Lecture 4
Brand Extension
Dr. Lucy Ting
Lucy.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
Existing
Existing
Products
New
Market
Penetration
Strategy
Product
Development
Strategy
Market
Development
Strategy
Diversification
Strategy
Markets
New
Ansoff,I.(1987) “Corporate Strategy”, McGraw-Hill
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
Existing
Existing
Products
New
Market
Penetration
Strategy
Product
Development
Strategy
Market
Development
Strategy
Diversification
Strategy
Markets
New
Ansoff,I.(1987) “Corporate Strategy”, McGraw-Hill
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 Efficiencies
Sullivan (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 extensions
Keller 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 Model
Define 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