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What Is Brand Extension?
Brand extension is a strategy where a company uses its established brand name to launch new products, leveraging brand equity and customer loyalty to attract buyers and boost profits. It can expand a customer base and create growth opportunities, but it also carries risks like brand dilution if the new product doesn’t fit consumer expectations. Successful examples include Apple and Google, though some companies, like Levi Strauss & Co., have faced challenges in the past.
Key Takeaways
- Brand extension capitalizes on existing brand equity to introduce new products, potentially helping companies reach new demographics and boost profit margins.
- A logical association between the original and new products is vital; a weak connection can lead to brand dilution and harm the parent brand.
- Successful brand extensions can diversify a company’s offerings, enhancing market share and providing competitive advantages.
- Not every brand extension succeeds; mismatches between brand identity and new products can backfire, as seen in failed attempts like Levi’s venture into business attire.
- Companies benefit from a “halo effect” when consumers’ positive perceptions of the original product aid in the acceptance of the brand extension.
Understanding the Strategy Behind Brand Extension
A brand extension leverages the reputation, popularity, and brand loyalty associated with a well-known product to launch a new product. To be successful, there must be a logical association between the original product and the new item. A weak or nonexistent association can result in the opposite effect, brand dilution. This can even harm the parent brand.
Successful brand extensions allow companies to diversify their offerings and increase market share. They can give the company a competitive advantage over its rivals that don’t offer similar products. The existing brand serves as an effective and inexpensive marketing tool for the new product.
Apple (AAPL) is an example of a company that has a history of effectively using a brand extension strategy to propel growth. Starting with its popular Mac computers, the company has leveraged its brand to sell products in new categories, as can be seen with the iPod, the iPad, and the iPhone.
Important
Companies that are able to successfully extend their brand are often said to benefit from the halo effect, which allows them to capitalize on the positive perception consumers have of their products to launch new products.
Notable Brand Extension Success Stories
Brand extension can simply involve offering the original product in a new form. For example, the Boston Market restaurant chain launched a line of frozen dinners under its own name, offering similar fare.
Another brand extension approach is combining two well-known products. Breyers ice cream with Oreo cookie chunks relies on consumer loyalty to one or both brands.
Brand extension also may be applied to a different product category. Google’s core business is a search engine, but it has an assortment of other non-advertising related products and services including the Play Store, Chromebooks, Google Apps, and the Google Cloud Platform.
In the best examples, the brand extension is natural and arises from a recognized positive quality of the original product. Arm & Hammer produces a deodorizing cat litter under its brand name. Black & Decker makes a line of toy tools for children. Ghirardelli Chocolate Company sells a brownie mix. The creation of complementary products is a form of brand extension. The many varieties and flavors of Coca-Cola are an example.
Challenges and Pitfalls in Brand Extension
The cost of introducing a product through brand extension is lower than the cost of introducing a new product that has no brand identity. The original brand communicates the message.
Brand extensions fail when product lines are clearly mismatched. The brand name might negatively affect the new product. Brand managers must consider the target audience and product fit before launching.
In the early 1980s, Levi Strauss & Co. unsuccessfully launched men’s suits under Levi’s Tailored Classics. After years of poor sales, the company discontinued the line. The company couldn’t overcome consumers’ perception of the brand as one associated with rugged casual wear and not business attire. Levi’s learned and successfully introduced Levi’s Dockers, a casual apparel line, in 1986.
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