The popularity of brand extensions, which apply an established brand name to a new product in the same product category (line extension) or in a different product category (category extension), has been fueled in part by the rising cost of introducing new brands and by the growing realization among companies that their brand investments can be leveraged.
Brand extensions can facilitate new product acceptance by reducing consumers’ perceived risk, raising the probability of gaining distribution and trial, increasing the efficiency of promotional expenditures, lowering the costs of marketing programs, eliminating new brand development costs, allowing for packaging and labeling efficiencies, and permitting consumer variety seeking. They can provide feedback benefits to the parent brand by clarifying the meaning of a brand, enhancing the parent brand image, attracting new customers to the brand franchise, and thereby expanding market coverage, revitalizing the brand, and facilitating subsequent extensions.
However, brand extensions are not a risk-free strategy. They can confuse or frustrate consumers, encounter retailer resistance, hurt the parent brand image if they fail, cannibalize sales of the parent brand, diminish the parent brand’s identification with any one category, create unfavorable associations for the parent brand if they succeed, dilute the overall meaning of the parent brand, and eliminate the opportunity to develop a new brand with its own unique image and equity.
The best brand extensions not only create equity for the new product, but also add to the equity of the parent brand. All else being equal, an extension will be more successful if consumers perceive that the parent brand and the extension product fit together in some way. A firm engaging in a brand extension strategy should 1) define actual and desired consumer knowledge about the brand, 2) identify possible extension candidates, 3) evaluate the potential of each candidate, 4) evaluate extension feedback effects, 5) consider possible competitive advantages and reactions, 6) design a marketing program to launch the extension, and 7) evaluate the success of the extension and its impact on the equity of the parent brand.