Building Brand Equity: Extension Strategies

Line Extension Brand Extension

Brand Equity
Professor Sandra Milberg

Sub-Branding Co-Branding
 Leveraging Brand Equity

One of the most important

changes in the market is the
proliferation of extensions.
 Managerial Questions
When considering entering a new product
category, two important questions:

1. Should the firm use a brand extension

strategy or a new brand strategy?

2. If the firm chooses to use a brand

extension strategy, under what conditions
will extensions be successful in capturing
sufficient market share?
 Why Extensions?

Managers use extension strategies under

the assumption that brand associations
(e.g., quality, reliability, status) and affect
(attitudes) will transfer to the extension.
 Benefits of Extensions
 Reduce risk perceived by customers
 Increase the probability of distribution and trial
 Increase efficiency of promotional expenditures
 Reduce costs of introductory programs
 Avoid cost of developing a new brand
 Create opportunities to extend into more distant
product categories
 Build equity
 Line Extension Strategy

When a brand is used to brand a new product that

targets a new market segment within a product
category currently served by the parent brand.

Examples:
 Coca-Cola diet

 Colgate for Kids

 Watt´s pear juice

 Line Extensions
Horizontal: the brand extends to new
varieties of the product. E.g., Soprole
peach, pineapple, strawberrry yogurt.

Vertical: the brand extends up or down

in terms of product quality. E.g., Gato
Negro, Gato Premium.
 Price
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Brand Category Extension Strategy

Effort to use a successful brand name to

introduce a new product into a different
product category.

Examples:
Nike MP4 player
Colgate toothbrush
Sony digital camera
 Sub-Branding Strategy

Using a new brand name in conjunction with

a family brand name to introduce new
products.

Examples:

 Courtyard by Marriott
 Technics by Panasonic
 Levi’s Dockers
 Milo de Nestle
 Co-Branding/Brand Alliance
Strategies

When two or more brand names are

attached to a product.

Examples:
 Compaq - Intel (“Intel inside”)
 Lan Chile-Mastercard-Banco Stgo
 Example of Strategies
 Parent Brand: Salomon (ski-equipment)

 Line Extension: New type of skis

 Brand (Category) Extension: Salomon tennis racquet

 Sub-Brand: Avenger by Salomon

 Co-Brand: ingredient brand for grip, frame, or strings

(Wilson and Goodyear rubber on soles of ProStaff Classic
tennis shoes)
 Licensing
 Involves contractual arrangements whereby
firms can use names, logos, characters, and
other facets of other brands to market their
products.

 Essentially, a firm is “renting” another brand to

contribute to the brand equity of their own
product.
 Why License Your Brand?
 Generate extra profit and revenues through royalties paid
(2-10 percent of wholesale price) without inventory,
accounts receivables, and manufacturing)

 Increase brand exposure

 Enhance brand image

 Disney: King of Licensing
Products: e.g., books, toys, clothing, software,
movies, etc.

 There are 3 billion entertainment-based

impressions of Mickey Mouse received by
children in one year.

 Equivalent to 10 million impressions a day.

 Steps to Successfully Introduce Brand Extensions

• Define actual & desired customer knowledge of the brand

• Identify possible extension candidates

• Evaluate extension candidate potential

•Customers, Competition, Company

• Design marketing campaign to launch extension

• Evaluate extension success and effects on parent brand equity

 Brand Knowledge
Price
Brand
Recognition Packaging
Brand
Non-
Awareness Brand Recall User Imagery
product
related
Usage Imagery
BRAND Attribute Product
KNOWLEDGE Types of brand related
association
Attitudes
Brand Favorability
of brand
Image Functional
association
Benefits
Strength of brand
Experiential
association Symbolic
Uniqueness of
brand association
12/08/21
 Steps to Successfully Introduce Brand Extensions

•Define actual and desired customer knowledge of the brand

•Identify possible extension candidates

•Evaluate extension candidate potential

•Customer, Competition, Company

•Design marketing campaign to launch extension

•Evaluate extension success and effects on parent brand equity

 Hypothetical Brand Extensions

Nikon film
Nestle beer
Disney daycare centers
Haagen-Dazs chocolate syrup
Milo sports clothes
Colgate chewing gum
Fisher-Price baby shampoo
Bacardi chocolates
 Possible Extensions for the Lubriderm Brand

BRAND DEFINITIONS RELATED CATEGORIES

moisturizer Soap - face cream - skin cream
lotion sunburn - after-shave - baby
Nivea medicinal antiseptic - first-aid - hemorrhoid cream
Cream
purity cotton - gauze - sterile pads
body care emery boards - muscle toner - cotton swabs
pump bottle liquid hair net - mustard - glass cleaner
fragrance perfume - room deodorizer - deodorant
 Category Extension Strategies
1. Introduce the same product in a different form
examples: Jello Pudding Pops, Starbucks coffee ice-cream

2. Introduce products containing the brand’s distinctive taste, etc.

examples: Haagen-Dazs Cream liqueur, Philadelphia Cream Cheese salad dressing

3. Introduce companion products for the brand

examples: Nikon Film, Duracell Durabeam flashlights, Colgate toothbrush

4. Introduce products relevant to customer franchise of the brand

examples: Visa Traveler’s Checks, Gerber baby bottles
 Category Extension Strategies

5. Introduce products capitalizing on the firm’s perceived expertise

examples: Honda motorcycles, Canon photocopy machines, Canon Scanner

6. Introduce products that reflect the brand’s distinctive benefit,

attribute or feature owned: examples: Nestle chocolates, Nestle chocolate milk
Dove cream, Dove deodorant (Mild and Pure)

7. Introduce products capitalizing on image or prestige of the brand

examples: Calvin Klein clothes, Porsche sunglasses
 Steps to Successfully Introduce Brand Extensions

• Define actual and desired customer knowledge of the brand

• Identify possible extension candidates

• Evaluate extension candidate potential

•Consumer, Competitor, Company

• Design marketing campaign to launch extension

• Evaluate extension success and effects on parent brand equity

 Consumer Evaluations of Brand Extensions

Timex Watch Rolex Watch

Timex Kitchen Timer Timex Calculator Rolex Bracelet Wallet

 Consumer Evaluations of Brand Extensions
Evaluation of
Brand Extension

Perceived fit of
Brand Extension

Product-level Concept
Similarity Consistency
Perception Perception

comparison comparison
Existing Brand Brand
“Brand X”
“Brand X” Extension Extension
concept
product Products Products
 Favorable Brand Extension Attitudes

Necessary Conditions

• Consumers have awareness of and positive associations to the brand

• Some of the positive brand associations will be evoked by the

extension

• Negative parent brand associations are not transferred to the extension

• Negative associations are not created by the extension

 Steps to Successfully Introduce Brand Extensions

• Define actual and desired customer knowledge of the brand

• Identify possible extension candidates

• Evaluate extension candidate potential

•Customer, Competitor, Company

• Design marketing campaign to launch extension

• Evaluate extension success and effects on parent brand equity

 Brand Extension Positioning Strategies

• Consistent across all product categories?

• Variations across product categories?

• Where can extension position relative to competitors?

 Brand Extension Advertising Strategies

• Family brand advertising (multiple family products)

• Individual brand advertising (extension alone)

• Comparative advertising (competitor brand)

 Steps to Successfully Introduce Brand Extensions

• Define actual and desired customer knowledge of the brand

• Identify possible extension candidates

• Evaluate extension candidate potential

•Customer, Competitor, Company

• Design marketing campaign to launch extension

•Evaluate extension success & effects on parent

brand equity
 Managerial Question

... Under what conditions will

extensions be successful?
 Important Factors for Extending Brands
Sucessfully
POSITIONING

MARKET
•Information EXTENSION
Success of Brand •Fit
•Characteristic and
Nº Competitors Extensions
• Choice Shares
• Sales
• Evaluation
• Perceived Risk
• Profit
•Market Share
CONSUMERS
•Knowledge BRAND/FIRM
•Risk Aversion
•Brand Strength
 Examples of Category Extensions
“SUCCESSFUL” “UNSUCCESSFUL”

Ivory shampoo & conditioner Campbell’s tomato sauce

Nestle Chocolate Milk LifeSavers chewing gum
Bic disposable lighters Dunkin’ Donuts cereal
Jell-O Pudding Pops Bic perfumes
Sunkist Orange Soda Harley Davidson wine coolers
Colgate Toothbrushes Xerox computers
Honda lawnmowers Kleenex Diapers
 Selective Research Findings
 Successful brand extensions occur when the parent brand is
seen as having favorable associations (strong vs. weak
brands) and there is a perception of fit between the parent
brand and the extension.
 There are many bases of fit: product-related attributes
and benefits, common usage situations or usage types,
and technical or manufacturing commonalities.
 High-quality brands may stretch farther than average-quality,
although both types of brands have boundaries.
 o nt.
Selective Research Findings c

 Line extensions of symbolic brands enjoy greater market success than

those of less symbolic brands.
 Line extensions entering earlier into a product category are more
successful than extensions entering later (strong brands only).
 Earlier line extensions have helped in the market expansion of the
parent brand.
 A brand seen as prototypical of a product category can be
difficult to extend outside the category.
 Concrete attribute associations tend to be more difficult to extend than
abstract benefit associations.
 ore
m
Selective Research Findings
 Consumers may transfer associations that are positive in the
original product class, but become negative in the extension.
 A successful extension contributes to the parent brand AND
enables a brand to be extended even farther.
 Vertical extensions can be difficult and may require sub-
branding.
 Implications
Whether brand extensions produce more positive
attitudes and larger choice shares depends on
situational factors:

• brand strength

• consumer knowledge of the category and

competitor brands

• the product information available at the time

of choice.
 Implications: Brand Strength
 High quality brands extensions are more successful
(higher choice shares) than average quality brand
extensions.
 Due, in part, to lower levels of perceived risk associated
with high quality brand extensions.
 Average quality brands should find alternative means to
lower perceived risks (e.g., advertising) while high quality
brands should be careful not to increase risks (e.g.,
positioning).
 Implications: Brand Strength

 While high quality brands performed better, average

quality brands performed quite well under the same
conditions. Thus, familiar and well liked average quality
brands can extend successfully under the right
conditions, but are more limited than high quality brands.
 Implications: Consumer Knowledge and
Competitor Brand Familiarity
 Extensions will be more successful when they enter
categories that consumers are less knowledgeable:
 new technologies

 when a product category has no dominant or well known

brand
 a category that the consumer has not made a prior purchase

or has little experience and existing brands are unfamiliar to

them (e.g., binoculars, telescopes).

So early entry by a brand extension in these types of

situations would likely improve the chances of success.
 Implications: Extension Information
 In general, if you want to extend your brand to
categories in which there are other well-known
brands, increasing the amount of information about
the extension, through advertising or at point-of-
purchase, is a good strategy.

 On the other hand, extensions are also likely to be

successful when consumers do not evaluate much
product information and they are competing in a
market in which consumers are not familiar with
existing brands.
 Implications: Past Brand Extension
Research
 The finding from prior research, in non-competitive
settings, that the success of extensions is influenced
primarily by the degree of fit between the parent
brand and the extension product category may not
generalize to competitive settings.

 Poor fitting extensions can perform quite well under

the right circumstances (e.g., competing with
unfamiliar brands).
 Implications: Past Brand Positioning
Research
 Brands in compromise positions are not always most
preferred, that is, they do not necessarily perform better
than those in extreme positions.

 Familiarity with competitor brands is sometimes a stronger

determinant of consumer preference than is brand
positioning.

 Positioning may be stronger when the alternative is

positioned in the superior or inferior positions (rational
decision making).
 Market Positions

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 Steps to Successfully Introduce Brand Extensions

• Define actual and desired customer knowledge of the brand

• Identify possible extension candidates

• Evaluate extension candidate potential

•Customer, Competitor, Company

• Design marketing campaign to launch extension

• Evaluate extension success & effects on parent

brand equity
 Positive Feedback Effects:
Benefits to Parent Brand

 Clarify brand meaning and image

 Revitalize the brand
 Permit subsequent extensions
 Bring new customers into brand
franchise and increase market coverage
 Expand brand meaning
 Expanding Brand Meaning Through
Extensions
Original Extension New Brand
Brand
Product Products Meaning
Nesquik Flavoring Cereals, yogurt, Fun Food
for milk chocolate sauce, for Kids
(children) postre de leche.
Crayola Crayons Markers, pens Colorful Crafts
paints, pencils for Kids
clay, etc.
Nestlé Condensed Baby food, Nutritious and
and powered cereales, choco- High Quality
milk lates, ice-cream, etc. Food.
Gillette Razor Blades Shaving Set, Personal Care
deodorant. For Men and
Women
 Disadvantages of Brand Extensions
 Can fail and hurt parent brand image
 Can succeed but diminish identification
with any one category
 Can dilute brand meaning
 Can forgo the chance to develop a new
brand
 Can damage company credibility
 Sub-Branding Strategy

Using a new brand name in conjunction with a family

brand name to introduce new products.

Examples:
 Nestlé Chocapic
 Nescafé Tradicinó
 Levi’s Dockers
 Milo de Nestle
 Sub-Branding
Why use it?
 Parent brand assures quality.
E.g., Nestlé Chocapic

 Differentiate product lines (quality, styles, price levels, etc.).

E.g., Nescafé Cup Colombie vs Tradición

 Facilitate introduction of new products.

 Protect the parent brand from negative feedback.

Building & Managing Strategic Alliances

Co-Branding
 What Is a Strategic Alliance?

 “A strategic alliance is a relationship

between parties in which they
cooperate to produce more value to
a market transaction. The
partnership requires sharing risks
and benefits.”
Lewis 1990
 Co-Branding/Brand Alliance Strategies

When two or more brand names are

attached to a product.
 How About Co-Branding?
 Fit: Can market accept the
co-brand (e.g., Braun/Oral B)
as consistent with
attributes, values, etc.?
 Power: Does market think
of co-brand as superior to
competition?
 Leverage: Who is getting
the major benefits (e.g.,
Delta/American Express)?
 The Linkage
 Is the benefit of the name recognition equal?
 Is the meaning the same?
 Is there a fit between the names and businesses?
 Transferability of skills and assets
 Complementarity
 Functionality
 What are their negatives?
 Is there support beyond the name?
 Relationship Traps
 Attempting to develop too many partners

 Choosing poorly

 Allocating too few resources

 Forgetting about cultural compatibility

 Not developing a long-term financial relationship

 m ore Selective Research Findings:
Brand Alliances
 Brand alliances significantly affect attitudes toward each of the
partnered brands, even when a brand has engaged in many prior
alliances.
 Spillover effects do not affect the partners equally: brands
less familiar than their partner experience stronger effects,
while two highly familiar brands experience equal effects.
 Both product and brand fit affect attitudes toward the alliance.
 Prior attitudes toward the partner brands affect attitudes
toward the alliance.
Brand Extension Effects on Sources of
Brand Equity ...
 Increased Awareness

 Enhanced Image or Image

Change (Strengthen or Expand)

 Attitude Changes (Favorability)

Extension Effects on Brand Equity
Outcomes...
 Latent Value (Extendibility)
 Sales
 Market Share
 Share of Customer
 Stock Prices
 Profit
 Managerial Question

…To enter a new product category, when

should the firm use a brand extension
strategy or a new brand strategy?
 Benefits of New Brands
 Spread risks
 Avoid diluting the images of existing
brands
 Permit consumer variety-seeking
 Novelty (excitement)
 Take advantage of opportunities in
“distant” product categories
Disadvantages of New Brands
 Costs
 Awareness
 Associations (Image)
 Name Creation
 Perceived Risks
 Consumers
 Distributors
 New Product Failure
Reasons for New Product Failure
 Market too small
 Poor product-company fit
 Not new or not different
 No real benefit
 Poor positioning versus competition
 Inadequate support from distribution channels
 Forecasting error
 Poor timing

Urban and Hauser (1993), Design and Marketing of New Products

Reasons for New Product Failure
 Competitive response
 Major shifts in technology
 Changes in customers’ tastes
 Changes in environmental constraints
 Poor repeat purchase
 Poor after-sales service
 Lack of coordination of organizational functions
 Conflicts among organizational functions

Urban and Hauser (1993), Design and Marketing of New Products

 Research Findings

• There is some evidence that in the short-

term brand extensions are more successful
in capturing market share but this
advantage seems to disappear in the long-
term.
 more

Research Findings
Whether brand extensions produce more positive
attitudes and larger choice shares than new brands
depends on situational factors:

• the product information available at the time of

choice

• the fit between the brand and the new product

category
 more

Research Findings
When consumers are unlikely to evaluate
attribute information carefully, managers
entering product categories where there is:

• good fit with the existing brand may want to use a

brand extension strategy

• poor fit may want to develop new brands

 more

Research Findings
When consumers are likely to evaluate attribute
information carefully, branding strategy may have
little impact on initial appeal. Managers may want to
choose branding strategies on the basis of other
dimensions:

•using an extension strategies to take advantage of cost

efficiencies

•use new brand to avoid image dilution.

 Conclusion

 The answer to the question as to whether to enter a

market with a new brand or brand extension is it
depends on:

 Consumer behavior

 Characteristics of the market

 Tradeoffs between the risks and benefits associated with

the use of brand extensions.