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- 22 course by Prof. Akshaya Vijayalakshmi , Prof. A. K. Jaiswal and Prof. Anuj Kapoor from Dec
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IIMA/MAR0388TEC

Technical Note
Revised on November 02, 2020

Note on Brand Extensions

When a product becomes a brand, it acquires an identity of its own. As it moves towards
becoming a known brand and assimilates certain core values, it becomes a strong brand. A
strong brand can be an important asset for a firm. Brand equity is a purely intangible asset of a
company. While building a successful brand is tough, it is tougher still to manage it. Knowing
when to leverage it and use it for further growth and when to protect it requires expertise and
an insight into consumer behaviour. Companies often make wrong brand extension decisions
and damage the high brand equity possessed by the parent brands.

1. What is Brand Extension?

According to Keller (1998), brand extension is the use of an established brand name by a firm to
introduce a new product. A firm leverages an existing brand to launch a new product to avoid the
risk associated with introducing a new brand. When a parent brand is extended to serve the
needs of a new segment within the same product class, it is known as a line extension (e.g.,
Disprin and Disprin Plus, Lifebuoy toilet soap and Lifebuoy liquid soap). When the existing
brand is leveraged to enter a completely different product class, it is called a category extension
(e.g., Canon photocopiers). Line extensions are more common than category extensions. In 1990,
63% of the products introduced in the market were line extensions and 18% were category
extensions (Keller, 1998).

Moorthi (1999) classifies brand extensions in the following ways:

• Category-related: This type of brand extension offers the same use, with a somewhat
different benefit, to existing or new consumers. For example, Maggi is a parent brand and
Maggi Atta (wheat flour) noodles is a category-related brand extension.
• Image related: This extension deals with the transfer of the emotional benefits and image of
the parent to the extension (e.g. Nike sportswear).
• Unrelated: There is no relationship with the parent brand other than the brand name (e.g.
Kingfisher Beer and Kingfisher Airlines in India ).

2. Why Brand Extensions Make Sense

Brand extensions are advantageous in several ways. As the market becomes more and more
competitive, companies may find it difficult to introduce new products and create new brands
for them. Compared to launching new brands, extending existing brands offers many benefits:

Written by Professor Anand Kumar Jaiswal of Indian Institute of Management, Ahmedabad, Arpita
Shrivastav, doctoral candidate at Management Development Institute, Gurgaon, and Dhwani Kothari,
MBA Class of 2003, XLRI Jamshedpur.
© 2007 by the Indian Institute of Management, Ahmedabad.
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• Economises the new product launch cost: The cost involved in launching and
establishing a new brand is very high, and if the launch is done in international markets,
the cost goes up even further. The success rate of new product launches is exceptionally
low. Marketers often prefer to extend an existing brand. Thus, brand extension can be
seen as a cost economisation exercise that marketers undertake to protect themselves.
Creating and developing a new brand requires time and money, two resources which
are highly valuable as they are scarce. Thus, both time and financial resources are saved
through brand extensions.

• Improves ease of gaining consumer acceptance: Since the old brand is known to
customers, the extension helps in creating a place for it in the “me too” market. Breaking
through the clutter is a most important task because if the brand cannot distinguish itself
from the rest of the pack, it will be lost in the crowd. A known name catches customers’
attention much more quickly than a relatively new name. The initial trial rate, which is
very crucial for a new product’s success, is proportionally much higher in the case of
brand extensions than new brand introductions. Thus, a brand name reduces the
possibility, usually associated with new products, of going unnoticed by consumers.
This improves the product’s chances of success and hence minimises the risk for
companies.

• Increases ease of gaining shelf space: A known brand does not have to fight for shelf
space. Retailers also have less hesitation in adding extensions of known brands to their
shelves as they believe consumers will be more receptive to them than to unheard of
names. Also, companies can negotiate the cost associated with shelf space as the brand is
already known. Retailers favour such brands because they do not have to convince
customers to buy the product. They only have to inform customers about the new brand
extensions.

• Increases brand presence and customer base: Brands are extended to expand the
presence of the parent brand in the market. This can be achieved through new launches
that highlight the parent brand and keep the brand name in the minds of consumers.
Brand extensions also help in gaining more customers. This is done by bringing out
variants of the parent brand. Customers for these products could be those who were not
using the parent brand for various reasons, for instance, because it was expensive or it
did not fit into their lifestyle. For example, Lux beauty soap was extended into Lux Body
Wash to attract upper-middle-class women (Moorthi, 1999).

A brand extension is also beneficial for consumers as it reduces the uncertainty associated with
buying a new product. The decision-making process for purchasing a product extension of a
known brand is easier for consumers because they do not need to do an information search
about the brand before buying the product.

3. Pitfalls of Brand Extensions

It is tempting for most companies to leverage the strong brand equity of their brands and to
extend them to other product categories. But they must take special care in doing so as any
wrong brand extension decision can adversely affect the parent brand. In many cases, a wrong
or incongruent association of the parent brand with the extension can damage the parent brand.
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Brand extensions can lead to several negative consequences. Even though the parent brand may
be well known to customers, they may become frustrated if they do not find any fit between the
parent brand and the extension. This is especially true when the positioning of the extensions
and the parent brand is inconsistent. A misfit between the value proposition of the parent brand
and the one that the brand extension offers may cause confusion in consumers’ minds about
brand personality. This can lead to a substantial decrease in the brand’s value and to the
dilution of brand equity (Randall, 2003, 63-64). It is seen that strong brands that have become
generic to their category, such as Xerox, find it as difficult to stretch as very weak brands.
Numerous brand extensions can also lead to credibility loss for strong brands. Further,
extensions can eat away the sales of the parent brand. A poorly-managed brand extension
strategy can “seriously damage the original products and preclude the establishment of another
brand with its unique associations and growth potential” (Aaker & Keller, 1990, p. 47-56).

4. What ensures the success of an extended brand? And how does a customer evaluate brand
extension?
For the success of a brand extension, a perceived “fit” is needed between the extension and the
parent brand. Fit has been defined by Tauber (1988) as the extent to which a consumer believes
that the new product is a reasonable and expected extension of the brand (p. 26-30). For
example, if Lakme’, an Indian cosmetic brand primarily targeted at women, is extended to
designer wear, it would be regarded as having a good fit with the original brand. However,
Lakme’ men’s bathing soap would not be seen as having a good fit with the parent brand. A
new product that does not reflect a good fit with the parent brand may not gain customer
acceptance.

Aaker & Keller Model

Aaker & Keller (1990) developed an attitude-based model of how customers evaluate brand
extensions. According to them, the following factors influence the success of extensions:

a) Quality of parent brand: Higher quality perceptions towards the parent brand will
favourably affect brand extension success.

b) Fit: The fit between the parent brand and extension increases the chances of success of the
brand extension. Fit has three dimensions:

• Complementarity: Complementarity means the two products (parent brand and the
extension) can be used together, either in a common situation or in satisfying some need
(e.g., cricket bat and stumps, pizza and sauce). A company that is engaged in the
manufacture of cricket bats can manufacture stumps as well. Consumers will see a fit
between them and their acceptance of the extension will be high.

• Substitutability: Substitutability means the two products can be substituted, i.e., they can
satisfy the same need (e.g., floppy disk and compact disc). A person can do the same
work with either of the two.

• Transferability: Transferability means the extent to which a company can use its
expertise in manufacturing the brand extension. This expertise includes production
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facilities, employees and the skills of the company (e.g., Logitech mouse and Logitech
keyboards, Bajaj scooters and Bajaj motorcycles). In the case of a hypothetical extension
of McDonald’s into photo processing, respondents in Aaker and Keller’s study opined
that McDonald’s should stay in the food business as it had no expertise as a photo
processor.

c) Difficulty in making the extension: The customer’s perception of the extent of difficulty in
manufacturing an extension has a positive effect on the brand extension’s success. For
example, the extension of an electronic product brand into candy may not be accepted by
customers because they may believe that it is an unwarranted exploitation by the company,
given that it is easy to manufacture candy.

Other Factors Affecting the Success of Extended Brands

In addition to the factors identified by Aaker and Keller, other factors such as awareness and
reputation of the parent brand and existence of a real market gap can also influence the success
of brand extensions. Brands that have high consumer awareness and enjoy a good reputation
(e.g., Tata, LG) have an edge over others in rolling out brand extensions. The existence of a
market gap for new products also affects the success of an extension. Randall (2003) gives the
example of Denim Men’s Salon, an extension of the Denim brand, which has already made its
mark in male grooming products. In this case, a salon or a chain of salons for men could be an
appropriate extension of the parent brand. With men becoming increasingly conscious about
their grooming and appearance, a market gap exists for such a product.

References

Aaker, D. A., & Keller, K. L. (1990). Brand extensions: The good, the bad, and the ugly. Sloan
Management Review, 47-56.

Moorthi, Y. L. R. (1999). Brand management: The Indian context. New Delhi: Vikas Publishing
House Pvt. Ltd.

Randall, G. (2003). Branding: A practical guide to planning your strategy. New Delhi: Kogan Page.

Tauber, E. M. (1988). Brand leverage: Strategy for growth in a cost-control world. Journal of
Advertising Research, 28(August-September), 26-30.