity, companies often launch those new products in the form of brand extensions, using an existing brand rather than creating a new one.

When a brand expands into new categories, the first thing that should be clear is the positioning of that brand, what it is in the market for, and what associations people make with respect to the brand. Logically and in parallel, it is important to determine what contributions are sought by entering the new category.

Why Brand Extensions

A brand is a mental construct based on people’s perceptions, beliefs, feelings, memories, and attitudes. Brand extensions seek to elevate that mental conception. If a brand has a well-defined set of perceptions in a given category, it will be very difficult for it to expand those perceptions into a new product, even if they are related in some way. Just look at the case of McDonald’s. Their McPizza product failed because consumers thought its value proposition was too similar to 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 made 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 greater 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, Category Extension… are not exactly the same, although they have many common features.

The Key to Success in Brand Extensions

Extensions can undoubtedly affect the brand’s brand equity in one of these ways:

  • Exploiting brand equity.
  • Shattering Brand Equity.
  • Achieving a neutral effect.

The key to success is always on the side of consumers and their reaction to new launches. Sometimes they may perceive a certain complementarity based on the degree to which the existing trademark and its extension share the same context; at other times, some degree of substitution may be detected in the way in which one product can replace another to meet a similar need; and finally, it could be understood under a transferable character to the extent that the extension overlaps with the characteristics of the existing trademark. Consumers typically evaluate extensions in terms of similarity between product features and brand consistency, however, the effects of these two factors vary according to the concept or meaning associated with the original brand.

The Guidelines for Brand Extensions

In general, there are three guidelines for achieving success in brand extensions:

  1. Define the degree of familiarity and respect of the consumer towards the brand.
  2. Assess the leverage power of the brand.
  3. Always consider other alternatives.

When consumers find the right fit between a new product and the existing brand, brand extensions or sub-brands are a successful solution. But when consumers perceive a lesser fit, then a new name with the brand’s endorsement becomes more advisable.

Brand extensions can help companies in that they minimize the risk of introducing new products, reducing the cost of promotion and increasing the degree of acceptance by consumers. Leveraging brand equity to introduce new products can provide a Brand Equity positive and instantaneous for the new product, even raising the Brand Equity existent. However, brand extensions are not the best solution for every new product launch. Managers should start with a clear brand strategy that includes both existing and new products, determining what the current and desired perceptions are, as well as the degree of fit between the two products.

 

Carlos Puig Falcó

President of Branward®

Photos: Shutterstock


Subscribe to our Newsletter