Lecture 4

Brand Extension

Dr. Lucy TingLucy.Ting@manchester.ac.uk

Agenda

• Brand Extension – Definition– Advantages – Disadvantages

• Evaluation of Brand Extension Opportunities– 5 Steps of Introducing Brand Extensions

What is Brand Extension?

Growth Share Matrix

Ansoff,I.(1987) “Corporate Strategy”, McGraw-Hill

Market Penetration Strategy

Product Development Strategy

Market Development Strategy

Diversification Strategy

ProductsExisting

Existing

New

New

Markets

Market Penetration

• Same segment • Same products

– Increase customers number

– Increase purchased quantity

– Increase purchase frequency

Market Development

• New segment• Same product

assortment

– New segment of the market

– Geographical expansion

£24.50

Product Development

• Same segment • New product

– New packaging– New product

Diversification

• New market • New products

– Related diversification – Vertical integration– Unrelated diversification

Growth Share Matrix

Ansoff,I.(1987) “Corporate Strategy”, McGraw-Hill

Market Penetration Strategy

Product Development Strategy

Market Development Strategy

Diversification Strategy

ProductsExisting

Existing

New

New

Markets

New Product Development

• Branding Strategies

– New brand for the new product

– Existing brand for the new product

– A combination of a new brand and an existing brand

Definition

• A brand extension occurs when a firm attach established brand names to new products, taps into consumers favourable associations with the brand name in an attempt to create financial value for the firm.

Lane & Jacobson (1995) “Stock market reactions to brand extension announcements: The effects of brand attitude and familiarity”, Journal of Marketing, 59(1), pp. 63-77

Brand Extension

• Brand Extension Strategies

– Line Extension• Marketers apply the parent brand to a new product

that targets a new market segment within a product category the parent brand currently serves

– Category Extension• Marketers apply the parent brand to enter a

different product category from the one it currently serves

Pros & Cons

• Advantages of Brand Extensions

– Facilitate New Product Acceptance

– Provide Feedback Benefits to the Parent Brand and Company

Keller (2008) Chpt 12

Pros & Cons

• Facilitate New Product Acceptance

– Improve Brand Image

– Reduce Risk Perceived by Customers

– Increase the Probability of Gaining Distribution and Trial

– Permit Consumer Variety-Seeking

Keller and Aaker (1992), “The Effects of Sequential Introduction of Brand Extensions,,” Journal of Marketing Research, 29() pp. 35-50

Pros & Cons

• Facilitate New Product Acceptance

– Increase Efficiency of Promotional Expenditure

– Reduce Costs of Introductory and Follow-Up Marketing Programs

– Avoid Cost of Developing a New Brand

– Allow for Packaging and Labelling EfficienciesSullivan (1992), “Brand Extensions: When to Use Them,” Management Science, 38(6), pp. 793-806

Pros & Cons• Provide Feedback Benefits to the Parent

Brand– Clarify Brand Meaning

– Enhance the Parent Brand Image

– Bring new customers into brand franchise and increase market coverage

– Revitalise the brand

– Permit subsequent extensionsKeller and Aaker (1992), “The Effects of Sequential Introduction of Brand Extensions,,” Journal of Marketing Research, 29() pp. 35-50

Pros & Cons

• Disadvantages of Brand Extensions

– Can confuse or frustrate consumers

– Can encounter retailer resistance

– Can fail and hurt parent brand image

– Can succeed but cannibalise sales of parent brand

Keller (2008) Chpt 12

Pros & Cons

• Disadvantages of Brand Extensions

– Can succeed but diminish identification with any one category

– Can succeed but hurt the image of parent brand

– Can dilute brand meaning

– Can cause the company to forgo the chance to develop a new brand

Sullivan (1990), “The Impact of Brand Extensions on Parent Brand Memory Structures and Retrieval Processes,” Journal of Business, 63(3), pp. 309-329

Brand Extension Opportunities

Keller (2008) Chpt 12

5-Step ModelDefine Consumer Knowledge

Identify Possible Extensions

Evaluate the Potential of the Extensions

Design Marketing Programs to Launch Extension

Evaluate Extension Success and Effects on Parent Brand Equity

Step 1

• Define Actual and Desired Consumer Knowledge about the Brand

– Understanding the consumers, including needs/wants/motivations/attitudes.

– Understand the parent brand, including the brand awareness/brand association/brand positioning/brand meaning

Step 2

• Identify Possible Extension Opportunities

– Line Extension– Category Extension

• Would our customers think the parent brand fit with the new product category?

• Would the resources of our firm and the meaning of the brand meet the expectations?

• Is it easy for our competitors to copy?

Step 3

• Evaluate the Potential of the Extension Candidate

– Consumer Factors• Strength• Favourability• Uniqueness• Compelling• Relevance• Consistency• Salience

Brand Extension Equity: Brand Awareness

Contribution to Parent Brand Equity: Consumer Feedback

Step 3

• Evaluate the Potential of the Extension Candidate– Firm and Competitive Factors

• How effectively are the corporate assets leveraged in the extension setting?

• How relevant are existing marketing programs, perceived, benefits, and target customers to the extension?

• What are the competitive advantages to the extension as consumers perceive them?

• What are the possible reactions initiated by competitors as a result?

Step 4

• Design Marketing Programs to Launch Extension

– Choosing Brand Elements• Packaging

– Designing Optimal Marketing Program• Brand Positioning

– Leveraging Secondary Brand Associations

Step 5• Evaluate Extension Success and Effects

on Parent Brand Equity– Customer Segmentation– Consumer Desires– Pricing Breadth– Excess Capacity– Short-term Gain– Competitive Intensity– Trade Pressure

Quelch & Kenny (1994) “Extend Profits, Not Product Lines”, Harvard Business Review, 72(5), pp. 153-160