Last Updated Jun 4, 2007 8:29 PM EDT
A brand is a name, symbol, or design that identifies and differentiates a product—or set of products—from others. To retain competitive advantage, you must proactively manage your brand; once it is established and successful, it can be profitable to extend a brand in a new direction. Brands can be extended in a variety of ways, from enhancing a product with additional features and benefits, to varying or re-positioning the product for different market sectors.
A brand can be extended if market conditions are favorable and the new launch does not distract the company from its core brand activities. If an existing brand is not performing well in the market or has quality problems, a new brand extension is not as likely to be successful.
Introducing similar products reduces risk and increases the likelihood of customer acceptance. However, the new product could cannibalize the sales of existing products in the range, and may confuse customers. Some brand extensions, whether similar or dissimilar, may succeed on the reputation of the established brand name, but they should always embrace the same core brand values as existing products.
Some companies extend their brand but fail to maintain product quality and neglect to commit adequate sales or marketing resources to the new products. Poor performance or failure of a new product can damage the other products in the range, so it is important to carefully plan a brand extension.
Some new products are able to draw on the strengths of the main brand and may be successful without the support of specific, individual marketing programs. However, some marketing support is usually required. If the extension represents a change of direction for the brand, heavy marketing support will be important.
Brands can be extended in many different ways—new product development is not the only option. Existing products should undergo a continuous process of review and refinement to ensure that they remain focused on changing customer needs. There are a number of different approaches to brand extension, including:
- enhancing the existing product with additional features and benefits;
- introducing higher- or lower-priced versions of the product;
- extending the product range;
- segmenting the market with product variants;
- introducing niche products;
- introducing private label products;
- bundling additional products or services from third parties;
- responding to competitive product actions.
Each of these approaches is discussed in more detail below.
Enhancing an existing product is a suitable strategy for products which are in a growth or mature phase. The enhancements might include new features and/or performance improvements. These changes can be based on a customer-needs assessment or a competitive-matching strategy. Some brand extensions aim to enhance the product while maintaining the same price.
Product developments like this can be easily imitated, so they may only provide short-term competitive advantage. A focus on customer requirements, however, demonstrates that the brand's emphasis is on leading rather than following.
Price may be an inhibiting factor for some prospective customers. Thus, introducing a lower-priced version of an existing product may broaden the market for the brand. In producing a budget version, care must be taken to avoid diluting any of the brand values that differentiate the product. For example, if quality is a key brand value, there should be no reduction in quality standards. Customer perception of the whole range can be affected by reports of poor quality in a new version.
Alternatively, offering a higher-priced version of an existing product can build on customer satisfaction with existing brand values. The higher-priced version must offer an added value, however. Simply raising the price of an existing product will alienate existing customers.
Extending the range of an existing product line allows you to build on the reputation and success of your existing brand to sell more products through the same sales channels. The critical decision is whether to extend the range with similar products, or to introduce entirely new types of product. Customers may be more likely to accept new offerings when they are comprised of similar products, due to a familiarity factor. While introducing an entirely new type of product carries a higher risk, this approach may create broader appeal.
There are a number of important benefits of this strategy. Products added to an existing range offer customers a greater choice, and may make the range more attractive to a broader base of prospects. The new products also benefit from the marketing support in place for existing products in the range, which implies an opportunity to increase sales per customer without a proportional increase in marketing costs.
A product range extension reduces the overall cost and risk of new product development. Because it builds on the strength of existing brands, it is difficult for competitors to imitate. This strategy is focused on customer needs and utilizes customer relationships to improve sales channel performance.
This strategy is based on the refinement of existing products to meet the different requirements of distinct market sectors. Essentially, product variants allow you to more effectively segment the market. Adopting this strategy allows the organization to concentrate on meeting the precise needs of individual sectors while focusing resources on the most important ones. It can also enhance the brand's perception and build stronger relationships with customers in individual sectors. This approach builds on the strength of existing products, and is therefore difficult for competitors to imitate.
A niche market is a small, specific market sector identified by some special, common characteristic. As an alternative to concentrating on the whole market, a company might focus on specific niche sectors where it has strengths or opportunities that are not available to competitors. This approach typically delivers lower volumes—a niche market, by definition, is small in size—but higher prices. A niche product strategy demonstrates that the brand meets specific customer requirements in targeted sectors, but success will depend on highly-targeted marketing. A potential for low return can discourage certain types of competitor; smaller companies, however, may be able to compete more effectively with larger organizations in niche sectors.
Private label sales is the practice of licensing your product, in standard or modified form, to other companies to sell under their own brands, rather than under your company's brand name. This strategy is a low-cost option that generates revenue, but reduces the opportunity to improve market share for your own products. There are various approaches to implementing this strategy, including:
- repackaging standard products in the new private label identity;
- creating a modified product to meet the other manufacturer's specifications;
- developing a product specifically for the other manufacturer.
An existing product can be sold in combination with additional products or services from a third party. This practice is referred to as bundling. A bundling strategy, like the private label strategy, allows companies to increase their own range and extend the brand without a heavy investment in new product development. Various approaches to implementing this strategy include:
- buy (or license) existing products or services that complement or extend a range;
- buy (or license) a complete product range from a third party;
- subcontract development of a complementary product to an outside organization;
- work in partnership with a third party to jointly develop a complementary new product or service.
Bundling products reduces the cost of product development and accelerates the time to market. However, the same third-party products could also be sourced by competitors. There is no guarantee that the bundled products will offer the same level of quality and performance as the company's own products, and sometimes integration challenges must be met. Efforts should be made to avoid any reduction of standards, which could have an adverse effect on brand perceptions.
In a competitive marketplace, a strategy of matching or responding to the actions of your competitors is sometimes necessary. With this strategy, you may be successful in retaining market share, but it is a defensive approach that does not necessarily propel your company forward. Examples of this approach to extending—or maintaining—a brand include:
- matching your products' features or price to those of the competitors;
- making small improvements in product performance;
- keeping pace with market changes, rather than pursuing a program of innovation;
- utilizing high levels of marketing support to compensate for low product differentials;
- using loyalty programs to retain customers.
This strategy reduces the cost and risk of new product development, but it focuses on retaining market share rather than market development. There is minimal competitive advantage because these product developments are easily imitated—they are, in fact, often imitations themselves. This strategy puts the emphasis on following rather than leading, and it may be difficult to implement when a competitor introduces a major change.
Companies with successful brands are sometimes reluctant to change them. If customer needs change, or if competitive products improve, a successful brand cannot remain stagnant. If the company fails to respond, the brand may begin to lose share and, in extreme cases, may not recover.
Relying solely on an existing brand to promote and support a brand extension is not a commonly successful strategy. A new product launch should be supported effectively, even if it is only a brand extension. Introducing a new product can be risky; no company should invite failure.
Some companies with successful existing products introduce new products in a haphazard way, hoping that customers will adopt the new product just because it carries an established brand name. A brand extension should be a natural outgrowth of the existing brand, embracing the same core values. Ultimately, customers will judge a product on its performance and its ability to meet their needs, not on its brand name.
It is just as common to see companies overlook the opportunities offered by a strong, well-accepted brand. Developing or introducing new products that offer customers the same brand values can generate additional income and broaden the customer base. When performed effectively, brand extension is a very useful technique for growing a business.
de Chernatony, Leslie.
American Marketing Association: www.marketingpower.com