When are brand extensions a good idea?

Line extensions (e.g. a new flavor of Crest toothpaste) and franchise extensions (e.g. Crest Whitestrips®) are thought to be more affordable ways to introduce new products and have a higher success rate vs. creating completely new brand names.   In this recessionary “do more with less” marketing era, brand extension strategies for new products become increasingly alluring.

However, brand extensions are not always a good idea.  Through the years, I have been involved with forecasting the sales potential of hundreds (maybe thousands) of line and brand extensions and wanted to share what I think are some important insights.

Insight #1—a brand extension strategy for launching a new product only works if your existing brand has high enough parent brand penetration.

The success of a brand extension as has much to do with pre-existing brand equities as it does with the characteristics of the new items.

In the early 80s, General Mills launched a new flavor of Cheerios called “Honey Nut Cheerios”.  Concept test results were good but not off the charts yet when this new flavor was launched, it got an unpredictably high level of purchase trial given its modest advertising and promotion budget.

When I analyzed actual in-market results regarding trial rates for Honey Nut Cheerios and many other line extensions separately by those who bought the parent brand buyers vs. non-buyers, I found that parent brand buyers had a 2-6X HIGHERHIGHER trial rate (e.g. 18% trial among parent brand buyers vs. 3% among non-buyers).  Furthermore, it was only partially explained by higher purchase intent.  The big factor was that the conversion of positive purchase intent into trial among parent brand buyers was much higher.  In fact, the knife cut both ways; people who did not buy your brand were LESS likely to try the new line extension relative to their stated purchase interest than if it had a new brand name.  Hence, overall trial for your new brand is the mixture of trial rates (one much higher, one a little lower), weighted by what percent of households buy your existing brand.  It’s easy to envision that there is a tipping point that denotes when your parent brand is big enough that a brand extension approach makes sense to consider.

Insight #2—Brand extensions that are not connected with the meaning of the base brand are destructive even though they might hit year one sales targets.

If you launch brand extensions that don’t reinforce the parent brand image you might be turning your brand into a Frankenstein’s monster of spare parts. That’s why naming Spaghetti Sauce “Prego” rather than “Campbell” or calling a premium line of autos “Lexus” rather than “Toyota” made so much sense.  It’s also why I question Starbuck’s instant coffee. What the marketer thinks is a brand extension the consumer might not view the same way. Here is how you can tell. In concept testing, if positive purchase interest towards the new product isn’t at least 30% higher among parent brand vs. non-parent brand buyers that means that your buyers are not seeing the connection between the new product and your existing brand.  This is a warning sign that, while the sales potential for the new product might be acceptable, unconnected products will share the same brand name.

Insight #3—Emphasize brand-building (e.g. advertising, social media) to build the master brand and shopper marketing and couponing to sell the brand extension.

The key point is that line extensions are bought out of preference for the brand and acceptability for the line extension, not preference for the line extension.

An extension of a brand someone buys enjoys instant credibility because users trust anything they connect with that brand. For new flavor and size line extensions you might not need anymore than to be visible in the store or offer a coupon.  Because line extensions are bought out of acceptability, there is random component to whether they buy it or not.  Therefore, the more SKUs your brand already has, the lower the trial rate will be among your own parent brand buyers.

Marketers want to use brand extension strategies as much as possible today because it is a more affordable way to introduce products but the key is having enough rocket fuel, i.e. brand equity, to get the rocket (i.e. brand extension) off the ground.

By Joel Rubinson

Source: Joel Rubinson on marketing research

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