What is Brand Extension? Types, Class, Reasons, Case Study

What is Brand Extension?

Brand extension is the strategy of launching a new product in the market under a prior recognised brand name in a different product category. This strategy enables new products to forge into the market with an established reputation. While a new product may be unfamiliar to consumers, they are often acquainted with the brand that created it, which can make it more likely to excel in the market.

Brand extension is no small task and much more difficult when a brand goes too far from the original product portfolio.

For example, Beauty blender, a company that once focused on just one product, the revolutionary pink makeup sponge, easily introduced foundations, sprays, primers, and an entire line of foaming tools. Indeed, the relationship between one type of makeup and another is clear, if not completely obvious.

In the contemporary world, brand management demand agility and rapid experimentation needs swift speed. In the prevailing dynamic business environment, organisations need to be empowered to respond with speed.

Organisations recourse to brand extensions to influence consumers’ brand preferences. Brand extension is an integral aspect of the marketing strategy to break free the entry obstacle between product categories via carryover of a brand’s reputation.

Benefits of Brand Extension

The other benefits of brand extension are:

• A thriving brand is as a powerhouse which has enough power to illuminate distant territories. This accumulation of the consumer-pulling power can be harnessed beyond the boundaries of the brand’s conventional market.
  
  
• The familiarity of the consumers with a brand augments the scope of embracing a new product by them, under the same brand name. Thus, brand extension alleviates the risk associated with launching a product under new brand in the market. In fact the brand equity of an established brand makes the introduction of a new entry inexpensive.
  
  
• Customers use well-established brands as quality cues, i.e., they use brand name as an indirect yardstick of quality.
  
  
• The advantage of “spillover of advertising” works for those products which are associated with the brand. In case of brand extension where a new product launched under umbrella brand, avails advantage of the advertising done for a product already prevailing under that brand auspices. Thus, it can be inferred that brand extension demands less advertising support as compared to newly launched brand.
  
  
  
• Brand extension enhances the prominence of brand.
  
  
• During situation of intense competition, to cover up every niche, an ideal strategy available to companies is to go for brand extension.
  
  
• Brand extension is instrumental in fulfilling to the lower and even top market segment.

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Class of Brand Extension

Brand extension dimensions can be enlarged in many ways. Brand extension may be done either in the similar product class or different product categorisation.

Thus, it can be happen either in vertical or horizontal extension, which are discussed as follows:

Horizontal extensions

When a prevailing product’s name is allotted to a new product in the same product category or entirely under a new company, it is called horizontal brand extension. Based on their motto, there are two further segments of horizontal brand extensions which are line extensions and franchise extensions.

In line extension the parent company launches a new product segment in a category already known to the customers. In line extension, brands do not have to develop new categories. While in franchise extensions a prevailing brand name is used to create a product category new to the company.

Vertical extensions

Vertical extension infers to assimilating complementary brand in the similar product category in either of two directions, i.e., upscale extension, where a new product with increased price range and with better quality trait compared to the original one is introduced. Meanwhile there is downscale extension, where a new product with inferior quality and priced lower than the original, is introduced. For example, in automobiles, higher or lower versions of the same brand are introduced to entice various market segments.

In practice, most businesses choose a strategy that falls somewhere in between these two extremes, frequently involving many sub-brands. Sub-branding is an extremely popular form of brand expansion in which the new product has both the original brand name and a new name (Apple iPad, Ford Fusion, and American Express Blue Card).

Existing products can outperform existing customer markets or push in additional ones, but new product introductions are crucial to a company’s long-term success.

When companies want to launch a new product, they have three options:

• Develop a new brand
• Launch a new product under an existing brand
• Combine the new brand name with the existing brand

Using an existing brand name to introduce a new product is a successful strategy to achieve the expansion and growth of the company’s product portfolio. In this case, the new product is called a brand extension and the brand that gives its name to this new product is the parent brand.

“Brand extensions affect the [original] brand image to effectively inform consumers and retailers about a new product or service,” Keller explained. When a company associates a new brand name with an existing name, the result is called a sub-brand.

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Reasons for Brand Extension

Brand extensions are required. They are a direct result of competition and media fragmentation in mature markets. The only rationale for brand expansion is growth and profitability.

Brand expansion is not new: it is at the core of luxury brands’ business models. This can increase the power of the brand and its profitability. Typical margins in the ready-to-wear premium market are 53 per cent, but the average is 71 per cent for bags and 80 per cent for watches.

This is the reason why fashion brands expand into these categories so rapidly. As far as perfumes go, sold under license by L’Oreal, Procter & Gamble or Unilever, they provide royalties, and give the expanded brand a substantial boost to international visibility. This is why expansion into the fashion and luxury sector is strategic. No name can exist without them.

As long as the brand has assets in these markets, brand extensions allow it to compete in less saturated markets, both in terms of growth and profitability. That is to say, the brand image should be able to act as a driver of purchases in another market.

Brand expansion depends on the brand’s ability to create a competitive advantage by leveraging the prestige attached to the brand name in the growth category, unlike existing categories. Brand extension is perceived by customers’ perception of the quality of major brands. An existing brand guarantees quality, reducing the risk of buying a new product.

Extended brands of high-quality parent brand are considered substitutes and tend to be less well-received than the lower-quality brand. Brand extensions that are strong quality brands will have an edge over weak brands, similar to the value of quality. Furthermore, these effects must depend on the perceived quality of the main brand and the degree to which the high perceived quality of the main brand between the original and extended product portfolio is necessary to evaluate the quality of the main brand.

The answer to why brand extension is needed can be seen in the following reasons:

Business Growth

Brand extension or brand stretching is a marketing strategy that uses established brand names for new products in related or unrelated categories. By releasing items under a well-known corporate brand, the company will be able to win the support of existing loyal customers. This strategy aligns with the values of existing companies or parent brands to create new leads while targeting a similar customer base.

Brand extension is crucial to enable businesses to reach out to new customers and demographics. As new market opportunities and possibilities increase, it can also lead to increased sales, higher overall profit margins and better equity. Existing brands already have followers, which can save money on business promotion and marketing. Having a customer base that trusts the brand already facilitates consumer interest and acceptance of new products.

Providing additional products to the current line also helps the parent brand. Your image will be enhanced when your customers see what else your company offers.

Increased Visibility for Brands

If brand extension manage well, it can enhance the image of the company and generate many brand supporters. Before creating these supporters, it helps to understand what they want from the company. Fortunately, there are many ways to listen to a company’s audience. Many companies do this using social media and are looking for references to their respective companies.

By searching social media for what others are saying about your business, your business often does not start these discussions. Hence, it is a great way to find out what your customers are saying behind your company. Business survey is best suited for companies that have specific questions that need to be answered regardless of the method selected.

The type of questions that need to be addressed are as follows:

• What do customers value about our business?
• Brand extension can rejuvenate a brand and clarify its importance.
• What do customers dislike about our company?
• How can we company improve?

One of the perks of well-known and popular brands is that over time, consumers increase their expectations for their performance. Similarly, expanding, consumers infer new product configuration and performance potential based on what they already know about the brand itself and how much information they think is relevant to the new product.

These inferences can improve the strength, popularity, and uniqueness of the extension’s brand association.

For example, when Sony announced VAIO, a new multimedia-focused personal computer, consumer experience and knowledge of other Sony products was better than if the product was a Sony brand rather than a brand new one. You may have been satisfied with the expected performance.

Reputation

The desired outcome of a successful extension is that it can improve the image of the main brand by strengthening the existing brand association, improving the preference of the existing brand association, adding a link brand new or a combination of these.

One of the common ways that extensions affect the image of the parent brand is to help clarify its core brand values and associations. Core brand values are the attributes and benefits that characterise all the products in the brand’s product line and are, therefore, the values that consumers most often associate with the most.

For example, Nike has transitioned from running shoes to athletic shoes, athletic apparel, and sports equipment, reinforcing its association with “top performance” and “sports.”

Another type of association that can be enhanced by a successful expansion is the consumer perception of the credibility of the company behind the expansion.

For example, Keller and Aaker (Eminent Marketing Professor) have shown that successful business expansion leads to a better perception of a company’s expertise, reliability, and likeability. In the late 1990s, some companies chose to introduce versions of their online services under a separate brand (e.g., Bank One chose to launch its online banking service under the name.)

In addition to increasing the difficulty and cost of launching a new brand, these companies also miss the opportunity to modernise the image of the parent brand and improve its technological credentials. In many cases, these businesses have failed and their capabilities have been relegated to the parent organisation. In addition, the customer can often see the brand name as well and strengthen the brand perception.

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Types of Brand Extensions

There are five types of brand extensions: line extensions, complementary and non-complementary category extensions, expert extension, prestige extension, and customer-based extension. Let us discuss the types of brand extensions in detail.

Line Extension

Organisations develop a line extension when companies use an existing brand name to launch a new product in the parent brand’s product line. In this case, companies can target the new market segment by launching different tastes, type of ingredients, form or size of product.

For example, the Coca-Cola Company launched the Fanta Strawberry under the Fanta (Orange) brand name. When a beverage company launches a new flavour of soda or probably when a toothpaste company has a product that emphasises whitening teeth and then provides a toothpaste that mitigates tooth sensitivity.

Complementary Category Extension Non-complementary Category Extension

Another way an established brand can expand itself is by creating products that complement its core products. Nike, for example, is a sports brand that complements a variety of accessories, clothing, and other sports products.

We have also seen toothpaste companies use this type of extension for their parent brand by adding toothbrushes and other oral care products as new categories. Non-complementary category extension is when an organisation introduce a product that do not complement its core product, there is a mismatch.

Expert Extension

The company’s skill expansion strategy works when the company expands its expertise and its brand name to a new product. The company’s expertise in making good sounding speakers can be extended to the development of good sounding televisions.

For example, Sony, has made its mark in the multimedia industry and is successful in almost every related category. Think music, video games, electronics, cameras, movies, and more. Sony’s expertise in multimedia has allowed them massive success in a multitude of categories.

Prestige Extension

Brand reputation expansion refers to the expansion of a brand image to a new product when it is launched in a completely unrelated product category.

For example, a well-known automobile brand, BMW has expanded its brand reputation to products launched in the apparel industry and accessories (watches).

Customer-based Extension

When a company expands its brand across different product segments focusing on a single market segment, it is called customer-based expansion.

For example, Johnson & Johnson develops different products under the same name, which serve the same target customers – babies.

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Successful Brand Extensions

A brand extension is a smart way to use an established brand name to introduce a new product to customers. Having a strong brand personality and brand identity with clear and consistent messaging helps the brand to stand out from the competition and be recognised for its products and services. Let us discuss some examples of brand extensions.

• Clorox is a cleaning chemical company known for its bleach and laundry products and they are a good example of a brand that was able to successfully create brand extension by keeping its core image the same and exploring new territories. The brand was well known for its message of sparkling-white cleanliness adapting the bleach to household cleaners.
  
  
• Gillette was a well-known brand supplying razors and other shaving supplies. They extended their brand into making shaving products that included shaving cream, foam, gel and more.
  
  
• Dove as a brand targeted women with its messaging of body confidence and cleanliness, along with several product lines consisting of soaps such as the Beauty Bar and techniques of branding by using soft colours and logos. The company decided to increase its customer base and they created a successful launch of the Dove Men+Care branch of the business. It helped the company to reap profits with success to become a multi-national company.
  
  
• Adidas is a known company it started with its brand of shoes and it later extended its brand by launching footwear, clothing, accessories and sports goods.
  
  
• Titan as a company started with selling watches and later extended its products to eyewear, jewellery, leather products and more.
  
  
• Harley Davidson as a brand is known for marketing luxury motorcycles and they launched the Harley Davidson T-Shirts. It was a strategic decision taken by the company that the brand’s riders and enthusiast could show their support for Harley while riding their bikes which made their brand extension a success.

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Merits of Brand Extensions

Brand extension is used by organisations for introducing new products and for influencing the potential customers due to a well-developed image of the core brand product and customer loyalty. There are several benefits as well as demerits of the brand extension marketing strategy.

There are several merits that brand extension brings to the business brands which are as follows:

• The brand extension helps the company with market entry by introducing new products because of the image and goodwill of the existing brand.
  
  
• The brand extension increases the chance of acceptance when the company launches a new product or service with the existing brand name. Since, the existing brand has consumer trust and loyalty.
  
  
• The brand extension helps with saving costs needed for developing a new product and it also helps with saving n promotional and advertising costs by bringing down the marketing budget.
  
  
• The brand extension improves the image of the brand by increasing its visibility of the brand and helps to expand the market by attracting new customers and also helps with increasing the image and goodwill of the parent brand.
  
  
• The brand extension helps with increasing the profitability of the company by widening the market for both core and newly launched products. It helps the company to even charge a higher price for the extended product.

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Demerits of Brand Extensions

The important demerits of brand extension are as follows:

• The firms must do thorough research before launching their products in the markets because extending the brand name too far can even result in a loss of reliability if it takes place in an unrelated market. This can result in damaging the reputation of the core brand. The company should know the various product categories that could work and where they can use the brand name.
  
  
• When the company is selling a variety of products or services under the same brand name it may create confusion among the customers which can adversely affect the sale of both core and new products. If the new product is not that good it can lead to adverse sales and spoil the image of the core brand product.
  
  
• According to Aaker, the brand extensions can salvage the existing products of the brand when they are positioned in a close market. This can happen when there is an increase in extensions sales while those of the existing brand’s products follow a negative effect in form of an opposite curve.
  
  
• The linking of several products to a single brand can also result in the core brand may not being strongly identified with any one product. Hence, brand extension can result in unclear the identification of the brand by the consumers with the original categories which reduces brand awareness.
  
  
• A major demerit of brand extension is that by introducing a new product in form of brand extension, the company is not involved in creating a new brand with its unique image and equity. It means that the firms only focus on brand extension and try to introduce new products with the same brand to save money and time and they ignore any form of innovation or research and development in the field of business.

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Corporate Brands and Brand Extensions

Organisations need to indulge in various brand strategies to stay ahead in an increasingly competitive market and present new products to their target audience. Firms look at brand extension strategies by becoming more innovative by creating new product categories for increasing their market share.

They go through research and analysis for understanding the new trends, needs and wants of their potential clients for creating a new product category. That would be sold under an established company’s brand name and will satisfy the requirements of the customers. It helps corporations with saving money on the development of a new brand and using it efficiently for costs on promotion and also obtaining an increased brand image.

Brand extension strategies have helped companies with presenting products according to the likes of the customers. They are also able to assess their opportunities in new product categories and know whether the brands are acceptable to the customers along with defining their resource requirements.

Several corporate brands have successfully used brand extensions for introducing new products in the markets. Some of the corporate brands are:

• Colgate is a famous company and known for their toothpaste as a useful product and they introduced the toothbrush. This strategy helped Colgate to enter the toothbrush market. ‰‰ Apple is a technology company is known for its computers and phones. They used brand extension and introduced the Smart Watches and MP3 Players in the market which turned out to be very successful.
  
  
• Callaway started with making premium golf clubs and they used brand extensions for various other products such as making umbrellas, watches, towels and more. They are pushing the limits of their brand.
  
  
• Coca-Cola sells carbonated soft drinks and they used brand extension for entering the markets with Dasani water and Glaceau Smartwater.
  
  
• Starbucks is a well-established company and they are famous for its coffee beverages. They have entered the brand extension market with their unique approach to selling energy drinks. The brand has launched a new line of low-calorie energy drinks based on fruit juice and green coffee extract.
  
  
• Lifebuoy is a brand of soap that is marketed by Unilever and they forayed into the market through their brand extension for selling sanitary towels and sanitisers that are always required by the customers.

Some other examples of brand extension are:

• Dyson was selling vacuum cleaners and they moved into desk lamps.
• Coleman was into selling gas-powered lanterns and now they also produce sleeping bags. ‰‰
• Ferrari was selling exotic sports cars and they have also launched the theme parks. ‰‰ ‰‰
• Google has moved from search engines to hosting email services. Fender was into making guitars and amps and they are now also producing earbuds.
• Cosmopolitan has moved from magazines to selling yogurt.

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Case Study: Brand Extension by Accenture

Accenture is the world’s largest management and technology services organisation that serves around 4000 clients in more than 120 countries through extremely advanced technology, strategies and operations competencies. With more than 336,000 employees serving clients across the world, Accenture is considered to be a prominent consulting and outsourcing organisation in the B2B market.

Accenture was started as Andersen Consulting, a business and technology consulting division of accounting firm, Arthur Andersen. However, in 1989, Arthur Andersen and Andersen Consulting decided to work as separate business entities.

As a result, Andersen Consulting was required to change its name. The whole incident rebranded the Andersen Consulting and the new entity was retitled as ‘Accenture’ on January 1, 2001. The company, in order to reposition itself and give its new name a corporate identity, invested around $175 million on a global advertising campaign, tagged, ‘‘Now It Gets Interesting’’.

The campaign successfully drew the attention of corporate executives, which was the ultimate target of Accenture.

Accenture with the help of its New York-based advertising agency, Young & Rubicam, followed up this initial advertising effort with ‘‘I Am Your Idea’’ campaign that helped the company to heighten its brand image among high-level executives.

‘‘I Am Your Idea’’ was a global campaign, based on an attention-grabbing concept. The ad aimed to promote Accenture’s ability to turn its clients’ vision into reality. Usually consulting firms are criticised for imposing their own notions on clients. However, this ad campaign promoted the thought of a consulting firm that helps its clients in implementing their own ideas. The ad concept was well received by the target audience.

The ‘‘I Am Your Idea’’ campaign targeted basically the corporate decision makers, including senior executives, such as CEO, CFO, COO, CIO and CMO. The campaign was made with a thought that whenever these executives think of a consulting firm for their projects, they think of Accenture. To reach to global audience, Accenture went for a high volume aggressive advertising efforts with an estimated cost of $175 million.

The company used several advertising media channels, such as TV, print and outdoor mediums to promote its name among the target audience. First, a set of TV ads were launched in February 2002, followed by a second round of commercials in September 2002. In addition, the company targeted global business-oriented magazines and newspapers to reach corporate executives. Considering the target audience’s need to travel frequently, airport posters were also used as part of the advertising campaign.