Building Brand Equity: Extension Strategies :Professor Sandra Milberg Line Extension Brand Extension Brand Equity Sub-Branding Co-Branding Building Brand Equity: Extension Strategies


Leveraging Brand Equity :Leveraging Brand Equity One of the most important changes in the market is the proliferation of extensions.


Managerial Questions :Managerial Questions When considering entering a new product category, two important questions: 1. Should the firm use a brand extension strategy or a new brand strategy? 2. If the firm chooses to use a brand extension strategy, under what conditions will extensions be successful in capturing sufficient market share?


Why Extensions? :Why Extensions? Managers use extension strategies under the assumption that brand associations (e.g., quality, reliability, status) and affect (attitudes) will transfer to the extension.


Benefits of Extensions :Benefits of Extensions Reduce risk perceived by customers Increase the probability of distribution and trial Increase efficiency of promotional expenditures Reduce costs of introductory programs Avoid cost of developing a new brand Create opportunities to extend into more distant product categories Build equity


Line Extension Strategy :Line Extension Strategy When a brand is used to brand a new product that targets a new market segment within a product category currently served by the parent brand. Examples: Coca-Cola diet Colgate for Kids Watt´s pear juice


Line Extensions :Line Extensions Horizontal: the brand extends to new varieties of the product. E.g., Soprole peach, pineapple, strawberrry yogurt. Vertical: the brand extends up or down in terms of product quality. E.g., Gato Negro, Gato Premium.


Line Extensions :Line Extensions Price Quality Downward Stretch Upward Stretch Two - way stretch


Brand Category Extension Strategy :Effort to use a successful brand name to introduce a new product into a different product category. Examples: Nike MP4 player Colgate toothbrush Sony digital camera Brand Category Extension Strategy


Sub-Branding Strategy :Sub-Branding Strategy Using a new brand name in conjunction with a family brand name to introduce new products. Examples: Courtyard by Marriott Technics by Panasonic Levi’s Dockers Milo de Nestle


Co-Branding/Brand Alliance Strategies :Co-Branding/Brand Alliance Strategies When two or more brand names are attached to a product. Examples: Compaq - Intel (“Intel inside”) Lan Chile-Mastercard-Banco Stgo


Example of Strategies :Example of Strategies Parent Brand: Salomon (ski-equipment) Line Extension: New type of skis Brand (Category) Extension: Salomon tennis racquet Sub-Brand: Avenger by Salomon Co-Brand: ingredient brand for grip, frame, or strings (Wilson and Goodyear rubber on soles of ProStaff Classic tennis shoes)


Licensing :Licensing Involves contractual arrangements whereby firms can use names, logos, characters, and other facets of other brands to market their products. Essentially, a firm is “renting” another brand to contribute to the brand equity of their own product.


Why License Your Brand? :Why License Your Brand? Generate extra profit and revenues through royalties paid (2-10 percent of wholesale price) without inventory, accounts receivables, and manufacturing) Increase brand exposure Enhance brand image


Disney: King of Licensing :Disney: King of Licensing Products: e.g., books, toys, clothing, software, movies, etc. There are 3 billion entertainment-based impressions of Mickey Mouse received by children in one year. Equivalent to 10 million impressions a day.


Slide 16: Define actual & desired customer knowledge of the brand Identify possible extension candidates Evaluate extension candidate potential Customers, Competition, Company Design marketing campaign to launch extension Evaluate extension success and effects on parent brand equity Steps to Successfully Introduce Brand Extensions


Brand Knowledge :11/17/2008 Brand Knowledge BRAND KNOWLEDGE


Slide 18:Steps to Successfully Introduce Brand Extensions Define actual and desired customer knowledge of the brand Identify possible extension candidates Evaluate extension candidate potential Customer, Competition, Company Design marketing campaign to launch extension Evaluate extension success and effects on parent brand equity


Hypothetical Brand Extensions :Hypothetical Brand Extensions Nikon film Nestle beer Disney daycare centers Haagen-Dazs chocolate syrup Milo sports clothes Colgate chewing gum Fisher-Price baby shampoo Bacardi chocolates


Slide 20:Possible Extensions for the Lubriderm Brand Nivea Cream BRAND DEFINITIONS RELATED CATEGORIES moisturizer lotion medicinal purity body care pump bottle fragrance Soap - face cream - skin cream sunburn - after-shave - baby antiseptic - first-aid - hemorrhoid cream cotton - gauze - sterile pads emery boards - muscle toner - cotton swabs liquid hair net - mustard - glass cleaner perfume - room deodorizer - deodorant


Category Extension Strategies :Category Extension Strategies 1. Introduce the same product in a different form examples: Jello Pudding Pops, Starbucks coffee ice-cream 2. Introduce products containing the brand’s distinctive taste, etc. examples: Haagen-Dazs Cream liqueur, Philadelphia Cream Cheese salad dressing 3. Introduce companion products for the brand examples: Nikon Film, Duracell Durabeam flashlights, Colgate toothbrush 4. Introduce products relevant to customer franchise of the brand examples: Visa Traveler’s Checks, Gerber baby bottles


Category Extension Strategies :Category Extension Strategies 5. Introduce products capitalizing on the firm’s perceived expertise examples: Honda motorcycles, Canon photocopy machines, Canon Scanner 6. Introduce products that reflect the brand’s distinctive benefit, attribute or feature owned: examples: Nestle chocolates, Nestle chocolate milk Dove cream, Dove deodorant (Mild and Pure) 7. Introduce products capitalizing on image or prestige of the brand examples: Calvin Klein clothes, Porsche sunglasses


Slide 23:Steps to Successfully Introduce Brand Extensions Define actual and desired customer knowledge of the brand Identify possible extension candidates Evaluate extension candidate potential Consumer, Competitor, Company Design marketing campaign to launch extension Evaluate extension success and effects on parent brand equity


Slide 24:Consumer Evaluations of Brand Extensions Timex Watch Rolex Watch Timex Kitchen Timer Timex Calculator Rolex Bracelet Wallet


Slide 25:Consumer Evaluations of Brand Extensions Evaluation of Brand Extension Perceived fit of Brand Extension Product-level Similarity Perception Concept Consistency Perception Existing “Brand X” product Brand Extension Products “Brand X” concept Brand Extension Products comparison comparison


Slide 26:Favorable Brand Extension Attitudes Necessary Conditions Consumers have awareness of and positive associations to the brand Some of the positive brand associations will be evoked by the extension Negative parent brand associations are not transferred to the extension Negative associations are not created by the extension


Slide 27:Steps to Successfully Introduce Brand Extensions Define actual and desired customer knowledge of the brand Identify possible extension candidates Evaluate extension candidate potential Customer, Competitor, Company Design marketing campaign to launch extension Evaluate extension success and effects on parent brand equity


Slide 28:Brand Extension Positioning Strategies Consistent across all product categories? Variations across product categories? Where can extension position relative to competitors?


Slide 29:Brand Extension Advertising Strategies Family brand advertising (multiple family products) Individual brand advertising (extension alone) Comparative advertising (competitor brand)


Slide 30:Steps to Successfully Introduce Brand Extensions Define actual and desired customer knowledge of the brand Identify possible extension candidates Evaluate extension candidate potential Customer, Competitor, Company Design marketing campaign to launch extension Evaluate extension success & effects on parent brand equity


Managerial Question :Managerial Question ... Under what conditions will extensions be successful?


Slide 32:Important Factors for Extending BrandsSucessfully Success of Brand Extensions Evaluation Fit Brand Strength BRAND/FIRM CONSUMERS Knowledge Information MARKET EXTENSION Risk Aversion Characteristic and Nº Competitors POSITIONING Choice Shares Sales Perceived Risk Profit Market Share


Examples of Category Extensions :Examples of Category Extensions “SUCCESSFUL” Ivory shampoo & conditioner Nestle Chocolate Milk Bic disposable lighters Jell-O Pudding Pops Sunkist Orange Soda Colgate Toothbrushes Honda lawnmowers “UNSUCCESSFUL” Campbell’s tomato sauce LifeSavers chewing gum Dunkin’ Donuts cereal Bic perfumes Harley Davidson wine coolers Xerox computers Kleenex Diapers


Selective Research Findings :Selective Research Findings Successful brand extensions occur when the parent brand is seen as having favorable associations (strong vs. weak brands) and there is a perception of fit between the parent brand and the extension. There are many bases of fit: product-related attributes and benefits, common usage situations or usage types, and technical or manufacturing commonalities. High-quality brands may stretch farther than average-quality, although both types of brands have boundaries.


Selective Research Findings :Selective Research Findings Line extensions of symbolic brands enjoy greater market success than those of less symbolic brands. Line extensions entering earlier into a product category are more successful than extensions entering later (strong brands only). Earlier line extensions have helped in the market expansion of the parent brand. A brand seen as prototypical of a product category can be difficult to extend outside the category. Concrete attribute associations tend to be more difficult to extend than abstract benefit associations. cont.


Selective Research Findings :Selective Research Findings Consumers may transfer associations that are positive in the original product class, but become negative in the extension. A successful extension contributes to the parent brand AND enables a brand to be extended even farther. Vertical extensions can be difficult and may require sub-branding. more


Implications :Implications Whether brand extensions produce more positive attitudes and larger choice shares depends on situational factors: brand strength consumer knowledge of the category and competitor brands the product information available at the time of choice.


Implications: Brand Strength :Implications: Brand Strength High quality brands extensions are more successful (higher choice shares) than average quality brand extensions. Due, in part, to lower levels of perceived risk associated with high quality brand extensions. Average quality brands should find alternative means to lower perceived risks (e.g., advertising) while high quality brands should be careful not to increase risks (e.g., positioning).


Implications: Brand Strength :While high quality brands performed better, average quality brands performed quite well under the same conditions. Thus, familiar and well liked average quality brands can extend successfully under the right conditions, but are more limited than high quality brands. Implications: Brand Strength


Implications: Consumer Knowledge and Competitor Brand Familiarity :Extensions will be more successful when they enter categories that consumers are less knowledgeable: new technologies when a product category has no dominant or well known brand a category that the consumer has not made a prior purchase or has little experience and existing brands are unfamiliar to them (e.g., binoculars, telescopes). So early entry by a brand extension in these types of situations would likely improve the chances of success. Implications: Consumer Knowledge and Competitor Brand Familiarity


Implications: Extension Information :In general, if you want to extend your brand to categories in which there are other well-known brands, increasing the amount of information about the extension, through advertising or at point-of-purchase, is a good strategy. On the other hand, extensions are also likely to be successful when consumers do not evaluate much product information and they are competing in a market in which consumers are not familiar with existing brands. Implications: Extension Information


Implications: Past Brand Extension Research :The finding from prior research, in non-competitive settings, that the success of extensions is influenced primarily by the degree of fit between the parent brand and the extension product category may not generalize to competitive settings. Poor fitting extensions can perform quite well under the right circumstances (e.g., competing with unfamiliar brands). Implications: Past Brand Extension Research


Implications: Past Brand Positioning Research :Implications: Past Brand Positioning Research Brands in compromise positions are not always most preferred, that is, they do not necessarily perform better than those in extreme positions. Familiarity with competitor brands is sometimes a stronger determinant of consumer preference than is brand positioning. Positioning may be stronger when the alternative is positioned in the superior or inferior positions (rational decision making).


Slide 44:Market Positions A B Q <- P <- . . . . . . . 1 3 4 5 P1-2 PA P3-4 P5 PB Q2 Q1 QA Q3 Q4 Q5 QB 2


Slide 45:Steps to Successfully Introduce Brand Extensions Define actual and desired customer knowledge of the brand Identify possible extension candidates Evaluate extension candidate potential Customer, Competitor, Company Design marketing campaign to launch extension Evaluate extension success & effects on parent brand equity


Positive Feedback Effects:Benefits to Parent Brand :Positive Feedback Effects:Benefits to Parent Brand Clarify brand meaning and image Revitalize the brand Permit subsequent extensions Bring new customers into brand franchise and increase market coverage Expand brand meaning


Expanding Brand Meaning Through Extensions :Expanding Brand Meaning Through Extensions Nesquik Flavoring Cereals, yogurt, Fun Food for milk chocolate sauce, for Kids (children) postre de leche. Crayola Crayons Markers, pens Colorful Crafts paints, pencils for Kids clay, etc. Nestlé Condensed Baby food, Nutritious and and powered cereales, choco- High Quality milk lates, ice-cream, etc. Food. Gillette Razor Blades Shaving Set, Personal Care deodorant. For Men and Women Brand Original Product Extension Products New Brand Meaning


Disadvantages of Brand Extensions :Disadvantages of Brand Extensions Can fail and hurt parent brand image Can succeed but diminish identification with any one category Can dilute brand meaning Can forgo the chance to develop a new brand Can damage company credibility


Sub-Branding Strategy :Sub-Branding Strategy Using a new brand name in conjunction with a family brand name to introduce new products. Examples: Nestlé Chocapic Nescafé Tradicinó Levi’s Dockers Milo de Nestle


Sub-Branding :Sub-Branding Why use it? Parent brand assures quality. E.g., Nestlé Chocapic Differentiate product lines (quality, styles, price levels, etc.). E.g., Nescafé Cup Colombie vs Tradición Facilitate introduction of new products. Protect the parent brand from negative feedback.


Building & Managing Strategic Alliances :Building & Managing Strategic Alliances Co-Branding


What Is a Strategic Alliance? :What Is a Strategic Alliance? “A strategic alliance is a relationship between parties in which they cooperate to produce more value to a market transaction. The partnership requires sharing risks and benefits.” Lewis 1990


Co-Branding/Brand Alliance Strategies :Co-Branding/Brand Alliance Strategies When two or more brand names are attached to a product.


How About Co-Branding? :How About Co-Branding? Fit: Can market accept the co-brand (e.g., Braun/Oral B) as consistent with attributes, values, etc.? Power: Does market think of co-brand as superior to competition? Leverage: Who is getting the major benefits (e.g., Delta/American Express)?


The Linkage :The Linkage Is the benefit of the name recognition equal? Is the meaning the same? Is there a fit between the names and businesses? Transferability of skills and assets Complementarity Functionality What are their negatives? Is there support beyond the name?


Relationship Traps :Relationship Traps Attempting to develop too many partners Choosing poorly Allocating too few resources Forgetting about cultural compatibility Not developing a long-term financial relationship


Selective Research Findings:Brand Alliances :Selective Research Findings:Brand Alliances Brand alliances significantly affect attitudes toward each of the partnered brands, even when a brand has engaged in many prior alliances. Spillover effects do not affect the partners equally: brands less familiar than their partner experience stronger effects, while two highly familiar brands experience equal effects. Both product and brand fit affect attitudes toward the alliance. Prior attitudes toward the partner brands affect attitudes toward the alliance. more


Brand Extension Effects on Sources of Brand Equity ... :Brand Extension Effects on Sources of Brand Equity ... Increased Awareness Enhanced Image or Image Change (Strengthen or Expand) Attitude Changes (Favorability)


Extension Effects on Brand Equity Outcomes... :Extension Effects on Brand Equity Outcomes... Latent Value (Extendibility) Sales Market Share Share of Customer Stock Prices Profit


Managerial Question :Managerial Question …To enter a new product category, when should the firm use a brand extension strategy or a new brand strategy?


Benefits of New Brands :Benefits of New Brands Spread risks Avoid diluting the images of existing brands Permit consumer variety-seeking Novelty (excitement) Take advantage of opportunities in “distant” product categories


Disadvantages of New Brands :Disadvantages of New Brands Costs Awareness Associations (Image) Name Creation Perceived Risks Consumers Distributors New Product Failure


Slide 63:Market too small Poor product-company fit Not new or not different No real benefit Poor positioning versus competition Inadequate support from distribution channels Forecasting error Poor timing Urban and Hauser (1993), Design and Marketing of New Products Reasons for New Product Failure


Slide 64:Competitive response Major shifts in technology Changes in customers’ tastes Changes in environmental constraints Poor repeat purchase Poor after-sales service Lack of coordination of organizational functions Conflicts among organizational functions Urban and Hauser (1993), Design and Marketing of New Products Reasons for New Product Failure


Research Findings :Research Findings There is some evidence that in the short-term brand extensions are more successful in capturing market share but this advantage seems to disappear in the long- term.


Research Findings :Research Findings Whether brand extensions produce more positive attitudes and larger choice shares than new brands depends on situational factors: the product information available at the time of choice the fit between the brand and the new product category more


Research Findings :Research Findings When consumers are unlikely to evaluate attribute information carefully, managers entering product categories where there is: good fit with the existing brand may want to use a brand extension strategy poor fit may want to develop new brands more


Research Findings :Research Findings When consumers are likely to evaluate attribute information carefully, branding strategy may have little impact on initial appeal. Managers may want to choose branding strategies on the basis of other dimensions: using an extension strategies to take advantage of cost efficiencies use new brand to avoid image dilution. more


Conclusion :Conclusion The answer to the question as to whether to enter a market with a new brand or brand extension is it depends on: Consumer behavior Characteristics of the market Tradeoffs between the risks and benefits associated with the use of brand extensions.