Wise Extensions: Potential & pitfalls of brand extensions

14 January 2014 | News | By Sunil Shetty

The last column covered the basics of brand building and benefits which strong brands deliver for owners and marketers. One of the most important benefits of strong brands is the ability to extend them into new formulations or into new segments. In abstract, this sounds like a wonderful and easy concept by taking the familiar name, which you have invested and using it in another product category and build business rather than spend crores of rupees to build another brand.

This logic is tempting but faulty. Statistics show that the failure rate of brand extensions is as high as 84% (Ernst & Young 1999) and a separate study has highlighted that barely half the brand extensions survive for more than 3 years (David Taylor 2004).

A poorly planned extension can be even more damaging than just the new product failing. It can potentially impact the fortunes of the main brand itself. This fact in itself is a strong warning across categories and especially so in case of food and healthcare category. Consumers form strong perceptions of brands and it is vital to clearly understand the core of the brand equity from this perspective before venturing into an extension, else an unplanned extension can destroy decades of brand building efforts.

In this column, we focus on the benefits and risks of brand extensions and utilising them effectively without stretching the brand’s core equity. Let us understand a few ways in which brands can leverage extensions through examples of brands, which have successfully built their extensions as well as brands which have faltered in walking this path.


1. Helps you build on an existing foundation


Let’s face it. Building a new brand in today’s world is an expensive proposition for a corporation. Let’s not even think about the money invested in the development effort, just the cost of building the brand in today’s fragmented media world is a daunting prospect and needs significant investment.

This logic seemed sound but we need to evaluate the limits of the brand’s credibility in the new category. Cosmopolitan magazine which had a huge connect with the fashion conscious women’s audience, may have assumed that this segment is naturally also health conscious and launched a range of yoghurts, needless to say the Cosmo range of yoghurts disappeared within two years of launch.

In contrast, Amul understood its strong credentials as India’s largest milk brand and the huge equity it enjoys among consumers as providers of high quality, nutritious milk to millions of Indians and leveraged this equity to launch its ice cream positioned on the promise of Real Milk Real Ice-cream, a promise which helped Amul dethrone Kwality Walls and emerge as the market leader in this category by helping meet the need of its core audience for the nutrition of milk in palatable formats.

2. Helps you build on an existing association

Another effective use of a brand extension is to leverage an existing association which the brand owns in the consumers’ mind.
Some brands have used it to great effect to go from strength to strength. Consider the case of Planters, a snack food company known for its expertise in processed nuts and its well-loved icon of Mr Peanut, created almost 100 years ago and leveraging these associations to enter the peanut butter category seems logical not just to me but to consumers which has helped Planters Peanut Butter get a significant share of the market soon after launch.

But sometimes associations can be very specific and not as transferable as Frito Lay found out. Frito Lay has always had strong associations with snacking, so what could work better than a drink which goes well with salty snacks viz. Lemonade. But this logic chain did not vibe with consumers who felt that a purveyor of salty snacks which are thirst-inducing cannot really do justice to a product which is a thirst quencher.

3. Own a different dimension in the category

Today as products proliferate and product categories expand; it is tempting for a brand owner to address the emerging need segments by extending the brand.

Horlick’s, which has strong equity in India as a healthy drink for children and to some extent even adults, has tried time and again to leverage this equity and connect with children by launching extensions into biscuits, noodles and cereal bars. Horlick’s tried to leverage its health equity to establish a link in categories like noodles by positioning Horlick’s Foodles as a healthy noodle. However, extending a brand which has always stood for health into a category which is more of a snack and leading to concerns on the impact it would have on Horlick’s core equity.

In contrast, Sunfeast has been successfully able to transfer its high equity in biscuits to create an entirely new segment of adult indulgence biscuits under the Dark Fantasy range, owning the attribute of an indulgence.


4. Expand share of TG’s consumption basket

Brands which have already formed a strong relationship with their audience can consider extensions which build on these relationships to enter new categories and segments.

Take Virgin for example, which has leveraged its core equity as a disruptive brand which rebels against the system benefitting the customer to launch into categories. However, even as consumers brought into the Virgin promise in categories like airlines, they failed to understand this promise in the context of Virgin Cola.

In contrast, Oreo which has built its business on appealing to children has successfully added to its equity by tying up with McDonald’s to launch the McFlurry Oreo. Oreo has similarly leveraged its relationship with children to launch Oreo Fudgees and has even extended into another children’s indulgence viz. ice cream


Warning Signs:

Given the above three axes, it helps if one evaluates the brand strengths in a fair and unbiased manner before launching an extension. While brand management is a complex area with many different ways of doing the right thing, there are some questions which a brand owner must consider very carefully before deciding on a brand extension.

1. Does the mother brand add value in the new category?

This is the first and the most important question which a brand owner has to answer when considering an extension.

Extending Starbucks equity to coffee makers does seem logical and sound, after all Starbucks has immense equity in providing a great coffee experience and the coffee machine promises to bring alive this experience inside your home.

However, the ability of Virgin to add value in a category like water purifier is less clear. After all water purifiers have health connotations and are built on efficacy and by implication consistency. Virgin’s core value is its rebel attitude of challenging the system, not something which one considers when looking for a purifier.

2. Does this extension add to the core brand equity?

This is one aspect which we often fail to consider when building extensions. Even as an extension benefits from the mother brand equity, so it has to feed into the mother brand equity.

Red Bull has consistently extended its brand into sports especially challenging adventure sports like Red Bull Racing, Red Bull Cliff Diving and the Red Bull Air Race, each of these extensions reinforce Red Bull’s position of energy to live an exciting life.
In contrast, the extension of the successful Chicken Soup franchise into pet food was an extension which baffled many since the animals do not benefit from the advice in the books and the people who do read the books are unlikely to see how pet food relates to the series.

3. Does it impact my quality perceptions and associations?

Brand extensions need to build on existing quality perceptions, but unplanned extensions can shake this very foundation.
Cadbury’s association with chocolates and indulgence could have been seriously impacted by its entry into mashed potatoes and dried milk, segments which had no relation to its core business.

4. Does it alienate my customers?

In this well-connected world, however sharply you target sub-segments through media, the chances of spill over are high, hence brands need to be careful that their extensions, even if not directly addressed to their core TG, still stand by the core values and promise or they will end up alienating the core audience.

Harley Davidson seemingly failed to consider this fact by launching a cake decoration kit addressing children, which had no possible connect either to its brand equity or audience, if anything it diluted the cult image of the brand.

Broadly, brand extensions often appear to be the magic pill in many cases, but experiences in India and across the world highlight that this magic pill needs to be used sensibly and cautiously to be truly effective as a brand building weapon.


Sunil Shetty, Director, Planning Services, Draftfcb Ulka, Mumbai

(The views expressed here are solely those of the author in his private capacity.)

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