Branding Strategy Insider

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.

Tag Heuer's Textbook Brand Extension

The rumours began in 2007, and ran rife throughout the annual Baselworld Watch Fair in April. This month we have official confirmation: Tag Heuer is about to launch a mobile phone.

The Tag Heuer Meridiist will be assembled from 430 components and constructed from the same corrosion-resistant steel and unscratchable sapphire crystal used in the brand's luxury watches. The first glimpses of the phone online reveal a sleek, masculine design, very much in line with the style of Tag's watches. The time display on the top of the phone adds an innovative twist that tips its hat to the brand's origins. The Meridiist will go on sale in the UK in September through select watch and jewellery retailers, priced at about £3000.

This is a textbook brand extension. Tag Heuer is a very successful watchmaker, but, like most brands, it is not averse to exploring additional sources of revenue by launching products into other categories. A successful extension can also reinforce a brand's position due to the increased publicity and consumer excitement that it generates. In Tag Heuer's case, the Meridiist will also cement its position as a leading brand among watch retailers, which will vie to stock the phone.

But what about the downsides? Will the Meridiist dilute Tag's brand equity in its original category of watches? If it turns out to be a disappointment, will it damage Tag's exemplary image? The short answer is no. Too many marketers continue to labour under the misconception that a bad brand extension represents a hazard to the parent brand's equity. However, a mountain of research has now been compiled in Europe and the US indicating that it is extremely difficult for an extension to damage a brand's reputation in its original category.

How Far Can A Brand Stretch?

Brand extensions, like Jeep’s strollers, Maxim’s hair color, or Apple’s iTunes are lucrative ways that a brand can increase its revenue and customer base—or confuse and alienate them. In an increasingly borderless world in which brands can be as powerful as currency, stretching brands that already have strong equity has become an ever more important avenue for growth. However, many attempts at brand stretch fail in the marketplace. How firms and their brands can avoid pitfalls and best manage brand extensions globally is addressed in a recent paper by Rohini Ahluwalia, professor of marketing at the University of Minnesota’s Carlson School of Management, forthcoming in the Journal of Marketing Research. 

Over 80 percent of all new products are categorized as brand extensions, emphasizing the importance of their success. Ahluwalia’s findings identify an important segmentation variable for marketers to consider when launching brand extensions. “Stretching a brand makes it important to target an audience that will be able to process and understand the relationship of the brand to the new product,” says Ahluwalia. “Getting it right the first time is crucial, because early success with a target audience can help with future extensions. And the broader a brand gets, the easier it is to stretch next time.”

Individuals can be categorized into one of the two types of self-views: relational or independent. Her findings reveal that buyers with a more relational or connected-to-others self-view (e.g., females, Asian Americans, Hispanics, and those hailing from Eastern nations) are more open to accepting brand stretches than those associated with an independent self-view (e.g., males, Caucasians, and Westerners). Knowing target customers’ self-view type could be key to managing a new product launch.

When Line Extensions Can Work

Despite the disadvantages of line extensions, there are some cases in which it is not economically feasible to create a new brand and in which a line extension might work. Here are some of those:   

•       Low volume product - if the sales volume is not expected to be high.

•       Crowded market - if there is no unique position that the product can occupy.

•       Small ad budget - without strong advertising support, it might make sense to use the house name.

•       Commodity product - an undifferentiated commodity product has less need of its own name than does a breakthrough product.

•       Distribution by sales reps - products distributed through reps may not need a separate brand name. Those sold on store shelves benefit more from their own name.

Sponsored By: Brand Aid

The Brand Extension Checklist

When considering brand extensions ask yourself these yes or no questions:

•    Have you identified what your brand owns in the consumer’s mind?
•    Have you identified all areas in which the consumer gives your brand permission to operate?
•    Do you have a clear understanding of whether your brand is over or under extended?
•    Have you identified all the ways your brand and others in its category have made compromises with the consumer?  Have you found ways to redefine your business to break those compromises?
•    Have you identified new categories for growth?  Can you create new categories that meet previously unmet consumer needs?
•    Have you targeted new market segments to which you would like your brand to appeal?
•    Have you explored ways to make your brand more relevant to the next generation of consumers?
•    Do you know what must be done to ensure the parent brand maintains a relationship with the consumer throughout his or her life (cradle-to-grave marketing)?
•    Do you have a plan that specifies what categories your brand will enter next, in what order it will enter them and on what time frame?

Brand Extension: Today's Default Strategy

When I'm not modelling the very latest sartorial gentlemen's fashion for you among the posts of Branding Strategy Insider, my day job involves teaching MBAs about branding.

One of the great things about a classroom full of 30-something MBA students, as opposed to undergraduates, is that the professor often learns just as much from the students as they learn from him, which is a polite way of saying that, occasionally, a student will pick a fight with you in class and make you look like a twit.

That is exactly what happened to me last week. I kicked off my class on brand extensions by defining the topic, 'what happens when an organisation spots a rare opportunity to leverage their brand equity in a new category?'

Despite this apparently innocuous definition, I was instantly aware of an arm flailing vigorously in the back row. Professors develop an almost preternatural ability to sense classroom danger and I turned to acknowledge the question with a growing feeling of doom.

My questioner was as polite as she was concise. 'Is brand extension really such an occasional move?' she asked. 'Surely, these days it's a given that if you have a strong brand, you will extend it?'

I gulped. She had a point. Traditionally, most part-brands were built in one category and any expansion of their brand architecture was limited to sub-brands within that same category. Therefore, car firms simply made cars and pen companies stuck to pens.

Beware of Brand Schizophrenia

Powerful brands have distinct personalities: Duracell’s batteries last a long time. Volvos are safe in a crash. But even dominant brands can fade if they fall prey to multiple personality disorder.

Consider General Motors. What’s the difference between a Chevrolet, a Pontiac and a Buick? The company has woken up to the problem in recent times; In 2005 GM announced it would narrow its selection of cars. But this belated effort to bring the automaker’s brand schizophrenia under control is too little too late.

General Motors mucked up its brands over decades of endless line extensions. But Mercedes Benz has done it in less than one decade. Once upon a time, it was a high-quality, highly engineered, prestigious car. But now, if you wander into a dealership in Europe, you’re faced with the following lineup: A-Class, B-Class, C-Class, E-Class, S-Class, CLK, CLS, CL, SLK, SL, M-Class and G-Class. The prices range from 20,000 to 200,000 euros. The result is that in Europe, Mercedes Benz is not listed as the top brand. The Audi A8, BMW, Maserati and Jaguar have taken over this position.

The GM and Mercedes stories are not unique. Once a company abandons its brands' distinctive personalities or positions, it's just a matter of time before confused customers start to drift away. In 1985, Coca-Cola infamously introduced an identity-blurring new brand, New Coke. A massive consumer backlash ensued, and the company quickly reinstated its familiar Classic Coke.

You’d think Coca-Cola would have learned from that experience the importance of having a unique product personality.

Top Brand Extensions

As you may know, brand extension is a marketing strategy in which an organization that markets a product with a well-developed image uses the same brand name but in a different product category. Brand managers use this as a strategy to increase and leverage brand equity.

Product extensions, on the other hand, are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. An example of a product extension is Coke vs. Diet Coke

A successful brand helps a company enter new product categories more easily.
Brand extension benefits:

    * Brand extensions let a marketer take a brand with well-known quality perceptions and associations and put it on a brand in a new category. Not only can marketers capitalize on brand awareness, they can also leverage the associations consumers have of the parent brand.

    * Second, consumers who favorably evaluate a parent brand are more willing to try and adopt the brand extension than an unfamiliar brand in the same category. They trust a known brand name.

Of Beer and Brand Extension

The simple bottom line in marketing is that a brand that's many things can't be one thing. No one category has ignored this all but immutable law as religiously as the beer business.

Consider Miller beer. What started out in 1978 as a classic pilsner has become a portfolio of beers. Each brand in the portfolio suffers from a bad case of line extension. If you want a Miller beer, the next question will be "which one?" Do you want Miller Lite, Miller Lite Ice, Miller Genuine Draft, Miller Genuine Draft Lite, Miller High Life, Miller High Life Lite or Miller High Life Ice?

Oh forget it, I'll have a Budweiser.

They also own the Jacob Leinenkugel Brewing Company. The last time I checked, it has the same problem-- you have to figure out whether you want a Leinenkugel's Original Premium, Leinenkugel's Light, Leinenkugel's Northwoods Lager, Leinenkugel's Genuine Bock (seasonal), Leinenkugel's Red Lager, Leinenkugel's Honey Weiss, Leinenkugel's Berry Weiss (seasonal), Leinenkugel's Hefeweizen (draft only) or Leinenkugel's Creamy Dark.

Oh forget it, I'll have a Corona.

For years, I've been writing about the problems of line extension. Let’s review the bidding.

Brand Extension Disease

Marketers are a fickle breed. Aside from the usual list of ailments that afflict the general population, we are also vulnerable to a number of conditions unique to us. The most pernicious of these is logos extendos rabidus or, to give it its more colloquial name -  brand extension disease.

Typically contracted by young managers who don't receive adequate training at an early stage in their development, early indications of the condition include delusion and a loss of hearing, especially when customers are trying to tell you how stupid your idea is. More serious symptoms often remain dormant for many years until the manager achieves a prominent position in charge of a major brand. At this stage, the onset of the condition can be frighteningly quick and the results are often severe.

One recent, sad case is that of Jonathan Hewitt, group financial services director for Dixons. Until last month, Hewitt appeared to be an executive operating at the very peak of his powers. But earlier this month it became clear that he had contracted a very severe form of the condition, when Dixons announced an unlikely move from selling kettles to offering online quotes for home and motor insurance.