Launching a new product requires time, R&D, innovation and budget to create brand awareness. Companies often use brand extension as a strategy, using one of its well-known brand names to launch a product in a different category. The existing brand serves as an effective and economical marketing tool for the new product. For example, ITC’s brand Aashirvaad Atta is a leader in branded atta market. Being a household name, Aashirvaad has tremendous brand equity. Leveraging this, the company has extended the Aashirvaad brand in categories such as salt, ghee, spices, ready to eat meals, etc.
Brand extension also helps a brand enhance its relevance and life span. For example, Marico’s Saffola used to be known for refined edible oil, meant to be good for heart health. With time, Saffola has become a health care brand. The brand has extended to categories like flavoured oats; Aura a combination of olive and flaxseed oil, etc. Through its Saffolalife initiative, Marico promotes a healthy lifestyles and organises heart-health checks. It also runs its own website, Saffola Fit Foodie, which has healthy recipes of traditional favourites.
While there can be benefits of brand extension, there can also be risks that could lead to dilution or deterioration of brand image. With each extension comes a new market, new competitors and new customer expectations. For instance, McDonald's attempted a pizza product, the McPizza. Later, this pizza was discontinued as it took longer to cook. People went to McDonald's for quick-served burgers and fries, not for slowly served pizza, and McDonald's wanted to keep its reputation for fast service.
Let’s have a look at some criteria that could help companies move ahead with brand extension:
To extend a brand into a new category, it is important for a company to first build equity in its parent category. For example, Paper Boat started as an ethnic drinks brand. After building strong equity and reputation in the category of traditional Indian drinks, it has expanded to the ethnic Indian snacks such as peanut chikki, banana chips, aam papad, bhakarwadi, etc, extending a beverage label to a brand of traditional Indian beverages and foods.
Match between source and destination
An example of this is Patanjali Ayurved, whose positioning around swadeshi, ayurvedic, and health, supported by the yogic credentials of Baba Ramdev, has helped it expand in categories like health and nutrition, ayurvedic medicine, etc. The company has evolved as a major FMCG player in India.
Maturity of the destination market
Product categories can be emerging, fragmented and mature ones. Fragmented categories have a lot of brands with small market share. Emerging categories have evolving consumer behaviour and low penetrated brands. Mature categories have a few dominant players with significant market share and resources. There are more chance of successful brand extension in fragmented and emerging categories, as competition is not mature and customers’ brand loyalty is yet to evolve.
Reasons behind choice in the home and destination category
In a particular category, customers may prefer a brand because of a few specific attributes. In the destination category, if these attributes play a significant role, then there are more chances of acceptance of brand extension. For example, Godrej has remained a market leader in the locks industry and has been popular in categories like almirahs and safes. It has a strong image for attributes like trust and security. The brand has expanded in to security solutions and offer diverse security solutions including cameras with analytics, bomb detectors, X-ray baggage scanners, biometrics, burglary and fire-resistant safes..
Competitive advantage in new category
Warren Buffet has said, your premium brand had better deliver something special, or it's not going to get the business. Though extension from a known brand attracts customer attention, they will typically also look for what this brand offers that is better than existing brands in the new category. Customers would pay a premium when the new brand extension is superior to existing competitive products on an important dimension. When a brand name is added simply to provide recognition and association, even if it is initially successful, its future could become vulnerable to alternatives.
Adding new benefits to a brand image
One of the most difficult challenges is continued growth. If a brand is limited to one product and the market for that one product disappears or slows down or becomes ultra-competitive, then the brand’s growth would also slow down. For example, for a long time, Britannia has been known for biscuits, but the company has expanded into categories such as cake, rusk and dairy, trying to evolve its image into a total foods company.
Whether the brand has an abstract or absolute image
A few brands have positioning of specialists in niche markets. Their field of extension has to be limited. New products should represent the identity of the brand and should fall within the territory the brand has created. For example, FirstCry has an absolute image of specialist brand in the baby and children space. But brands like Virgin, Armani and Tata act as a source of inspiration and have expanded into multiple unrelated categories.
Whether the company has the skills required in new category
If a company doesn’t have skills and capabilities for new category, it has to acquire those skills through alliances or internal trainings. For instance, manufacturing and packaging Lakme products in factories require different skill sets as compared to running a Lakme salon, where employees who attend customers should have attributes like good skin, great communication, etc.
Though brand extension is a powerful strategy, it has to be used carefully. Ideally, extensions should enhance the brand and reinforce its image. As Howard Schultz has said, customers must recognise that you stand for something.
The writer is author of the book 'Booming Brands'. (Views expressed are personal and don't necessarily represent any company's opinions)
The thoughts and opinions shared here are of the author.
Check out our end of season subscription discounts with a Moneycontrol pro subscription absolutely free. Use code EOSO2021. Click here for details.