Brand Extension Strategy: Advantages and Disadvantages

Introduction

Brand extension — the practice of using an established brand name in one product category to enter a new product category — is widely regarded as highly beneficial to many organizations (Tauber, 1988). Keller (2003) pointed out that the concept of brand extension is clearly defined whenever a firm employs an established brand name to introduce a totally new product. This strategy is employed in order to leverage and increase brand equity (Pitta and Katsanis, 1995). It is often regarded as beneficial because it reduces the costs of introductory market research and advertising while increasing the likelihood of success, owing to the higher rate of consumer preference derived from an already existing brand (Chen and Liu, 2004).

Keller (1993) notes that all studies on successful brand extension are based on the assumption that a brand is a collection of associations. The parent brand's associations can therefore successfully influence consumer reactions to a given brand extension (Bhat & Reddy, 2001). The key antecedents of a successful brand extension are the parent brand effect and the parent brand itself. Despite the many advantages of employing brand extension as a strategy, Taylor (2004) indicated that one in two brand extension initiatives often fail. Some critics denounce brand extension vigorously, arguing that it causes companies to lose focus and confuses their customers. Other experts, however, maintain that brand extension is critical to a company's growth strategy. This paper presents these conflicting views and then selects the position that best serves the interests of both shareholders and customers.

The brand extension strategy is popular because it is less risky and less costly than creating an entirely new brand (Taylor, 2004, p. 1). De Chernatony and McDonald (1998, p. 135) identified a similar economic advantage, noting that the economics involved in establishing an entirely new brand continuously push firms toward stretching their existing brand name into new markets. The main motivation for adopting brand extension strategies is the high cost of research and development, combined with the well-documented failure rate of new brands.

According to Taylor (2004), several advantages are attributed to using the brand extension strategy rather than creating new brands. These are outlined below.

The Advantages of Brand Extension

A strong brand can be used to promote a totally new product, making it less necessary to build imagery and awareness from scratch. Because the association with the parent brand is already established, the remaining task is simply to communicate the specific benefits of the new innovation (Taylor, 2004, p. 1).

Already established brands are regarded as a promise of high quality and enhanced utility for consumers. An extension therefore benefits from the parent brand's fame and positive reputation, creating a compelling value proposition in the newly entered market segment (Taylor, 2004, p. 1).

The 2003 Brandygym survey found that fifty-three percent of consumers in the United Kingdom would be more inclined to try a new product associated with a brand they already knew, compared with only three percent who would try a completely new brand with no such association (Taylor, 2004, p. 1).

Viot (2007, p. 42) supported this view by pointing out that consumers expect to transfer information they already hold about a brand to its extension. If the general opinion of a brand is favorable, consumer behavior toward its extension will tend to be positive. Successful brand extension can then result in brand loyalty, since a consumer satisfied by an extension will be willing to repurchase the brand. Purchase intention is thereby created. For instance, a Caterpillar Equipment customer is likely to also purchase the brand's footwear.

When compared to the process and cost of launching a completely new brand, the brand extension strategy is generally less costly because the new product uses the same name as the already-known brand. Taylor (2004, p. 4) notes that studies show the cost per unit trial is thirty-six percent lower, while repurchase rates tend to be higher under the brand extension strategy.

This is confirmed by Smith and Park (1992, p. 296), who suggested that the advertising budget required for brand extensions is generally smaller than that required for entirely new brands, while achieving comparable effectiveness in terms of market share.

Aaker (2004, p. 194) identified advantages similar to those outlined by Viot (2007). Whenever a brand appears in another product or service category, this can be a more efficient and effective method of brand building than spending money on intensive advertising campaigns. Furthermore, the relationship between the brand and its customers, particularly in terms of loyalty, is likely to be strengthened.

If a brand image has become weak, brand extension may give it a new lifeline. Extension can provide energy for a brand by increasing the frequency of its association with high quality, a wide range of products, and innovation. Customers encounter the brand name more frequently, reinforcing the perception that the brand is a good one. Viot (2007) stated that a brand's presence across multiple products helps improve its overall popularity. The chances of consumers encountering the brand — both in communication channels and on supermarket shelves — are increased, which in turn improves brand memorability.

Brand extension can effectively prevent competitors from acquiring or exploiting a sizeable market share and foothold, and can prove worthwhile as a growth strategy (Aaker, 2004).

Zeithaml (1988, p. 20) pointed out that perceived quality is a global consumer evaluation of the extent to which a given product is "good" or "bad." It operates at a higher level of abstraction compared to other product impression attributes. Aaker and Keller (1990, p. 29) postulated that brands possessing a high-quality association are extremely well-positioned for brand extension. However, if a brand is closely associated with inferior quality, extension is likely to cause more harm than good.

Conclusion

The concept of brand extension is advantageous for already established brands. This holds true, however, only if proper care is taken to prevent the spillover of its disadvantages into the actual implementation and operation of the strategy. After all, engaging in business has always involved the acceptance of risk.