A Strategic Overview of Brand Extensions

“A really good brand extension shares character with its parent brand. At the same time, brand extensions provide a relevant and differentiated benefit from the parent. A really good brand extension will extend the frequency with which customers experience the overall brand promise. Repeated positive experience with the brand family strengthens a customer’s conviction in the brand promise. The increased brand connection, along with more frequent use, increases customer loyalty.” – Forbes 2020

Brand extensions are a strategic approach where a brand develops a new product or service offering under its existing name. This approach aims to leverage the brand’s established recognition, reputation, and customer loyalty to expand into new markets or categories.

Brand extensions have several possible growth benefits for those that seek to pursue them, including:

Capitalising on brand equity – higher chance of success: One of the primary reasons a brand may pursue an extension is to harness their brand equity. Data suggests organisations that utilise a brand extension can be up to five times more successful than a new brand launching its offering. A well-known and respected brand can attract new customers more easily than a newcomer, reducing marketing cost and accelerating market entry.

“In a brand extension, you’re looking to appeal to new audiences with the brand you already have. There’s no uprooting of what you’ve built and a lot less soul searching to be done. You are nudging your brand forward with a specific goal in mind and building on the brand equity you already have.” – Forbes 2017

Market diversification: By expanding existing products or services, brands have the capability to explore new categories or markets than what they currently occupy, reducing reliance on a single stream. This may help to mitigate risk within a given category and creates increased revenue pathways.

Studies show that 45% of consumers are willing to pay more for a similar product if it came from a brand they trusted, and 59% would prefer to buy new products from a brand they’re familiar with.

Better meeting consumer needs: At the core of most successful brands is a deep understanding of their customers needs and wants. Through brand extensions organisations can address the evolving needs of their consumers. Expanding to match shifting demands, ensuring relevance and connection.

There are various types of brand extensions, four of the most common being:

  1. Brand line extension: When a brand creates a new product type that is similar to what they already offer. Often the simplest form of extension with the least risk.

For example, Tim Tam offering a variety of flavours beyond original (e.g., Double Coat, Chewy Caramel and Dark)

  1. Complementary product extension: When a brand releases a new product separate from what they currently offer, that still compliments their existing offering.

For example, Colgate (a toothpaste company) releasing toothbrushes

  1. Customer franchise extension: When a brand creates a new product in a new category that does not compliment their existing offering, but will be of value to their specified demographic/ audience.

For example, Dyson extending from high-tech vacuums to fans and beauty appliances

  1. Company expertise extension: When a brand becomes a leader (or authority) in a given sector and launches a new product or service in a new category. Critical to success for this form of extension is a strong brand reputation and trust.

For example, Amazon (initially an online bookstore) leveraged its expertise in e-commerce and logistics to branch out into multiple industries (e.g., streaming, groceries, and electronics)

“Millions of people use contraptions daily that are hideously inefficient, waste their time and are causing them long-term damage… We realised that we could — and should — sort this situation out.” – Dyson speaking on their brand extension strategies

Brand extensions can be a risky endeavour however, and there are a few considerations to make before going down this path as an organisation:

Relevance: A successful extension must align with the brand’s existing identity and customer expectations. Extending into unrelated or incongruent categories can damage brand equity, like Colgate attempting to expand into the frozen meals category in the 80’s.

Source: Museum of Failure

Quality: The new product or service must maintain or exceed the existing quality standards. Subpar extensions can dilute brand value and damage customer trust.

Consistency: Brand messaging and positioning must be consistent across all extensions. A unified brand voice helps reinforce recognition and loyalty. This is where a clear positioning defined by the brand’s unique value rather than being tied to a specific category can be so important. For example, Apple do not position themselves as a mobile phone manufacturer, they rather position themselves as a “leader in the technology industry with the most innovative products”, meaning they are able to expand beyond their phones to watches, headphones, computers and a streaming platform and this still fits with their messaging and is comfortable for audiences.

Market research: Before launching a brand extension, comprehensive market research is essential. Understanding consumer needs, potential competitors, and market trends can guide strategic decisions and ensure the extension resonates with the target audience and helping to avoid disasters such as the Colgate Lasagne.

Ultimately, brand extensions can be a powerful strategy for companies looking to grow, diversify, and enhance their market presence. By capitalising on brand equity, meeting consumer needs, and exploring various types of extensions, companies can navigate new opportunities and challenges. However, for success, brands must consider their new product/ service for relevance, quality, and consistency, whilst being backed by thorough market research.

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