Brand extension is a type of strategy that is used by companies (brands) by introducing new products (Aaker & Keller, 1990) but under the same brand name. It can cover the brand, new products and developing existing products (Xie, 2008). This product can be in the same area that the original product was in such as coca cola bringing out diet coke and coke zero too. These are extensions of the product. It can be used to reduce risk of failure by using the original product name as reference for consumers (Muroma & Saari,1996).This was successful due to previous brand awareness of coca cola meaning that customers trusted the new product.
However they don’t just have to be within the same category as previous products. A example of this of a company who have been successful too is Virgin. They have gone from music, to phones, to train travel and many more. These are completely different categories however Virgin is known throughout the world and is a trusted company making it easy for them to extend there brand.
Obviously not all these are around now but these are a few examples of the different things Virgin has been involved in.
Reasons for brand extension
There are a few reasons that companies use brand extension rather than starting a completely new brand or product. Firstly it can be a lot cheaper creating a new product under the same name as people are already aware of the parent name brand. Creating a whole new brand is very expensive and takes a lot of effort (Tauber, 1981). The whole process of brand awareness can be very expensive, however by developing a product under this previous name can completely skip out this. Research has shown that more new companies fail than succeed there are choosing the to develop new products under the same name (Leslie de Chaternatony & McDonald, 1998).
It’s not just the money factor building up a brand identity that consumers trust can take many years. By introducing the brand under the same design means that it is more likely to be successful quicker. According to a study in 2003, nearly 60% of consumers are more likely to try a new product from a brand they already know, comparing to under 5% for unknown brands (Taylor, 2004). Furthermore it can also increase the original brand as well, by developing new products you are increasing brand awareness.
Certain gimmicks are important too and for a short space of time can generate a lot of interest. If you have a popular brand already it is easier to do this. For example with the sweets m&m’s. They released a part on their website where you can actually create your own and put whatever writing on it you want. People didn’t think this would originally be a good idea but it took off and was very successful. This is the advantage of extending on to a previous well know brand.
Limitations of Brand extension
Obviously a problem with brand extension is the new product could fail. Consumers for whatever reason don’t buy it and you lose money on this. However it can obviously get worse too, by releasing a new product that fails can then lead to your original product/ brand taking a hit as well. People might start to associate this with your original brand; this is called dilution (Viot, 2007). Aaker (2004) also states that this can harm the original brand and therefore it can be a risk by creating an extension.
When creating a new product it can be important that it is not greatly improving on your previous product and is not going to make the consumers change from the existing product to the new one. This is obviously a limitation but at the same time Aaker 2004) says that you would rather they are still buying your products over other competitors.
If anything goes wrong too your new product this can have a detrimental effect on your previous brand identity and products. People might start assuming your company cannot be trusted and this could lead to a decrease in sales again.
These are just a few ideas in to why it can be risky creating brand extensions. You need to make sure that your new idea isn’t going to end up damaging your existing brand. Is the money you will save by not having to create brand awareness and setting up new brand going to be worth it? Overall it looks like it is a good idea but there are obviously examples such as Levi who have failed in this.
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Xie,Y,H., (2008) “Consumer innovativeness and consumer acceptance of brand extensions”, Journal of Product & Brand Management, Vol. 17 Iss: 4, pp.235 – 243