Brand extension

Brand extension or brand stretching is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category. The new product is called a spin-off.

Organizations use this strategy to increase and leverage brand equity (definition: the net worth and long-term sustainability just from the renowned name). An example of a brand extension is Jello-gelatin creating Jello pudding pops. It increases awareness of the brand name and increases profitability from offerings in more than one product category.

In the 1990s, 81 percent of new products used brand extension to introduce new brands and to create sales.^[1] Launching a new product is time-consuming but also needs a big budget to create brand awareness and to promote a product's benefits.^[2] Brand extension is one of the new product development strategies which can reduce financial risk by using the parent brand name to enhance consumers' perception due to the core brand equity.^[3][4]

While there can be significant benefits in brand extension strategies, there can also be significant risks, resulting in a diluted or severely damaged brand image. Poor choices for brand extension may dilute and deteriorate the core brand and damage the brand equity.^[5][6] Most of the literature focuses on the consumer evaluation and positive impact on parent brand. In practical cases, the failures of brand extension are at higher rate than the successes. Some studies show that negative impact may dilute brand image and equity.^[7][8] In spite of the positive impact of brand extension, negative association and wrong communication strategy do harm to the parent brand even brand family.^[9]

A brand's "extendibility" depends on how strong consumer's associations are to the brand's values and goals. Ralph Lauren's Polo brand successfully extended from clothing to home furnishings such as bedding and towels. Both clothing and bedding are made of linen and fulfill a similar consumer function of comfort and hominess. Arm & Hammer leveraged its brand equity from basic baking soda into the oral care and laundry care categories. By emphasizing its key attributes, the cleaning and deodorizing properties of its core product, Arm & Hammer was able to leverage those attributes into new categories with success. Another example is Virgin Group, which was initially a record label that has extended its brand successfully many times; from transportation (aeroplanes, trains) to games stores and video stores such as Virgin Megastores.

Product extensions are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. An example of a product extension is Coke vs. Diet Coke in the same product category of soft drinks. This tactic is undertaken due to the brand loyalty and brand awareness associated with an existing product. Consumers are more likely to buy a new product that has a reputable brand name on it than buy a similar product from a competitor without a reputable brand name. Consumers receive a product from a brand they trust, and the company offering the product can increase its product portfolio and potentially gain a larger share in the market in which it competes.