KNOWLEDGE BOX

is a periodical publication of
BLOOMHEAD

Brand Extension
The Benefits and Pitfalls
www.bloomhead.com
[email protected]

Strategy | Organization | Marketing | Operation | Finance | International Entry

Brand extension can either be taking product

to market faster or diluting the parent brand ...

BRAND: A PART OF MARKTING MIX called brand. A brand is created to foster long term
Classical 4Ps (Marketing Mix: Product, Price, chained connections between company and
Promotion, Place) is in continuous use by marketing customers. As more alternative of products available
practitioners and academicians to design an in market, customers take bigger trust on brand they
integrated marketing plan. Along with STP can rely on, to products that offering values closely
(Segmentation, Targeting and Positioning), marketing meet their needs.
mix plays a major role for designing marketing
roadmap starting from early stage of new product Brand is a powerful tool for marketing strategy.
development until maintaining market share. Luxurious brands like Gucci and Prada are negatively
Regardless what content inside the product, how affected on counterfeits sold by illegal vendors in
much it is priced, how intensive the promotion takes, developing countries. Consumers who buy the
and how large the coverage of distribution, a clear products know dissimilarity of quality. They,
identity to distinguish the product to other products however, still make buying decisions as driven by
that have existed in the market is crucial. In power of brand. The typical consumers won’t make
marketing study, such identity labeled to a product is
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purchases when no brand is attached to the marketing expenses at the same level as spent by the
counterfeited products. parent brand, yet may gain similar level of success. A
strong reputation of parent brand can minimize risk
A series of programs to promote products relying on of new product launch by taking advantages on
brand images is called branding. Branding is crucial to consumers’ knowledge and experiences of the
increase perceived consumer value. Successful established brand.
branding programs lead to brand loyalty and
consequently transfer the loyalty to brand extension. In comparison, line extension strategy is sometimes
Similar with humans, brand has an image as mixed up with brand extension. While taking
accumulations of some attributes. Physical product completely different approach, line extension offers
quality, the most tangible and easiest to detect, new products, under the same brand name, in the
belongs to the collection of attributes. In the long same product category. Line extension can also by
run, however, the product quality is perceived extending same product and same brand with
separately from brand image. Some argues that different product features (e.g. introducing new
brand image is more important that physical product flavors and selling different sizes of packaging). From
quality. In executing brand extension, high profile risk management perspective, brand extension poses
and well known brand image is more applicable than more risk than line extension. Poorly executed
one with low image. extension of brand to new product categories can
jeopardize current image of parent brand. In less
BRAND EXTENSION AND LINE EXTENSION degree of risk encountered, line extension deals only
Brand extension is a part of brand management to with the product itself with slight connections to the
diversify and leveraging the existing brand by brand.
entering into new product category by new product
development. Positive images and strengths of Entire processes of new product developments take
existing brand / parent brand are leveraged to bring significant hours and efforts to bring about a success.
another success story for new product. Brand Particularly for some type of products having short-
extension is increasingly used by companies as a part term product life cycle, a marketing strategy that
of strategy for product developments. It is viewed as leads to a shortcut of achievement is a preference for
one of means to attain integrated brand architecture. a marketing program. Instead of working up from a
The use of same brand on existing product (parent zero point, one would start from an established
brand) for a new product in different category ground-base. From marketing view, brand extension
(extension brand) increases rate of new acceptance strategy is a solid base and perceived for a main
and purchase intention to consumer. The strategy choice to continue the legacy of a successful parent
maintains efficiencies on advertising and promotion brand. Also, it optimizes economic scale of
expenditures yet still can create new market company’s intellectual property. However, brand
segment. Company is not in position to allocate extension strategy is not a risk-free and does not

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fully secure the results. It poses some risks since the the brand extension. Some products were in trial but
brand associations of the parent brand must be resulted in little success. In branding strategy,
appropriately transferred and linked to the new pharmacists show a significant role. They provide
product. The failure of associating brand to new main stream on how label a product name.
product can negatively affect not only to the new Pharmacists fear that extending brand to different
product, but also does affect the parent brand. The active ingredients increase chances of dispensing
image and financial figures of parent brand may be mistake. For instance, Panadol is the brand of generic
endangered due to the failure of strategy paracetamol. Adding one or more active ingredients
implementation. yet maintaining same brand of Panadol would be
difficult for marketing and safety reasons. Unique
BRAND EXTENSION IN FMCG AND PHARMACEUTICAL approaches experienced by pharmaceutical sectors
For FMCG (Fast moving consumer goods) companies, and can be seen as a brand extension is by using two
the use of brand extension is increasing for last few different brands for the exactly same product and for
years. Very high cost required to launch a new treating two different treatments. The generic name
product becomes a major factor for company to of Bupropion hydrochloride is manufactured and
rethink and locate different marketing approaches. marketed by GSK (GlaxoSmithKline) as a brand name
Marketers find that using the same brand (of course, Wellbutrin for treating depression and as Zyban for
the established and reputable one) in the company’s smoking cessation.
portfolio to be used by new product in different
category can be the answer to financial efficiencies. BIG NAMES WITH SUCCESSFUL BRAND EXTENSION
As this approach becomes popular and widely Not many companies can be compared to Virgin
leveraged by more companies, supplemental risks group in doing A-Z of brand extension. Virgin Group
occur as brand concentration is focused to big brands flies high with brand extension. By simply attaching
only. Too many products under a brand portfolio can name of “Virgin” in every product they market, Virgin
also endanger overall brand image. rolls out so diverse categories. Virgin decisions to
take this approach are tightly tied to the founder and
Two FMCG companies P&G (Procter & Gamble) and CEO of the group, Richard Branson. With one single
Unilever are concentrating on big brands that brand (Virgin), Branson and team have introduced
generate sales of more than $1 billion. P&G recently and promoted so diverse product categories, from
launched two new products using brand extension: cola drink to wedding service and further to budget
new biodegradable wipes named Kandoo, launched airline. A few were not running as planned, yet not so
under Pampers parent brand, and a new product for few can contribute cash inflows to the company.
washing cars under Mr. Clean parent brand. Founded in 1970s as a mail order record company,
Virgin has now more than 200 individual companies
Different nature and marketing practices, with total $5 billion in turnover. Recipe spread by
pharmaceutical companies tend not to implement Branson on taking his company grown so rapidly is by

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a simple answer: brand extension. It is the strategy to Global 2000 for total market equity. History of
bring new products and services in market faster company began in 1962 when a University of Oregon
than ever. For Virgin, one mistake of product can accounting student who also a runner for the
dilute entire brand portfolio. campus, Phil Knight, started to import Onitsuka Tiger
sport shoes from Japan. He envisioned conquering
Before deciding to launch a new product with domination of German manufacturers which
completely different from parent brand, Yamaha had controlled U.S. athletic footwear market at that
developed sound reputation in manufacturing moment by marketing low price and high-tech
musical instruments. Perception to Yamaha musical athletic shoes. With $500 investment of each, the
instruments referred to engineering quality and young Phil formed a partnership with Bill Bowerman,
precision. The two value creation were successfully the track coach at the same university, to operate a
transferred to new product and as the result, Yamaha newly formed business under name Blue Ribbon
is now one of the world’s largest manufacturer of Sports. The very initial marketing operation was
motor cycles under Yamaha Motor Company. marked by selling shoes from the back of a van at a
high school track. Within 10 years of business
A very bold brand extension was taken by Caterpillar. operations, company was gaining growing market
Its move from a brand solely used for manufacturing share that soon affect to the modifications of
on specialist construction and mining equipment into corporate name and brand logo. Nike, adopted after
footwear market was highly perceived as a big the Greek goddess of victor, was chosen replace
mistake. However, the trial has been a big success. previous name and a graduate student named
Available in over 150 countries, unit sales exceeded 5 Carolyn Davidson designed the “swoosh” logo.
million in 2001, making Cat Footwear one of the Design of new symbol costs $35. In 1972, Nike
largest youth non athletic footwear brands in the approached some marathoners at Olympic trials to
world. The perception tried to transfer from the wear the shoes. Soon the marketing program worked
parent brand to footwear clearly demonstrate the well and Nike began an advertising debut promoting
strengths and outdoor equipment. A line in to public that some marathoners wore Nike’s shoes.
Caterpillar’s website points out that “At Caterpillar, To optimize it continuous market expansion, Nike
we build the machines that help our customers build went public and took the company to IPO (Initial
a better world. The boots and shoes we build are Public Offering). Targeting diverse markets from men
made with the same commitment". and women to children, Nike also targets different
sport categories. Product categories of running,
Nike is an example on how a brand is extended to basketball, volleyball, golf, soccer, baseball and
enter some different product categories and still recreational media are some of total categories set
sustains to business competitions. With its 2004 by management. In 2000, Nike introduced a series of
revenues of $12.3 billion, Nike was ranked 173 on US electronic gadgets. Ahead of time, Nike was already
Fortune 500 and ranked 374 on Forbes magazine’s running in diverse product categories of athletic

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shoes, watches and apparel. The brand extension perception of parent brand is critical and need to be
transferred by Nike mostly fit perceptions and image transferred correctly to new products. Bic, stationery
of parent brand into consumers’ mind. manufacturer based in French, took failed step when
extending its brand. Originally as a pen maker, Bic
PERCEPTION OF PARENT BRAND embraced successful brand extension into shaving
The perception of parent brand transferred inside equipment and cigarette lighters. The success of prior
consumer mind strongly influence acceptance of two products stimulated Bic to enter another entirely
product extension associated with the brand. Images different product category by launching perfume.
transferred to consumer minds are perceived and Sony, which is associated with strong quality of audio
received positively if both, product transfer ability and visual devices, makes smooth transfer of the
and company transfer ability, address value levels of perceptions when introducing a new category of
parent brand. Product transfer ability indicates how personal computer with label Vaio.
features of products in parent brand portfolio are
transferable to new product extension. Meanwhile, VALUE CREATION OF PRODUCT EXTENSION
company transfer ability denotes company Level of value creation delivered by product
environments (i.e. people, facilities and skills) in extension is a major influential to sustain long term
making the product extension. For instance, assume result to the strategy. Creating values are applied
Nike plans to extend its brand name by introducing a either through physical product or emotional
new product extension in personal computer experiences; or at higher level can be both. In
category. Consumers mind may be directed to how deciding which values put into the product, company
effectively company’s existing resources is should consider from multi perspectives of
transferable to making personal computer. customers. At retailers point, products offering value
benefits of maximizing shelf space are likely to offer
Perception inside consumer mind plays an important positive financial returns to retailers. Challenging
role. As more alternatives available before purchase point of value created to retailers deal with offering
decision is made, consumer without consciously broad variety of products with constrained space
reconciling their experiences with other products of they have.
the same brand. The product, whose parent brand
has been established and is triggered with immediate Brand management is responsible to manage entire
perception and associations, is likely to have better processes of brand life cycle, from creation,
chance for final selection rather choosing completely development to elimination of the brand. Consumer
unfamiliar brand. goods multinational company, Unilever, has recently
taken a restructuring on the brand portfolio. By
For instance, Volvo is perceived with luxury and reducing 1,600 to 400 brands, Unilever streamlines
safety, while McDonald is associated with fast service its brand varieties in order to be ahead of global
and standardization. This original and grand competition. The more number of products managed

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in a company brand portfolio increases level of risk consumer’s perception to new product. Level of
faced due to unsuccessful programs of product brand loyalty shown by a customer can switch to
extension. In greater impact, it can jeopardize a radical degree for brand extension case. When
business unit or company existence. Correlation of 2 loyalty and level of familiarity with parent brand is
functions, span of control and number of products in high, new product extension failure may greatly
a brand, provides a framework to devise a brand diminish trust level to entire brand portfolio. In turn,
extension strategy. More products handled by a low familiarity to brand affects low dilution when
brand manager decrease the span of control. It brings product failure occurs in new extension.
a linear correlation with brand risks. To lower risk,
brand manager is likely to extend brand portfolio
with a moderate number of extension, which also Budi Juda
reduce span of control issues. Managing director of Bloomhead

DOWNSIDE: BRAND DILUTION

Brand dilution occurs when consumers loss the
original grasp of brand perception on their minds and
no longer associate the brand with a specific product.
For instance, Cadbury may experience brand dilution
by loosing its strong identity of chocolate and candy
bar by running a number of different categories like
mashed potatoes, powdered mill and soups. Too
broad varieties of product categories run under same
brand can frustrate consumers in thinking which
variations of products that actually fit to their
perceptions. Even though today's consumers are
selective in their buying habits and expect
innovation, the reality of brand extension success is
still low. This is because most of new product
extensions are not unique and do not satisfy
consumer needs.

There are some factors that lead to brand dilution.

Among those include perception in consumer minds
comparing between parent brand and product
extension, level of familiarity with parent brand, fit
level transferred from parent brand to extension and

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