diversify the brand,

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Brand Management (MKT624)

Lesson 23

BRAND EXTENSION/ DIVERSIFICATION

Introduction

The discussion on line extension in the previous chapter gives rise to the next level of

discussion on brand extension or diversification. The lecture tends to discuss the positive sides

of brand extension. With powerful arguments and evidence, we shall see why brand extensions

(diversifications) have become preference of brand and business managers.

Brand extension is dealing with brands that make their place in different fields or categories.

These could be called a collection of different branded products having a common name.

Mitsubishi and Philips have already been cited as examples. In the context of our local market,

Guard brand of products are as diverse as oil filters and packaged rice. Sufi brand originally

known for soaps has diversified into edible oil and mineral water. Why companies prefer to go

across categories using their established brand names is an interesting exercise to carry and

educate ourselves about!

Why extend/diversify the brand

1. Remaining modern and up to date

It has become necessary. Branding is the name of the game in which brands try to

surpass themselves and consumers' tastes and expectations by being responsive. Cars,

electronics, and many food items are perfect examples of tangible products, while

banking and courier services are convincing service areas in which services have been

rationally defined and delivered, on daily basis, to consumers as products of ever-

increasing standards.

Brands that try to stick to a single product relying on communication alone to update

their image do not do well. To stay modern and responsive in present day's world,

brands have to stay in tune with developments in consumers' habits and practices1. As

habits change, brands also change. A salt brand extends into an iodized offering; a spice

brand offers a curry recipe, while a yogurt brand extends by offering hi-calcium yogurt

for kids and young ones. Brands respond out of the energy they muster from the market.

They pay back to the market by trying to

Rate of Success

fulfill emerging needs.

New Brands vs. Brand Extensions

If companies do not get into such

practices, they run the risk of being left

Figure 27

behind. Possible set back in one area can

100

be compensated by prompt developments

in another. So, the resourceful companies

do follow this practice.

xte

2. Higher chances of success

Brand extensions, owing to high

awareness of established brand names

and other related factors, have higher

chances of success at lower costs. This

has been confirmed through a study by

OC&C consulting firm in 19902.

Retailers are more receptive to an

existing brand and offer space more

Source: Brand Management by Jean-Noel Kapferer

Brand Management (MKT624)

readily to extensions

Impact of Brand Extension

on the

than to new brands.

Consumer Adoption Process

They always suspect

new brands.

Secondly, it also has

an impact on the

consumers,

who

through

another

analysis by the same

consulting firm have

Conversion rate

Repeat purchase

Rate of trial

demonstrated:

· Higher rate of

(Index)

New Brand

trying

known

Figure 28

brands.

Brand Extension

· Higher rate of

converting

Source: Brand Management by Jean-Noel Kapferer

known brands.

· Higher rate of developing loyalty for known brands.

The two factors of retailers' and consumers' patronage generate a higher level of trial,

conversion and loyalty3.

3. Cost of advertising

Supporting a family of different brands through advertising is very expensive.

Companies seem to be putting an end to the practice of introducing new brands every

time they introduce a new product. Knowing that the modern business practices and the

brand logic are based on competition, it must be the objective of every company to save

costs.

Working all the time to look for a new point of difference and surpassing their own

benchmarks, companies have to invest and reinvest. To recover costs, volumes have to

be increased (regardless of which category you are in) to achieve high productivity and

economies of scale. Costs, therefore, have to be cut wherever and whenever possible.

Cost-cutting is possible in the area of advertising by selecting a few branded products

bearing the same name to give mileage to all in various categories.

4. Defends a brand at risk in its basic market

There are situations in competitive environment where an established branded product

starts facing serious threats due either to:

· Stiff competition, or

· Shrinking category as a whole, or

· The need to catch up with new technologies

The best course of action for brand managers is to develop something new on the basis

of brand awareness, loyalty, quality image, and also sympathy. As an example, a

bicycle manufacturer may get into the market of motorbikes due to one or a

combination of the above factors. Sohrab brand of bicycles and motorbikes is a case in

point.

5. Defines new segments

It helps define new segments. This may sound like remaining in the same market. But

the fact is if a manufacturer of safety matches decides to get into the area of disposable

Brand Management (MKT624)

lighters, the manufacturer is venturing into an industry that is totally different from

match making. What is common is the target market that cuts across two industries

(match lights and lighter lights) and hence leads to creating two segments of the same

market of "lights".

In actuality, it is a function of so many diverse efforts like making investment into the

new plant and creating an appeal for a sub-segment of smokers from within the overall

segment of users of lights. While it is extension of an existing brand into a new

industry, it also is an effort to define new segments within a market.

The need to do so may arise due to one of the factors discussed under the preceding

point, that is, stiff competition or shrinking category of match lights.

Brand extension, therefore, also has the ability to draw fine lines within the segments

and define those by taking the lead.

6. Brand extension gives access to an accumulated image capital

Part of the high prices negotiated during takeovers of companies with established

brands is the intention of the acquirer to extend the brand immediately after the take

over, extend it and reap the profits from the image capital of the brand. That is why

many companies internationally are known as good acquisition targets because they

have established brands.

Some brands have such a high awareness that those are perceived by customers to be in

categories where they are not present. As an example, a famous maker of jams may be

perceived to be in the market of chutneys and pickles. Realizing such a perception on

part of the consumers, companies feel obliged to get into those categories. Situations

that drive brand extension make it mandatory for the management to capitalize on those.

Such situations reinforce the accumulated brand image. It is an interesting phenomenon;

on the one hand it motivates managers to acquire from the image capital of the acquired

brand and on the other it lets extensions add to the cumulative image. The graphics

further illustrate the concept.

Accumulated Image Capital

7. Essential for brand survival

Brand extension

It is absolutely essential to

Figure 29

having access to

break away from the mono

image capital

product in order to survive.

All products have a life-

cycle and are bound to

Accumulated Image

decline one day.

Capital

Before a product is

subjected

the

implications of the law of

obsolescence, we must

introduce another as a

Reinforced Image Capital

strategic move into a

diversified

area.

The

product gains from the

Existing Image Capital

brand name and yet it is

independent having its own

meaning.

Brand reinforcing the

accumulated image

capital

Brand Management (MKT624)

Bibliography:

1. Jean-Noel Kapferer: "Strategic Brand Management Creating and Sustaining Brand

Equity Long Term"; Kogan Page (228)

2. Jean-Noel Kapferer: "Strategic Brand Management Creating and Sustaining Brand

Equity Long Term"; Kogan Page (236)

3. Jean-Noel Kapferer: "Strategic Brand Management Creating and Sustaining Brand

Equity Long Term"; Kogan Page (237)

Suggested readings:

1. Jean-Noel Kapferer: "Strategic Brand Management Creating and Sustaining Brand

Equity Long Term"; Kogan Page (226-231)

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