In the business of building an impactful, trusted, and sustainable brand, businesses are constantly reaching for innovations and opportunities for growth. One of the most popular strategies that many well-known companies use to stay relevant is brand extension. This approach provides the opportunity for a business to bring new products or services to market using a brand with a known and ideally admired reputation and much more quickly popularize them.
Steps in Building a Co-Branding Strategy There are several steps to building a co-branding strategy: Step 1: Identify the products and/or services that you and another brand offer that complement each other. The very first step to creating a co-branding agreement is identifying 1+1=2 moments with your potential partner. But what makes brand extension such an attractive marketing strategy, and why does it work so well?
This blog will look at the advantages, risks, and practical examples behind this strategic move, offering real-world advice for marketing folks, business students, and even brand managers.
What Is Brand Extension?
Brand Extension: Establishing a new brand name known in the production market to a firm that offers other products or services. For instance, when Apple launched the Apple Watch, or when Dove expanded beyond soaps to deodorants, both were brand extensions. This is where companies will leverage their existing brand recognition, customer confidence and good image, and it opens up opportunities for new revenue sources.
Why Is Brand Extension Popular?
Brand extension is not merely about slapping a trusted name on an unrelated product. Instead, it requires a deliberate strategy rooted in the goal of maximizing brand equity. Here’s why so many companies favor this approach:
- Consumer Trust: Customers tend to trust products associated with brands they already admire. This built-in credibility can give new products an immediate head start.
- Cost Efficiency: Launching a product under an existing name reduces marketing costs significantly compared to building a brand from scratch.
- Market Differentiation: A well-executed brand extension can create clear differentiation in competitive markets.
- Growth Opportunities: It allows brands to tap into new consumer needs, expand geographically, or diversify within their industry.
Now, let’s take a closer look at the core benefits and potential pitfalls of this popular strategy.
Benefits of Brand Extension
1. Increased Brand Awareness
Brand extension is a strategy that can be carried out through launching new products or services under a well-established and trusted brand name. This further increases brand recognition overall, since it tends to focus attention back on the full range of options. For companies wanting to remain pertinent and responsive to market trends, brand extensions keep the brand top-of-mind for consumers.
Take Dyson, which, when it entered the cordless vacuum market, was able to expand its reputation for advanced technology beyond its established flagship fare. The move generated awareness not only of the new offering but also reinforced the brand’s innovative image.
2. Access to New Markets
Brand extension enables companies to leverage existing trust and goodwill to penetrate new markets or niches where establishing an entirely new brand might be riskier or slower. For example:
- Apple entered the wearables market with the Apple Watch after building trust in the tech space.
- Toyota expanded into the luxury market with the introduction of its Lexus brand extension.
By associating a new product with a well-known name, businesses can reduce consumer hesitation and carve out a place in previously untapped markets.
3. Economies of Scale
Launching a product under an established brand allows businesses to save on branding and marketing costs. Existing logos, taglines, and values are already baked into the strategy, which helps startups and conglomerates alike allocate fewer resources to new launches. Additionally, the synergy created between old and new products helps streamline advertising campaigns for multiple lines under one brand.
4. Competitive Advantage
It’s hard for competitors to gain traction when an established player introduces a successful brand extension. Consumers are more likely to opt for something familiar with proven quality than take a risk on an unknown alternative.
Risks of Brand Extension
While the benefits of brand extension are compelling, this strategy isn’t without its risks. Poorly executed extensions can damage a company’s reputation and dilute its equity. Here are some potential pitfalls:
1. Brand Dilution
One of the most significant risks of brand extension is brand dilution, which occurs when an extension is so unrelated or poorly received that it weakens the company’s overall brand equity. Stretching a brand too thin across unrelated fields can confuse customers and erode trust.
Example: Colgate’s attempt at launching a frozen food line in the 1980s was a spectacular failure. While people trusted Colgate for oral hygiene products, they couldn’t reconcile the brand with food, and the product flopped.
2. Cannibalization of Existing Products
A new extension might cannibalize sales from an existing product line, especially when two offerings fall under the same category or meet overlapping needs. For instance, if Starbucks releases yet another seasonal latte, it risks shifting focus from its core drinks while confusing its target market.
3. Failure to Align With Core Brand Values
A brand extension that doesn’t align with the original company’s identity or values risks alienating loyal customers. For example, Harley-Davidson’s foray into perfumes was perceived as incongruent with the rugged, biker-focused identity of the company, leading to poor sales and a tarnished brand image.
Real-World Examples of Brand Extensions
Successful Extensions
- Amazon Prime
Originally focused on its online retail operations, Amazon successfully extended into entertainment with Amazon Prime Video. Consumers trusted Amazon and were willing to engage with their new subscription streaming service.
- Coca-Cola Zero Sugar
Coca-Cola capitalized on health-conscious customer trends by successfully branding zero-calorie soda options as a natural evolution of its iconic line, boosting its customer base.
Unsuccessful Extensions
- Sony Betamax
Despite Sony’s reputation, its failure to meet VHS’s market dominance and consumer-friendly compatibility needs tarnished the Betamax brand extension.
- Zippo Fragrances
Known for producing lighters, Zippo’s attempt to enter the fragrance market backfired due to weak alignment between its core product and the new offering.
How to Strategically Approach Brand Extensions
For marketing professionals, business students, or brand managers, these lessons can guide strategic decision-making:
- Customer Alignment:
Before introducing a new product, conduct thorough market research to ensure the extension aligns with customer expectations and brand values.
- Leverage Core Brand Strength:
Build on what already works for your brand (like trust, quality, or identity) rather than diversifying into unrelated niches.
- Test the Waters:
Before a large-scale rollout, pilot the new extension with limited audiences to minimize risks and gain valuable consumer insights.
- Avoid Oversaturating the Market:
Focus on targeted extensions that resonate with your audience rather than spamming multiple categories.
- Plan for Equity Protection:
Develop strategies that shield your core brand identity against potential dilution.
Drive Growth With Smart Brand Extension Strategies
Brand extension is a great marketing tool when it’s done right. It can provide entrée to markets, raise brand recognition levels and turbocharge growth. But, like all approaches, it only works if it’s been researched, aligned and implemented.
For companies contemplating what to do next, the question should not simply be “Can we?” but “Should we?” Keep in mind, a good brand extension doesn’t just stretch ideas; it enriches the entire brand equity.
As you seek to recognize the benefits and challenges of extending your brand, you can use this practice to help your business stay competitive, adapt to performing market trends and practice sustainable growth.
