Braintrust Query: When are brand extensions a good idea?

Discussion
Aug 31, 2009
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Commentary
by Joel
Rubinson
,
Chief Research Officer, The Advertising Research Foundation

Line
extensions (e.g. a new flavor of Crest toothpaste) and franchise extensions
(e.g. Crest Whitestrips) are thought to be more affordable ways to introduce
new products and have a higher success rate vs. creating completely new
brand names. In this recessionary "do more with less" marketing era,
brand extension strategies for new products become increasingly alluring.

However,
brand extensions are not always a good idea. Through the years, I have
been involved with forecasting the sales potential of hundreds (maybe
thousands) of line and brand extensions and wanted to share what I think
are some important insights.

Insight
#1 – A
brand extension strategy for launching a new product only works if
your existing brand has high enough parent brand penetration.

In
the early ’80s, General Mills launched a new flavor of Cheerios called
"Honey Nut Cheerios." Concept test results were good but not off the
charts, yet when this new flavor was launched, it got an unpredictably
high level of purchase trial given its modest advertising and promotion
budget.

When
I analyzed actual in-market results regarding trial rates for Honey Nut
Cheerios and many other line extensions separately by those who bought
the parent brand buyers vs. non-buyers, I found that parent brand buyers
had a 2-6X HIGHER trial rate (e.g. 18 percent trial among parent brand
buyers vs. three percent among non-buyers). The big factor was that the
conversion of positive purchase intent into trial among parent brand
buyers was much higher. In fact, the knife cut both ways; people who
did not buy your brand were less likely to try the new line extension
relative to their stated purchase interest than if it had a new brand
name.

Insight
#2 – Brand
extensions that are not connected with the meaning of the base
brand are destructive even though they might hit year one sales
targets. That’s why naming Spaghetti Sauce "Prego" rather than
"Campbell" or calling a premium line of autos "Lexus" rather than
"Toyota" made so much sense. It’s also why I question Starbucks’
instant coffee.

In
concept testing, if positive purchase interest towards the new product
isn’t at least 30 percent higher among parent brand vs. non-parent brand
buyers that means that your buyers are not seeing the connection between
the new product and your existing brand.

Insight
#3 – Emphasize
brand-building (e.g. advertising, social media) to build the
master brand and shopper marketing and couponing to sell the
brand extension.

An
extension of a brand someone buys enjoys instant credibility because
users trust anything they connect with that brand. For new flavor and
size line extensions you might not need anymore than to be visible in
the store or offer a coupon. Because line extensions are bought out of
acceptability, there is random component to whether they buy it or not.
Therefore, the more SKUs your brand already has, the lower the trial
rate will be among your own parent brand buyers.

Discussion
Questions: What are some core strategies for launching brand extensions?
Of the points brought up in the commentary, which do you think are most
critical to success?

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21 Comments on "Braintrust Query: When are brand extensions a good idea?"


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David Biernbaum
Guest
11 years 8 months ago

Line extensions are usually a profitable strategy for the manufacturer to achieve more retail space, a greater banner effect on the shelves, and to help keep competitors locked out. However, in many cases, when the large major brands implement line extensions, what truly happens is that its larger major competitors will imitate and emulate the line extension items, which in turn, lock out innovation and greater retailer profitability from smaller brands that truly have new ideas and offerings for the consumer.

David Zahn
Guest
11 years 8 months ago

In addition to the suggestions offered above, I would add –

1) is there a need for the brand extension for the shopper? What is the “hole” being filled by the brand extension?
2) Is there a specific shopper target (or targets) that the brand is best matched towards?
3) Identify where to distribute the new brand extension (and where to avoid)
4) understand the impact of cannibalization and intra-category purchase dynamics.

Charlie Moro
Guest
Charlie Moro
11 years 8 months ago

Great insight how not to extend a brand name into an area where there is a lack of recognition. I happened to be out looking at cars recently and took a look at the new Hyundai Genesis. Nice car and no negative feedback. The sticker on the car fully loaded was $44K.

Point of the story was the person I was with had the first reaction of “Hyundai’s can’t cost that much.” Her relationship with the brand was as an entry level “starter” car.

They should have learned a lesson from Toyota.

Max Goldberg
Guest
11 years 8 months ago

Frequently it seems as if line extensions are favored over true innovation. How many types of Crest toothpaste or flavored Cheerios do consumers really need? As part of the “do more with less” era we are currently experiencing, consumers want things to be simpler. Line extensions make things complicated. And through the muscle that the big consumer packaged goods companies have at retail, take away the opportunity for small, new, innovative brands to gain a foothold on retail shelves.

Brand extensions, on the other hand, if well thought out, can give consumers a new, interesting product, and build profits for the parent company. If not well thought out, they can be a quick way to spend marketing dollars and wind up as a case study of what not to do.

Nikki Baird
Guest
Nikki Baird
11 years 8 months ago

I think Joel hit it right on the mark. The only thing I would add is that there are diminishing returns to brand extensions–the further you extend, the more tenuous the connection to the parent brand, and at some point the extension loses any benefit from the parent brand.

As I search the shelves for my Tide high efficiency cold water detergent in Fresh Spring scent with a touch of Downey, and my Glad flex force, gripping top kitchen trash bags with odor control in orange fresh scent, I have to wonder how far brands can extend before they break–and how anyone, retailer or manufacturer, can keep up with all of those SKUs.

Phil Rubin
Guest
11 years 8 months ago

The power of the parent brand, including both its penetration and relevance to the extension, is certainly a fundamental factor here. The other side of this are the brand customers. The extension has to be considered in the context of whether it’s meant to deepen the relationship (and share of wallet) of the parent brand’s customers or create new ones.

The examples cited that illustrate this are Crest White Strips and Cheerios in support of this point along with Toyota and Lexus, which are really different brands albeit from the same parent company. Lexus doesn’t fit as “Toyota Premium” any more than the Phaeton fit with VW (though not a brand extension but a product underneath the brand, technically). Still: ooops….

Ian Percy
Guest
11 years 8 months ago

Joel’s second point is the key one, it seems to me. When the extension actually contradicts the core brand itself you’re destined to fail. And that all starts when there is little or no understanding of what the ‘brand’ actually is. For example “Cadillac” is not the brand of a car, it’s the brand of a luxurious living room on wheels. A compact Cadillac then doesn’t make sense. Marketing courses are replete with case-studies like that.

I’m working right now on a technology that dramatically increases the efficiency of everything from diesel fuel to aquarium clarity to drinking water for high performance athletes. While it would be easier to “brand” the technology itself because it’s almost the same in each case, you can bet there will be multiple brands based on the application of the technology instead.

Steve Montgomery
Guest
11 years 8 months ago

Brand extensions can also relate to extending a retailer brand by opening new formats or similar formats with a different line of merchandise–Gap, Gap for Kids, etc. The same rules as Mr. Rubinson mentioned in his article still apply.

Of the three rules he mentions for retailer brand extensions, I believe the most important is the umbrella of the parent brand must be extendable to the new brand. Using the same example of Gap, the primary difference is the age group of the target user. Were Gap to try to extend its brand to being a provider of hunting supplies, it would lack any creditability.

Pamela Danziger
Guest
Pamela Danziger
11 years 8 months ago
Brand extensions overall are a risky business, but in the current recession even more so. The fact is presenting shoppers with more products to choose from inevitably causes hesitation and sometimes confusion, which can lead to lost sales opportunity. Let’s not forget the famous Knotts Berry Farm jam selling test where on one day customers were presented with 24 jam options, the next only 6. When the sales results for each day were compared, the day when fewer jams were offered also corresponded to significantly higher sales. Net/Net: Presenting customers with more choices–too many choices–is demotivating. In the above examples, Honey Nut Cheerios is significantly different from its parent brand, so it doesn’t confuse or confound (i.e. new appealing flavors in the familiar round Cheerios format), whereas Multi-Grain Cheerios seems too close to the core brand values of the parent (i.e. do I want whole grain Cheerios or the multi-whole-grain variety??? Don’t know so I’ll buy Quaker Oats cereal which is always 100% whole grain instead). Likewise, building a new brand called Lexus rather than… Read more »
Kevin Price
Guest
Kevin Price
11 years 8 months ago

Brand extensions are a good idea when they leverage both the meaning and the capabilities of a brand to deliver benefits. Crest knows dental care, so extending the brand to ‘White Strips’ makes more sense for Crest than extending the brand into dishwashers, both in reality and perceptually. (What benefits might one expect from Crest dishwashers?) While these ‘truths’ may seem ‘obvious’ to the experienced, they are frequently not followed.

Too often, line extensions are ‘created’ and delivered to the market because the manufacturer wants to “do more with less.” But if the line extension doesn’t leverage the meaning and capabilities of the brand to deliver benefits, then the extension has low odds of success.

Sandy Miller
Guest
Sandy Miller
11 years 8 months ago

Note the fourth paragraph. Many, maybe most shoppers like to offer their family variety. When stores offer this, it does not suggest shoppers should go elsewhere to get all they need. And doing this may identify other products which will be core items for varying store profiles.

Richard J. George, Ph.D.
Guest
11 years 8 months ago

Some terrific comments re: rules for success for line extensions. I would add the following: 1. Make sure the line extension serves the market’s interests, not simply your interest. 2. There is only some equity in a brand–use it wisely. 3. Be aware of resource dilution when spreading marketing funds and personnel across additional brands, particularly the impact on the original or flagship brands. 4. Be prepared to defend line extensions.

Gene Detroyer
Guest
11 years 8 months ago
First of all, it is all about the brand. If the brand already exists, ask “what does it mean in the consumer’s mind?” If you are introducing a new brand, ask “what do you want it to represent in the consumer’s mind?” The answer to those questions will provide a map to line extensions. Any line extension not on that map will either hurt the brand overall or be a waste of effort for the company. We often use Crest as an example of line extension. Do you need another flavor? While Crest was once a toothpaste, at a point in time P&G determined that “Crest” would mean Oral Care. Once they made that decision, the opportunity for line extension changed dramatically. These decisions are not merely related to efficient line extensions. They are all about building a BRAND. Category concentration doesn’t have to be the only objective. Look at Church and Dwight and how they extended “Arm & Hammer” across many categories. But, in each case, the baking soda connection was an asset to… Read more »
Jonathan Sapp
Guest
Jonathan Sapp
11 years 8 months ago

It’s about time that the issue of brand extensions got a good reviewing. It’s great idea, in moderation. Unfortunately, many extensions are poorly thought out. Brands should keep their extensions under control, staying in their category. It rarely works to take them outside.

Jonathan Marek
Guest
11 years 8 months ago

Great points all around. It seems to me that the halo and cannibalization impacts of brand and especially line extensions, while mentioned above, are underestimated as well. Many extensions are failures even when they succeed. That is, if I sell a lot of units, but I would have sold them as existing product units anyway, I lose. This happens all the time (Honey Vanilla Mint Crest with Sparkles, anyone?

OK, I made that up, but you get the point!) To me, that’s another piece of the beauty of Honey Nut Cheerios (and not of Multigrain Cheerios). I capitalize on the brand but steal someone else’s share to get my sales. Brilliant!

Ben Ball
Guest
11 years 8 months ago
Joel is spot on in his conclusions I’d say. With the most critical being #2. Line extensions MUST work for current users. They are the true gatekeepers of the brand persona and must be relied on to keep overly ambitious brand managers from torturing “brand extendability research” into ridiculously irrelevant line extensions. Hyundai is an example–but a tougher one to call. Does Hyundai stand for “low price cars” or “high value cars”? (Full disclosure: I am the very satisfied owner of an “upper-end” Hyundai.) The “high value” interpretation implies that as long as the brand offers a remarkable value for the money relative to alternatives, it should have permission to market cars in any price range. But at some point that logic falls apart. Would I buy a $100,000 Hyundai because it offers a tremendous value proposition versus a Bentley? I don’t think so. A recent and more relevant case in point–Walmart’s ill-fated dabbling in “up-scaling” the merchandise selection. “Lowest prices every day” should logically give permission to provide the lowest price on a $1500… Read more »
James Tenser
Guest
11 years 8 months ago
CPG brand extensions are partly motivated by the manufacturer’s desire to control space on the aisle. Where a single product cannot create high visibility within the set, multiple flavors or varieties with similar looks can dominate a bloc or strip on the shelf. This strategy may improve volume overall for the brand, but also dilute per-square-inch performance if the brand is stretched to far. Brand extensions also create news about the core brand. It gives the marketers something to crow about, even if the innovation lies outside the attributes of the core product. If some extensions are short-lived, that may be acceptable, because new alternatives are coming out of R&D every quarter to replace them. Supermarkets don’t mind this too much, because they get paid on the churn–cash for every new listing and de-listing. So in fast-moving consumer goods, at least, this syndrome is at least partly “structural” in nature. That is, it may be driven by merchandising gamesmanship as well as marketing strategy. There’s much more to this discussion, of course, as evidenced by… Read more »
Carlos Arambula
Guest
11 years 8 months ago

It’s critical for the extension not to abandon brand identity. If the product extension can’t live inside of the branded parameters, then consumer expectations will not be met and the brand will be diluted.

One point, or good idea, that wasn’t brought up was the need for a brand extension when the demand for the brand benefits exist outside of the current distribution channels. For example, if the product’s current format favors grocery store distribution, but demand exists in other retail/distribution channels then a brand extension will be successful (not a different size or packaging issue, but a new format).

We must keep in mind that a brand fills a need–real or imagined–it satisfies a consumer’s desire. If the format of the brand limits distribution to a particular channel then the brand is begging for an extension.

Herb Sorensen
Guest
11 years 8 months ago

Repeated extensions must dilute attention given to the #1 seller for the brand. There is nothing wrong with extension, per se. It is a fact that shoppers are attracted to stores with lots of options, but they are repelled by not being able to find the item they want.

Usually the one they want is the #1 seller–that’s why it is #1. The cardinal sin of retailers (and their brand suppliers) is the refusal to help the shopper by clearly calling their attention to #1. Shoppers punish retailers and brands by simply buying less of everything across the board.

So, attract shoppers by proliferating, but sell them by focusing.

Stephen Hill
Guest
Stephen Hill
11 years 8 months ago

Protecting the value of your brand is so important. A successful brand is so valuable in the long term–often the most valuable thing a retailer or manufacturer can own. Introducing an extension which degrades your brand positioning can be a fatal error. Extend carefully!

Scott Knaul
Guest
Scott Knaul
11 years 7 months ago

I’m a fan of brand extensions when they make sense. If I’ve gained familiarity and trust in a brand and they come out with similar items I’m likely to use them as well because I feel good about what I know. If my favorite brand of toothpaste comes out with a mouthwash I’m probably going to use it. The that same brand of toothpaste comes out with toilet paper…I would be confused and probably not give it a try.

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