Brand Extension

Introduction
With an understanding developed on positioning, this lecture takes us into the area of brand extension. Although loosely used, the term brand extension comprises of two sub areas - line extension and brand extension. The latter is generally used in all situations of extensions, diversifications, or stretch. We have to draw a distinction between the two for a clear understanding of the concepts.

Concept of positioning clarifies that not one position can satisfy all the varying needs within the category. Different needs have to be identified toward their fulfillment. To keep up with the evolution you have to evolve new points of difference. Different needs refer to different segments and every product has its variants to address to those segmental needs. This holds true for consumer consumables as well as consumer durables. Regular and mild cigarettes, regular and fruit yogurt, regular and high fiber cereals, regular and low cholesterol margarine, and economy and executive models in cars are all examples of product variants in different segments and categories.
To let the market know that you have something different to offer, you must differentiate between the existing offering and the new entry. For the new entry meant to address a different need, you must create a different image reflecting the new promise and must have an evolved contract in place. You do that in either of the two ways:

1. Staying within the value framework of the original brand, meaning under the same brand name. You do not go too far away from the core identity.
2. Create a different identity altogether, meaning a new stand-alone brand.

Brand extension
Brand extension is all about the existing brands. As the terminology suggests, we do something with the existing names for the new offerings. Brand extension, therefore, is the study and practice of deciding

1. What to do in situations that evolve with changing needs? Examples could be cited of soups coming into different flavors, biscuits in different tastes and packs, and detergents in powder and liquid forms.
2. What to do in situations that offer an opportunity to enter a new market altogether? Examples could be furnished about manufacturers of juices getting into milk and yogurt, tea getting into soups, chocolate getting into ice cream, and cameras into photocopying machines etc.

Let’s be clear that we are discussing both situations in relation to using our existing brand name that is strong. One situation relates getting into variants of the existing product, while other involves going across the existing business lines into new ones. Both have a common factor and that is the same brand name. We use the same brand name because it is strong!
Leveraging
The opportunity of using the same brand name for variants or altogether new products takes us into the domain of leveraging - adding value to the company by capitalizing on the brand as an asset. Temptation to do so is always huge. We keep the same brand name so that customers can develop an immediate familiarity with the new introductions - variants or new products. And that is what leveraging is all about!
Managers feel the need to leverage their brands under the following two different sets of circumstances: 

• When they are led into genuine situations of satisfying evolving needs, they feel rightly driven to leverage the brand by introducing its variants - light cigarettes and sugar-free chewing gum fall under practice 1 of brand extension discussed above.
• When it is attractive to go across category, managers do that with the confidence that their existing brand name is going to add value to their new introduction and will become popular immediately. This relates practice 2 of brand extension.

Leveraging without purpose
If managers attempt to leverage their brand only because it has high value but it does not really have a specific need to satisfy, then the managers are wandering into the marketing no-man’s land and end up introducing something with no substantive difference. It is merely an exercise toward brand proliferation!
This means that brands should be seriously treated as extremely valuable properties and not subjected to meaningless extensions with minor differences. Over-proliferation is a serious threat to a brand’s future. Customers show resentment to brands with no real point of difference. 

Why brand extension?
Brand extension is on the rise. Most of the new product launches take place with the existing strong brand names. Cost of launching a new brand in three major markets (US, Europe, and Japan is about US$ 1 billion), whereas launching a product under the same name is a fraction of that cost. It is estimated to be one fifth.
30% of new brands survive just about three years, but the rate goes up to 50% if launched under an existing brand name. Brand extension, therefore, is cheaper and securer. It looks like a sure way to gain market share and produce visible results.

Kinds of extensions
There are two kinds of extensions, namely line extension and brand diversification. Brand diversification is in effect brand extension, but this terminology of brand extension somehow is used generically for both types of extensions. You have to make an effort not to be confused by this.

Line extension
Line extension is basically getting into different versions of the same base product on the same market. A manufacturer of spices getting into more non-traditional spices or recipes and a cheese manufacturer getting into different kinds of packing, portions, slices, and boxes to appeal to different target audiences are examples of this phenomenon. The objective here is to add more depth to your offerings within a definite market. Line extension corresponds to practice 1 of brand extension discussed in the beginning of the lecture.

Brand diversification/extension/stretching
This refers to stretching your brand into new product fields. Your brand becomes an umbrella covering very different segments and products. A few examples are Mitsubishi, Philips, and GE. Mitsubishi includes shipyards, nuclear plants, cars, hi-fidelity systems, banks, and even food; Philips includes electrical appliances to lighting to sophisticated systems; GE is into aircraft engines, electrical appliances, energy and more. They use one name because that is a direct recognition of the fact that their name is the real capital of their company. Brand diversification or extension or stretching corresponds to practice 2 of brand extension discussed earlier. It is real diversification toward different product categories and, hence, is a highly sensitive and strategic choice.
“Line extension” and “brand extension” therefore are two well differentiated concepts that must be understood for the sake of knowing how and when each will have a perfect fit with the situation. Both could be explained with the help of two graphic illustrations on the following page.

Line Extension in detail
Extending the line is an evolutionary step in the life of a brand and occurs to address the changing needs. In the words of Kapferer, just as human species survive by adapting to the environment, brands that start as single products have to adapt to the marketing environment by breaking into sub-species5. Toyota cars, Coca-Cola, National and Shan “Masalas”, LU and English Biscuit Manufacturers’ biscuit brand variations are a few examples that clarify the whole concept.

Forms of line extension

It takes on the following forms:

• Multiplication of formats and sizes. It is typical in cars, soft drinks, cakes, and biscuits etc.
• Multiplication of variety of tastes and flavors. Yogurt, juice, and milk are excellent examples of this form.
• Multiplication of the type of ingredients. Caffeine-free coffee and sugar-free juice fall into this form.
• Multiplication of generic forms of medicines. For headache, a pharmaceutical company may introduce extra-strength, without drowsiness, no-allergy formulas etc.
• Multiplication of physical forms. Detergents in powder and liquid; deodorants in sticks, spray, and roll-ons are perfect examples.
• Multiplication of product add-ons satisfying closely related needs of the same consumer. Mascara, lipstick, skin-care creams by one company and deodorants, shave cream, gel, and soothing balm by another are examples of this form.
• Multiplication of versions having a specific application. Shoe cream for regular leather, powder or spray for suede leather - polish for wooden furniture and polish for marble top to give a few examples.

Immediate actions for better managing line extensions

1. Improve cost accounting systems: Management experts lay a lot of emphasis on improving cost accounting systems. Experience shows that many companies are system-deficient in this regard. You must have accurate figures to charge every range item that you produce. The objective is to determine which items are more profitable than others.
2. Allocate resources more to high-margin items: As brand managers and good business people, you must allocate marketing resources to different items in line with their contribution to the overall profitability. The extensions that give higher margins must get priority over those that attract occasional buyers.
3. Salespeople must define the role of each extension: Each extension has to be seen in the context of its sales value. The salespersons responsible for each must produce figurative evidence of what they sell is worth its existence. Salespeople must understand the costing angle and then produce results out of the extensions that account for most of the profitable business.

They must be able to relate profitability with high volume items. Their education as part of AUDIENCE is of significance, for mostly salespeople go after volumes no matter how high is the cost. They must understand the actual positioning of the product along with the strategic goals of financial growth. Volumes just for the sake of a high market share with low profitability may not be the company’s priority at all times.

Small volumes adding up to a certain total volume cost a lot more than the same total arrived at by less number of products. Economies!