7 BrandExtension PDF

11/3/2014
Brand Management
MK542E
Brand Extension
Dr. Dildar Hussain

Assistant Professor
ESC Rennes School of Business
Office No. 327
[email protected]
Chapter Overview
Overview
Defining brand extension, types and strategies
Benefits, risks, and requirements of brand extension
Scope of brand extension, issues for mature and new
markets
Brand dilution and distancing techniques
Learning Objectives
Understand and appreciate importance of brand extension
Evaluate key factors and issues in brand extension for different types of brands and markets
Understand concepts of and brand dilution and distancing and their role in brand management
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Introduction - 1
Pressure on manufacturers due to
Complying government regulations
Meeting price demand from consumers
Shrinking profit margins (Luxury Vs. FMCGs)
Large corporations spending huge amounts on R&D, and developing and lunching
new products
Resulted in increased focus on cost reduction and leveraging brands in different ways
Brand extensions are seen are a safer and economical way of offering a new product
Extensions of popular brands cause less disruption to the overall business and less
strain on manufacturing capabilities
Companies have learned to work with the brand they already have
Needs to link and connect bands in order to create powerful images and meanings
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Introduction - 2
Extension beyond core business due to

New market trends
Need for short term profits
Increase sales
Supporting brand awareness attempts
Sometimes contradicts the core brand value and creates brand confusion
This results in change of focus from product quality, value, reliability, etc. to qualities
becoming more important for customers
Health & Fitness (Pepsi Inc. --- Fuelosophy)
Beauty (Coke with LOral --- targeting beauty conscious women above 25 years)
Environment friendliness
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Perspectives on Brand Extension - 1
Brand extension in general is related to the extension of brand names

A brand extension strategy is defined as
any effort to use a successful brand name to launch a product modification or
additional products
Brand name represents a collection of associations which consumers associate with a
particular product/company/group
Brand extension umbrella branding
Brand extension across
All companys products (corporate branding)
A product class (corporate endorsement)
Product category (family branding)
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Perspectives on Brand Extension - 2
Brand extension includes introduction of

New package size
Flavors
Models
Improved formulas
Companies extend brand to cover a variety of new products that may not find
distribution without a strong brand name
Brand extension capitalizes on parent brand
It must create it own niche market and brand loyalty
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The Rationale of Brand Extension
Brand extensions represent an opportunity for firm to use the brand equity to enhance
marketing productivity because of
Aggressive promotions by established firms
Cost and difficulty of obtaining distribution
Facilitating new market entry
Protection against private labels or store brands

Retaining old customers
Attracting new customers
Choice of Brand Extension
Two Choices
(Product) line extension
Existing brand being extended to a product in one of the firm's existing categories
Cokes line extension includes Classic Coke, Diet Coke, Caffeine-Free Coke, Cherry Coke, Etc.
Often a line extension involves a different flavor or ingredient
Line extension is used to target a new market segment within the same product category
(Product) category extension

A category extension refers to an existing brand name which is extended to a new product
category
Enables the brand name to enter completely different product class
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Vertical and Horizontal Extension
Brand extension comes in two forms

Horizontal extension (category)
An existing brand is applied to a new product
either a related class or in a category completely new to the firm
Vertical extension (line)

Introducing a brand extension in the same product category but at a different price point and
quality
Two options
Step-down: a lower price and lower quality than the parent brand
Step-up: a higher price and higher quality than the parent brand
A second brand name or a descriptor is usually added alongside the brand name
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Benefits and Risks of Line and Category Extension
Potential benefits of line and category extension include

Immediate name recognition
Reference of benefits associated with a familiar brand
Reduces risk of failure of new products thus extensions are attractive for firms that face higher
rate of new product failure
Reduced costs for distribution of new products
Enable charging premium prices
Brand extension is strategically critical

It may risk decreasing the value of the most important asset owned by a firm
Wrong extensions can create damaging associations
Wrong judgments may result in substantial resources and time loss
Risk of intra-brand competition and brand confusion
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Conditions for Extending a Brand into a New Product Category

Three conditions for extending a brand into a new product category
Perceptual fit consumers must perceive the new extension to be consistent with the parent
brand
Competitive leverage the new product should be comparable with or superior to other
product category
Benefit transfer benefits offered by the parent brand are desired by the consumers in the
new category
Four brand extension options which a company can adopt (Doyle, 1989)
If the brands appeal to the same target market segment and have the same differential
advantage, they can safely share the same company name or range name
If differential advantage is the same but the target market is different, the company name can
be extended because the benefit is similar
If a company has different differential advantages, it should use separate brand names.
If both the target customers and the differential advantages are different, then using unique
brand names is the most appropriate strategy
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Criteria for Consumer Acceptance of Brand Extension
The parent brand has high perceived quality (value?)

There is a good fit between the parent brand and the proposed extension
Similarity of product category
Similarity of brand image
Perceived expertise
Refers to consumer perception of companys ability to produce the extension
Especially when it extends to an unrelated product category
A grocery retailer extending into financial services
To a lesser extent, the extension is not regarded as too easy

Brand reputation and perceived category risk
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Brand Reputation and Perceived Category Risk

Consumers initially categorize by assessing the suitability of its membership in a
category
The core brand associations are transferred/transferable to the extension
Types of associations
Product attributes
Intangibles
Customer benefits
Relative price
Usage/application
User/customer
Celebrity person
Life style / personality
Product class, competitors, country/geographical area
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Key Success Factors of Brand Extension
Factors contributing to the success of line extension

The parent brand strength and its symbolic value
Early entry timing
A firms size
Distinctive marketing competencies
Advertising support allocated to the line extension
Factors contributing to the success of category extension

Managing quality variance
Alignment of the extension with the current brand
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Assessing Scope for Brand Extension
Criteria to assess scope for brand extension

Strength of parent brand
Target market
Extendibility
Transferability
Brand breadth
Product category risk
Creating new meanings
Market related factors
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Extending into a Mature Vs. a New Market
Saturated / Mature Markets

Established brands are more dominant
Newcomers and private labels struggle to compete
More pressure on established brands for extending
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Brand Dilution
Brand dilution is one of the biggest risks associated with brand extension
Brand equity damaged (in long run)
Brand spillover
Positive spillover
Negative spillover (Audi 5000 sudden acceleration)
Reasons of brand dilution

Over-extension
Extension into unfit category (which doesnt add something substantial)
Expending through opportunistic licensing
Extending into lower quality segments
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Distancing Techniques -1
Distancing techniques are the means through which the brand extension is positioned
closer to or further away from the core brand
A variety of linguistic and graphical distancing techniques can be used in
Advertising
Sales promotion
Packaging
Linguistic distancing techniques

Use words to manipulate the distance between the core brand and the brand extension
Presenting new brand identifiers
Identifiers can be used alone or in combination with the core brand name
A second technique involves using possessive forms (e.g., a division of, brought to you by,
from)
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Distancing Techniques - 2
Distancing and parent brand

Distancing from parent brand is particularly useful for protecting the parent brand in vertical
extension
It is important that price/quality positioning of the original parent brand image remain
relatively unaffected and unharmed
Audi 4000 and Audi 5000 Vs. Audi Quattro
Distancing and Step-up Brand Extension (particularly important for luxury products)
It is better to be further away from the core brand, in order to avoid being associated with the
core brands lower level of quality
If following step-up approach, companies should put a maximum distance
Acura Honda, Infiniti Nissan, Lexus Toyota
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Distancing Techniques - 3
Distancing and step-down extension

The impact of distancing on step-down brand extensions is exactly the opposite of the effect
found for step-up extension
The extension brand can benefit from being associated with the superior quality
Greater distance is beneficial for the core/parent brand but less effective for the extension
The final decision should be based on the strategic goals of the company
Sometimes the new segments are more promising
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Brand Extension Procedure
Basic questions for an extension decision

What are the companys objectives?
Do we want to go head to head with competitors or not?
Who are our competitors?
Will brand extension help us achieve our objectives?
Would a corporate brand generate more positive associations to the brand extension?
How well do the customers relate to the corporate brand?
Would it be better to use single brands?
What new meanings do we want to create for the extension?
Who is our target market?
What are the current fads, trends?
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You cannot teach a man anything, you can

only help him find it within himself.
Galileo
https://www.youtube.com/watch?v=8gRMZqiTi_A&feature=related
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11/3/2014
Case Study
A case of brand proliferation in the hotel industry
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[email protected]
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11/3/2014

Dr. Dildar Hussain

Extension beyond core business due to

Perspectives on Brand Extension - 1

Brand extension in general is related to the extension of brand names

Perspectives on Brand Extension - 2

Brand extension includes introduction of

The Rationale of Brand Extension

Protection against private labels or store brands

Choice of Brand Extension

(Product) category extension

Vertical and Horizontal Extension

Brand extension comes in two forms

Vertical extension (line)

Benefits and Risks of Line and Category Extension

Potential benefits of line and category extension include

Brand extension is strategically critical

Conditions for Extending a Brand into a New Product Category

Criteria for Consumer Acceptance of Brand Extension

The parent brand has high perceived quality (value?)

To a lesser extent, the extension is not regarded as too easy

Brand Reputation and Perceived Category Risk

Key Success Factors of Brand Extension

Factors contributing to the success of line extension

Factors contributing to the success of category extension

Assessing Scope for Brand Extension

Criteria to assess scope for brand extension

Extending into a Mature Vs. a New Market

Saturated / Mature Markets

Reasons of brand dilution

Linguistic distancing techniques

Distancing and parent brand

Distancing and step-down extension

Brand Extension Procedure

Basic questions for an extension decision

You cannot teach a man anything, you can

A case of brand proliferation in the hotel industry

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