The brand extension and product extensions are two marketing techniques to leverage the strength of the brand of a company.
The two concepts, although they have similarities, are different.
In this article, we talk about the brand extension, while product line extension will be covered in the next article.
The brand extension is a marketing strategy by which you are using the image of a brand in a different product category.
Beyond the formal definitions, it is a very simple concept.
A company has a famous brand in a given product category. The basic idea is: can we also exploit this brand to sell other categories of products?
Let’s see various examples:
The brand extension is not a prerogative only of large companies with strong brands, it is a technique also used by medium-sized enterprises and even by some small businesses. It is used more and more by influencers (Instagram, Youtube, Facebook, TikTok, etc ), as they have a strong brand, but often are not able to monetize properly their followers.
When is it appropriate to do a brand extension?
Unfortunately, it is impossible to give a univocal answer.
It is necessary to study the market to understand if there are opportunities to launch new products in new product categories.
Making a brand extension can be very expensive, or it can require zero investments.
Expensive brand extension
It is the case where a company decides to launch a new category of products, developing and marketing the products directly.
An example is the desk lights developed by Dyson. Dyson developed a completely new product (very different from the others in its product range) and use Dyson’s brand strength and its distribution channel to propose completely new products.
It is an expensive brand extension because the company has to develop a new product from scratch. In this case, the company name is used to give credibility to the new product and to be able to sell it to loyal consumers already tied to the brand to some extent.
It is certainly an expensive and risky choice.
The risk is lower if the product is complementary or similar to the products that are already being marketed. For example, toothbrushes and toothpaste are different but related products.
Licensing brand extension
It is the most common. The company that owns the brand licenses it to another one that operates in another sector. The examples are countless, we put some photos below to give an idea.
In this case, the costs of brand extensions are very low. Indeed, often the costs are zero, and licensing a brand is just an opportunity to earn money without taking any risk from a monetary point of view.
However, there are 2 risks in using this strategy:
1) Brand dilution. There is the risk of creating too many agreements of licensing, and this can lead to a devaluation of the brand. Let’s take an example, let’s imagine that Ferrari, one of the brands with the greatest value in the world, began to grant the brand for socks, televisions, chairs, ice creams, etc after a few years the Ferrari brand would partially lose the exclusivity that distinguishes it.
2) Wrong products. The brand should not be extended to products that are not very relevant to the brand itself. To return to the example of Ferrari, the Ferrari brand may be used for luxury eyewear. It won’t be appropriate to be used for milk to be distributed in discounts.
The brand extension is a widely used technique. It must be carefully evaluated if and when to apply it, but it is a tool that can bring revenues to product categories in which it was never thought of selling.
Unfortunately, there is no precise rule that establishes when and how to use it, but entrepreneurs and managers must evaluate and understand if there are the potential and the possibility of exploiting the brand.
In the next article, we will analyze another similar marketing technique: the product line extension.
Globartis Research Team