Do Brand Extensions Really Work?

brand extensions

I was reading somewhere that 70% of new products are brand extensions. Using a well-known brand name to enter a new segment or category seems  to be a preferred strategy to grow a business.

Brands take years and a lot of resources to build. So the temptation to leverage the trust consumers have in a brand to expand the into a new category is understandable.

The perceived benefits of brand extensions can be summarized into one sentence: by using an existing name that people are familiar with the marketing costs related to creating awareness, trial and penetration will be much lower.  The time to market will also be considerably reduced.

A Better Term

I like to use the term brand stretching to define this strategy. The reason is, by slapping a brand name to products in totally unrelated categories, the original perceptions consumers have the brand are stretched, sometimes to the limit.

Moving a brand up or down the price ladder also qualifies as brand stretching.

Kia recently announced the introduction next year of the K900 model, a car packed with luxury features and a $70,000 price tag. Kia officials call the model “a 7-series value for a 5-series price”.

Is Kia stretching its brand by making this move? Definitely.

Kia will never be a luxury brand. The lower-tier brand of Hyundai (already positioned as maker of affordable cars) has built its reputation by offering feature-packed automobiles at very attractive price points.

Stretching Kia from the bargain segment to the luxury one is not going to work. I am not saying Kia will not sell any K900. I just have a hard time envisioning a luxury car buyer having a hard time deciding between a BMW and a Kia.

Volkswagen tried the same strategy with the Phateon model, a car twice as expensive as the Passat. Sales were in the end disappointing.

Brand Stretching: A Few Things To Consider

Successful brand stretching has very little to do with product features, and everything to do with its original positioning. I am sure the Kia K900 offers a greater array of standard features than the BMW or Mercedes-Benz similar models. But product features alone don’t turn an ordinary brand into a luxury one. It’s the luxury brand’s intangibles that command the high price tag.

Stretching a brand up and down the price ladder is as ineffective and entering a totally unrelated category. Many companies are not happy with their current position in the market place. Brands aim to move up to the more profitable premium or luxury segments, or down to entry level segments usually covered by new entrants.

The quote below from Mazda CEO Takashi Yamanouchi “We came to the conclusion that if we make ordinary cars for the mass market, there is no reason for us to exist.”. The new Mazda 6 is supposed to mark the car manufacturer’s push into the premium segment.

The danger is still the same: brand dilution and customer confusion.

Brand extensions could be more expensive than launching a new brand. This comes down to the fact that is much more difficult to change current customer perceptions than to start fresh.

Before considering brand stretching, the question should be asked: is there anything in the current brand perceptions that we can leverage into a new segment or price point?

A well-known name in a category doesn’t mean that the success can be replicated in a different one. Each category has different competition, and customer expectations.

The Final Verdict

Being personally involved in many new product introductions, I am very reluctant to stretching a brand beyond its original positioning. I believe the disadvantages of using this strategy  are greater than the benefits.

That being said marketers are under a lot of pressure from top management to pursue this strategy because of the perceived cost savings. A decision has to be made on a case-by-case basis. That’s because there are at least two scenarios in which brand stretching might actually work:

The brand owns a positioning that can be applied to more than one category. The Disney brand is perceived as “the ultimate family entertainment”. As a result the company successfully competes in various categories where this positioning is applicable, from family cruises to theme parks.

The brand owns a “lifestyle” positioning. Harley Davidson successfully expanded into perfumes, leather goods, and other accessories. The brand “rebellious and wild lifestyle” positioning makes these logical additions to its portfolio.

Expanding a brand into a new category or price segment has to make sense. Otherwise a company is much safer with launching a new brand rather than diluting an existing one to the point of loosing its core customers.

In the end I will leave you with the 10 best and worst brand extensions, according to AdWeek.

http://www.adweek.com/news/advertising-branding/best-and-worst-brand-extensions-146966

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