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Brand extensions, or line extensions, describe the common business practice of using your brand name on a new product or service or new varieties or sizes—usually within the same category. More than half of all new brands brought to market each year are brand extensions. So, for instance, when Pepsi wants to market a diet cola, it “extends” its brand equity—everything that has gone into building the brand that is the Pepsi generation—into the product called Diet Pepsi.
So why the “beware” in the title? Because brand extensions are not always logical or smart.
Sometimes they can be just plain confusing—even if the brand name is extended into the same category. For instance, when PepsiCo introduced a no-calorie soda and called it Pepsi One, many people asked, "What is Pepsi One? Does it have just one calorie?" No, it has none. How is it different from Diet Pepsi? It’s sweetened with Splenda, but most consumers don’t know that. It’s no surprise then, that Diet Pepsi outsells Pepsi One by a 10-to-1 margin.
Number one-selling Coca-Cola made a similar market move, presumably to stay in parity with its rival, and released Coke Zero. It’s not difficult to predict similarly disappointing sales for Coke Zero.Conversely, both Coke and Pepsi entered the lucrative and high profit-margin bottled water business with smart brand extensions: Coke's Dasani brand and Pepsi’s Aquafina. Can you imagine the disastrous results if they had called their products Coke Water or Pepsi Water? Yuck.
Here’s another example. I’m familiar with the Holiday Inn brand. It makes me nostalgic for family vacations when I was a kid and that was the only place my dad would stop when we were on the road. It means simple, but clean and comfortable rooms, a swimming pool, and hot apple pie a la mode with my mom when the younger kids were asleep. But what’s a Holiday Inn Express? And what’s a Holiday Inn Select? My “brand brain” can’t compute these extensions. If the InterContinental Hotels Group wanted to enter the niche markets of extended-stay properties or hotels that cater to a business clientele, they would have been better served to create a new brand name instead of extending the Holiday Inn brand—and all it stands for—into other hospitality types.
So why use brand extensions at all?
In some cases, extending your brand into other products will help reduce the risk of a new product launch. Promotional costs, for instance can be combined into the marketing of the single brand name rather than multiple promotions. If your customers and prospects already have an affinity for your brand name, they may follow that brand when it’s attached to another, similar product. And extending your brand in the right way can you give you additional shelf space in a retail environment or additional “brand space” in your prospects’ minds.
But there are some “bewares” here, too. Consider the fact that if the new product—with the borrowed brand name—doesn’t resonate in the marketplace, the core or parent brand could be irreparably damaged. Next, consider brand cannibalization. Bud Light, for instance, has been eroding sales from the parent brand, Budweiser, and has recently overtaken it. Most companies only measure the growth of the extended brand and don’t consider the lost market share of the core brand.
According to a study by AC Nielsen, not all line extensions succeed at their mission of creating incremental sales. Those line extensions that do succeed tend to:
Be supported by incremental rather than “borrowed” marketing support
Be well differentiated from the parent brand in order to attract new buyers
Encourage consumers to ‘upsize’
Do the “noun test”
Is your business is considering adding a new product, offering, or initiative? Before you extend your brand with something new, do what I call the noun test. Here’s how it works: Since a brand can only stand for one thing in the mind of your supporters or prospects, determine what that one thing is—your noun—and make sure your new program, offering, or initiative WORKS with that noun.
(Brand) is a (Noun)
Here’s an example:
Special K (brand) is a breakfast cereal (noun)
Yet, Special K has some products including items like Special K2O™ Protein Water, Special K Waffles, Special K Snack Bites, and Special K Protein Bars. Now, if you could argue that Special K (brand) is a diet and nutrition product (noun), then these line extensions would make sense.
So what is a Special K? I’ll let you decide.
Three Steps to Ensure a Successful Brand Extension
Make sure your extension has a compelling benefit and that it offers something your customers and prospects can’t get anywhere else. It must be relevant to their lives and be differentiated from other offerings, including your own.
Understand the role cannibalization can play. New product launches can chip away at existing brands. Don’t accept the increase of unit sales for the extended product or service at the expense of the parent brand.
Is there additional brand equity lurking in the new product or service? Should Volvo, the company that owns the brand known for “safety,” really sell a convertible?