Brand Extension

By Vipul Tyagi, 3EA
Brand Extension

"Brand extension is a popular marketing strategy where a firm uses the already built brand name for a different product category." This new product is usually termed a spin off. And the existing brand that gives rise to a brand extension is referred to as Parent brand.

For example, Virgin, a record label initially, entered into the line of business like aviation, games store, video store telecom etc. Godrej, which was initially a brand for locks and cupboards, entered into whole new product categories like refrigerators, furniture and real estate.

Brand extension could serve the organization a recipe for success as there will be increased brand visibility and consumer connections, incremental shelf space at retail, entry into new distribution channels and enhanced brand associations.

Research shows that brand extensions of existing brands are 5 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. From marketing perspective, it is easier to focus on the new product rather than new brand & product. Also, the cost to create awareness is saved.

But there are certain constraints that should be looked into before going for extension.

a) Good Fit for Imagery: Existing brand associations and imagery need to have a good "fit" with the proposed categories. Example: Horlicks brand category didn't find success in noodles extension due to brand's strong association with health.

b) Enhanced brand Association: It is very much easy to extend a brand with abstract associations into multiple categories. Example: Porsche has been successfully extended into several unrelated categories such as Eyewear, luggage, watches, electronics etc. due to its abstract association with style & design rather than just sports car expertise.

c) Differentiation from competitors: This provides clear differentiation from the competitors while sticking to the core values of the brand. Example: Marico Kaya Brand with its service expertise, the brand extension offers a strong differentiation in a segment dominated by international brands.

d) Size of category & degree of saturation: Both of the factors should be understood to assess the chances of success. It sis sometimes easier for a new brand to sustain and thrive in a same category. Some categories are fragmented and have no major players with significant market shares.

e) Evaluate the right approach to enter those categories: This comes after selection of the categories. The brand owner has to decide whether to manufacture and market the product themselves or is there a need of the involvement of the third party.

The involvement of the third party is allowing other companies to produce and market those products and in return for the use of their brand, the brand owner charges the manufacturer a royalty fees. Such an agreement is called "Brand Licensing" & can be very lucrative yet low-cost ad low-risk brand development strategy.

Brand licensing is a major low-cost decision for the brand owner. But opting for brand licensing involves certain parameters to be met by the manufacturer. These are:

a) Production 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.

b) Size of the category: Sometimes, the market size of the category for brand extension is quite small and unattractive for the brand owner to invest their own time & resources which could be better utilized in the expansion of the core business. In such cases, the brand licensing approach could be better suited.

c) Distribution Channels: Sometimes the brand extensions can be sold through channels which can't be reached by the brand owner with existing products. Thus, 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.

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Article by: Vipul Tyagi, 3EA