Branding Strategy Insider

Exploring The Role Of Brand Equity In Brand Extension

We are happy to answer marketing questions of all types here on Branding Strategy Insider. Today's question comes from Manisha a marketer in Bangalore, India.

“What is the role of brand equity in brand extensions? What should the marketer keep in mind related to brand equity before extending the brand? Please give some examples.”

Manisha, thanks for your question. Before one extends a brand into a new product or service category, one must be clear on what the brand stands for, what people associate it with and what its personality is. Then, one must assess if these qualities will be beneficial (and not problematic) in the new product or service category. Conversely, one must determine what entering the new product or service category will do for (or to) the brand. Ideally, it will enhance its perception and broaden its appeal, not damage its perception or limit its appeal.

Some examples: It is dangerous for a luxury car brand to extend into a value segment. While there may be some incremental sales potential in that segment, the extension will most likely destroy (or at least significantly diminish) the brand’s status cache. Other examples of unsuccessful brand extensions:

• Levi’s classic tailored suits (What do people most often associate with Levi’s and how does that relate to suits?)
• Bayer “Aspirin-Free” (What is Bayer most often associated with and how does that relate to “aspirin-free” and if Bayer feels the need to offer an “aspirin-free” product, what does that say about their core products?)
• Bic perfume in your pocket (Because Bic is associated with small, less expensive, disposable things that fit in your pocket? What’s wrong with this thinking?)

On the other hand, here are some brand extensions that worked:

• Jell-o (pudding, pudding snacks)
• Dole (pineapple juice, fruit juice, fruit salad, fruit juice frozen fruit bars)
• Woolite (fabric wash, carpet cleaner spray)

Here are some current brand extensions.  What is your assessment of each of these?

• Cheetos lip balm
• Hot Tamales sugar free gum
• Starbucks coffee liquor
• Mr. Clean Car Washes 

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Sponsored By: The Brand Positioning Workshop

The Brand Licensing Workshop

Brand licensing is one of the lesser known techniques for extending a brand into new categories.  The benefits of brand licensing are extensive and include:

•    Building brand presence by getting product to market faster with little to no investment or inventory risk. 
•    Accelerating the ability to gain additional shelf space or enter into new channels or regions. 
•    Delivering valuable and steady royalty revenue increasing cash flow and operating income. 

The Blake Project offers The Brand Licensing Workshop, a one-day engagement that is designed to deliver a detailed blueprint on how to launch a brand licensing program, enabling participants to take a significant step towards harnessing the power of brand licensing. In this highly facilitated workshop, you will learn:

•    Why companies license their brands and what the pros and cons are of managing it in-house
•    Who is needed on a brand licensing team and their roles & responsibilities
•    Who the internal and external organizations are that interact with the brand licensing team and what their roles and responsibilities are
•    What the brand licensing process is and how is it optimized within an organization
•    Where the brand licensing should reside within the organization and what resources are needed to build a best-in-class program
•    How to launch a brand licensing program and what needs to get accomplished in the first 90 days
•    How to identify and hire the right team members
•    Where to locate the best external resources
•    What is the best way to integrate brand licensing into the existing organization
•    Who should approve brand licensing deals

Don't Blame Brand Licensing

Here on Branding Strategy Insider, Jack Trout makes a compelling argument for why not to consider licensing as a method of brand extension. Furthermore, he backs it up with multiple examples of established brands with flawed licensing programs that serve to prove his hypothesis. After reading about Pratt & Whitney and Pierre Cardin, what CEO in their right mind would choose to risk the company's crown jewels to a group of third party manufacturers which don’t have a clue about how to build a brand, let alone manage one?  With so much at stake, only those CEOs that are either reckless or desperate would consider licensing. Right?

Maybe the problem isn’t licensing, but its poor or improper execution? After all, why would a company choose to forgo its consumer driven innovation process or marketing principles only when it comes to extending their brands through licensing?  Some of the best and biggest brands around the globe have been actively and successfully licensing.  Disney, P&G, Coke and Harley Davidson each have outstanding licensing programs.  These programs not only enjoy strong royalty income, they enhance their brands' attributes in the process.

Google Brand Continues To Stretch

The most recent case study came last December, when it emerged that Google would launch a service in the UK allowing real-estate agents to list their properties for free. The news came as a shock to Rightmove, the leading online real-estate service in the UK. Yet, as usual, the executives in charge were openly dismissive of the threat.

'Should Google announce anything, we are confident people will see value in our services,' Rightmove's commercial director, Miles Shipside, confidently retorted. Obviously the markets weren't as sure as Miles. On Thursday, Rightmove was the worst-performing stock on the FTSE 100, with 10% wiped off its share price overnight.

Last October, the same situation played out in the sat-nav sector. Google announced that its Android software would include a free application offering voice-based driving instructions that, many argue, are superior to anything offered by incumbent manufacturers such as Garmin and TomTom.

The established entities downplayed the threat. Ted Garter, a spokesman for Garmin, insisted: 'Standalone devices will still be an important way for consumers to get directions. We're not going anywhere.' Investors disagreed; stocks in both it and TomTom have plunged dramatically since Google's entry into their market.

The Upgraded Brand Extension Threat

A recent trend in marketing is the downgrading of established brands by upgraded line extensions.

Take Budweiser Select. According to Anheuser-Busch, "When it comes to brewing beer, the prevailing assumption is that you can't have it both ways. You can either aim for the best possible flavor, forgetting about calories and carbs; OR you can keep the calorie count in check, and sacrifice taste along the way. Budweiser Select is the exception to these brewing rules."

So what does that make Anheuser-Busch's other low-calorie beer? "Bud Light Mediocre?"

Kroger, the country's largest supermarket chain, has opened new superstores in Dayton, Cincinnati and Atlanta, called "Kroger Fresh Fare."

So what does that make regular Kroger stores? "Kroger Stale Fare?"

Well, you might be thinking, nobody pays attention to words like "fresh fare" or "select" anymore. They are just part of our daily routine of pleasant promotional puffery.

It's true. The language of marketing has had the belief squeezed out of it. Years of hyperbole have wiped out the meaning of many of the words used in brand names and advertising.

There are, however, a number of examples of line extensions that could seriously damage the core brands.

Mastering The Multiple Brand Strategy

One of the hidden drivers of business is fashion and I’m not just talking about clothing.

Fashion is a big driver in food, in beverages, in automobiles, in furniture and in almost every other consumer goods category. What’s hot today often cools off tomorrow.

That’s why we sometimes recommend a multiple-brand strategy. One brand for today, one brand for tomorrow.

Take cola, for example. Morgan Stanley’s Bill Pecoriello predicting that carbonated soft drink volume will decline 1.5 percent annually for the next five years. Not a healthy outlook for the folks at Coca-Cola and Pepsi-Cola.

Coke and Pepsi, of course, have gotten into water, sports drinks, energy drinks and other alternatives to cola. But what they have missed is an opportunity to take their cola brands into the 21st century.

What drives fashion anyway? It’s the younger generation rebelling against the older generation by refusing to buy the brands their parents buy.

That’s why Levi’s has struggled. And why Scion is such a big success for Toyota.

Loss of Focus and Line Extension

Loss of focus is really all about line extension. And no issue in marketing is so controversial. Companies look at the brands from an economic point of view.

To gain cost efficiencies and trade acceptance, they are quite willing to turn a highly focused brand, and one that stands for a certain type of product or idea, into an unfocused brand that represents two or more types of products or ideas.

Look at the issue of line extension from the point of view of the mind. The more variations you attach to the brand, the more the mind loses focus. Gradually, a well-differentiated brand like Chevrolet comes to mean nothing at all. Scott, the leading brand of toilet tissue, line extended its name into Scotties, Scottkins, and Scott Towels. Pretty soon writing ‘‘Scott’’ on a shopping list meant very little and Charmin took over the lead.

Some Surprising Research
With about 70 percent of new products being launched with existing brand names, you would think these companies would have some supporting data on the pluses of line extension. The opposite is true.

The Journal of Consumer Marketing noted a large-scale study of 115 new-product launches across five U.S. and U.K. markets. The study compared the market share gained by products launched under established family or corporate brand names with market share gained by products launched under new brand names.

Share was measured two years after each brand’s launch. The brand extension products performed significantly less well than the products launched with new brand names.

The Harvard Business Review published a study on line extension. Their observations were that, among other things, line extension weakened a brand’s image and disturbed trade relations.

Sponsored By: The Brand Positioning Workshop

Brand Migration: Navigate The Passage

I guess you’ll have heard about the Versace hotel, the Ferrari laptop, and the Apple cell phone. Yet, had I suggested any one of these products to you fifteen years ago, you might have been forgiven for thinking that a few extravagant typos had made it past the editor. Yet today, we’ve become perfectly used to extreme brand extensions like these.

But, can you go too far? Brands have been stretching their way into such new and unexpected product categories that some product progeny can be impossible to link to their brand parents.

For example, some years ago, Bic (the disposable pen, lighter and shaver brand), decided to migrate into the perfume business by developing cheap disposable scents. The attempt failed in a big way. Consumers couldn’t draw a credible link between the erstwhile stationery manufacturer and the idea of the company supplying a budget perfume. So what about a rich smell? Trump tried this avenue, launching ‘Donald Trump, The Fragrance’, a perfume for the millionaire wannabe. The bid failed and Trump’s men’s scent vanished from the shelves.

The very fascinating fact of the matter is that, to migrate your brand into totally new product categories requires more than the power of your brand alone. Just ask Louis Vuitton. Over the years most of us have become accustomed to linking the brand with everything from clothing, shoes and jewellery to pens and games. The company has managed these multiple successful product migrations by establishing some pretty clever brand alliances, all of which have added the magic dust of brand credibility that’s so necessary to premium-priced goods.

A couple of years ago, Louis Vuitton released its first timepiece collection. A Louis Vuitton fan would recognise the product’s brand origin in a trice, given the irrepressible use of the ‘LV’ monogram. But, as I said a moment ago, the power of the brand alone is not enough to sustain a successful migration. Louis Vuitton had engineered something unheard of until then: they teamed up with another brand to maintain credibility in the timepiece product category which was new to the Louis Vuitton brand.

Starbucks Extension Tempts Failure

Starbucks is trialing a new coffee called Starbucks Via in its London cafés. Unlike the chain's traditional fare, it is an instant coffee that offers consumers the opportunity to enjoy their favourite brew in the comfort of their own homes.

What is driving the product launch is no mystery. Via is an attempt to retain sales, albeit less profitable ones, from recession-hit consumers who are spending less on life's little luxuries, like Grande Caffè Lattes.

Meanwhile, in Zurich, football governing body FIFA has decided to kick off a major product diversification, too. It is to complement its existing business, running some of the world's biggest sporting tournaments, by getting into clothing. In August, FIFA will launch five clothing ranges linked to football and the 2010 World Cup, in South Africa.

Both of these initiatives, like the vast majority of new launches, are likely to fail. Yet, one of them is much more risky. They may appear to be similar attempts at diversification, but one is a line extension, while the other is a brand extension. Although most marketers struggle to differentiate between these two concepts, the distinction has critical implications.

FIFA's clothing is an example of a brand extension. Here, a company leaps from its existing category (running football competitions) and uses its brand awareness to open a bridge into a completely new category (clothing). A great deal of research has been done on brand extensions over the past 20 years and we know a lot about how they work and why they usually fail.

We also know something crucial about the impact FIFA's clothing will have on its reputation as a footballing organisation: none whatsoever. When you embark on a brand extension like this, it's unlikely that the new venture will do any damage to the original brand, even if it is executed badly.

Starbucks' Via, however, is an entirely different cup of coffee altogether.

When Brand Power Threatens Brand Extension

There are two brands that I deter my MBA students from referring to in class. The first is Coca-Cola. Quite simply, Coke is the alpha of branding. And any reference to Coke usually ends up ridden with cliché’s and strategically void. If anyone ever begins a presentation on brands by talking about Coke you are in for a dull ride.

The second unmentionable brand is Virgin. Inevitably the Virgin name comes up as soon as the topic of brand extensions and portfolios is mentioned, primarily because Virgin has been involved in more brand extensions than any other major brand in the past 20 years. The resulting portfolio of more than 200 different corporate entities breaks every established strategic guideline for extension and my students love nothing more than asking: "But how do you explain Virgin's success?"

The simple answer is that I do not have to, because although Virgin does indeed extend its brand a lot, it rarely does so successfully. Fortunately for Virgin, Sir Richard is a consummate showman. Most business journalists confuse prevalence and proliferation with performance and power. Superficially at least, a brand portfolio that includes radio, beverages, cosmetics and airlines is a testament to the power of the Virgin brand.