Brand extension for leveraging brand equity

Brand extensions are one of the most popular strategies for leveraging brand equity. By launching new products under popular brand names, firms hope that consumers will respond more favorably to the new offering, due to their familiarity with the parent brand, positive feelings toward the parent brand, and positive attribute and non-attribute associations they have with the parent brand.

A brand is the identity of a specific product, service, or business. Brand extension denotes to the corporate activity in which companies bring in new products, new product variants or product improvements by leveraging the brand equity of the existing parent brand.

It is believed that compared to launching a new product under a new brand name, brand extensions can increase the efficiency of promotional efforts, improve access to distribution channels, and reduce consumers’ perceived risk of purchasing a product or service (Keller, 2002). Another major factor for which Companies prefer to use brand extension is lower cost. Introducing a new brand into consumer market can be relatively much higher than introducing new product or product variants under the same brand name. This cost can range above millions of rupees and can not guarantee of any success. So instead of launching entirely a new product, most companies prefer brand extension. Successful examples such as Diet Pepsi and Diet Coke benefited from the brand franchise of their parent products. Coca-Cola introduced six extensions and captured a larger market share than the original brand. For example, Coke’s extension, Cherry Coke, was successful even without considerable advertisement.

On the other hand, the potential of brand extension problems can ranger from failure of the brand or partial failure such as brand Dilution and brand cannibalism. Instead of success, the failed extension might tarnish the image and reduce the market share of the parent product. Associations that are unique to the brand, strongly held, and favorably held, are vital for success. However, since the specific associations a consumer holds are dependent on personal values and individual purchase situations, managers must learn what they are and when they operate. For example in case of new Coke, Coca Cola did not pay attention to what the core brand meant to stand for. It mainly focused on the taste and thought that the taste is the only factor which consumers are looking for. This concept was wrong. Coca cola was unable to identify the attachment of the consumer with the original coke before launching New coke, even though Coca Cola spent a lot of money on conducting research before launching New coke.

Brand dilution occurs when consumers loss the original grasp of brand perception on their minds and no longer associate the brand with a specific product. For instance, Sunsilk may experience brand dilution by loosing its strong identity of hair care and shampoo range by running a number of different categories like mashed potatoes, powdered milk and soups. Too broad varieties of product categories run under same brand can frustrate consumers in thinking which variations of products that actually fit to their perceptions. For Example, too many ranges of Sunsilk shampoo include Sunsilk black, pink, white, yoghurt, dandruff can make customers confused in buying a suitable product which actually fit to their needs. Even though today’s consumers are selective in their buying habits and expect innovation, the reality of brand extension success is still low. This is because most of new product extensions are not unique and do not satisfy consumer needs. There are some factors that lead to brand dilution. Among those include perception in consumer minds comparing between parent brand and product extension, level of familiarity with parent brand, fit level transferred from parent brand to extension and consumer’s perception to new product. Level of brand loyalty shown by a customer can switch to radical degree for brand extension case. When loyalty and level of familiarity with parent brand is high, new product extension failure may greatly diminish trust level to entire brand portfolio. In turn, low familiarity to brand affects low dilution when product failure occurs in new extension.

As per early research regarding brand extension leads to brand dilution, Aaker and Keller (1990) found insignificant evidence between unsuccessful brand extension leads to brand dilution. Conversely, in a research Loken and Roedder-John (1993) pointed that inconsistency of product and brand beliefs may lead to brand dilution. Brand dilution and failure of brand can occur when consumer find it difficult to associate the extension with the parent brand, a lack of similarity and familiarity and discrepancy between Integrated marketing communication messages.

Brand extension is a strategy which most of the companies are using, to minimize risk associated with introducing a entirely new brand and maximize their profits from the new brand. But in some of the cases brand extension fails, and the reason is the weak brand equity of the parent brand that bear upon the success of the brand extension. If the equity of parent brand is strong, brand extension can be successful and vice versa.

Both Functional and non functional attributes of a brand can harm and eventually dilute the equity of an integrated oriented brand, which means due to the weak brand equity, brand dilution can occur across the parent brand. Such kind of failures of extensions can make customers to create a negative association with the parent brand or even with the brand family. These failures can also agitate and blur the original identity and meaning of a brand even positioning as well.

Managers seem to be aware of the dangers and benefits of extending their brand franchise. Yet the number of failed extensions in the past few years indicates that some refinement in our knowledge of the brand extension process is needed.

What factors determine whether or not a brand extension will be successful? The most important factor identified by prior research is perceived fit. Consumers respond more favorably if they are able to perceive a fit between the extension and the parent brand and this leads to the success of the brand extension. Conversely, If consumers are unable to perceive a fit between extension and the parent brand, the brand extension might become a failure and may lead to brand dilution.

According to Martinez and de Chernatony (2004) brand image has two types: the general brand image and the product brand image. According to them there would be no negative impact on general brand image if the brand image is strong. For example, Nike or Sony. Dilution effect would be more on product image instead of general brand image. Therefore, mostly the customers would stick to their beliefs about the parent brand with respect to its attributes and feelings. Nevertheless their study shows that “brand image can be diluted by brand extension, and beliefs and association with the parent brand can also be changed.

In developing countries like Pakistan it is even more convenient for multinationals to try brand extensions. The reason is that most of the multinational companies come from developed countries like America, United Kingdom and Japan. Products from these countries enjoy positive country of origin effect in mind of consumers due to their previous track record in terms of customer satisfaction. This as a result lowers the amount of money spend over awareness creation and since they already enjoy good market and media presence, therefore more affordable for them to launch brand extensions in Pakistan.

For instance, Pakistan Tobacco Company Limited (PTC) which is a part of British American Tobacco who sells their brands to millions of consumers in 180 countries worldwide. They were the foremost brands entering Pakistan as early as 1947. Ever since then they have launched new reputed brand extensions such as Benson & Hedges, Embassy, Gold Flake, Gold Leaf and recently Capstan brand of cigarettes (Business recorder.com).

STATEMENT OF THE PROBLEM

The failure rates of new product over the last few decades have increased tremendously; therefore, firms have resorted to brand extensions, because of inherent advantages including its acceptability, low promotion cost and comparatively lesser degree of failures. Despite these advantages, the failure rate of brand extension has remained significant in the last one decade. Therefore, the researchers have been focusing in identifying the factors that consumers use for “evaluating the brand extension”, or the factors that are contributes towards the success or failure of brand extensions. The focus of this study is to identify whether the brand extension is favorable or lead to brand dilution.

Researches on brand extensions have focused mainly over consumer evaluation of brand extensions. However as a matter of fact consumers generally cannot assess brand extensions in undifferentiated manner (Aaker and Keller, 1990, Keller and Aaker, 1992; Dacin and Smith, 1994; Smith and Andres, 1995). In spite of the extensive body of knowledge on consumer evaluations of brand extensions, very little or negligible attention has been paid as to what is brand or marketing managers view point over brand extensions strategy ( Nijssen and Agustin, 1999). The lack of brand managers view point input in the literature is odd as their analysis of consumer and competitors reactions coupled with their personal preferences are a fairly good indicator of success of a brand extension strategy. Therefore along with consumers’ perception about brand extension, viewpoint of brand managers of couple of companies will also be considered in this thesis.

Over the past couple of decades we have witnessed a great number of companies both domestic and multinationals engaging in brand extensions in Pakistan. For example a few of the well known domestic brand extensions deals in retailing and fashion (Chen One Pvt Ltd), health care products (Z-Jans Pvt Ltd), Medicam tooth paste and Sweetener (Medicam Pvt Ltd Pakistan), Rafhan pudding mix and Custard (Rafhan Best Food Ltd), National Pickel, Salt and Spices (National foods Ltd), Haleeb Milk Pack, Yogurt and Cream (Haleeb Foods Ltd Pakistan). As far as multinationals are concerned Nestle and Uniliver Pakistan have carried out most of the brand extensions. For example, Nestle (Mineral Water, Milk Pack, Cream & Yogurt), Uniliver has brand extensions (Lifebuoy Shampoo & Soap, Express Surf, Colgate toothpaste, Walls Ice-cream). In this relation a study of brand extensions from brand manager’s perspective is important to find out successful practices which are prerequisites for a brand extension in Pakistan.

SIGNIFICANCE OF THE STUDY

The significance of this thesis is to explore the use of brand extension strategies in the Pakistan context. Whether the strategy of brand extension is favorable or not, or due to brand extension, brands gets diluted or cannibalized? Since brand extensions is one of the most popular strategies for leveraging brand equity, this study will also focus on brand extension effect on brand equity.

This thesis will focus on brand extension strategies of products from various companies which include Z-Jans Pvt Ltd, Haleeb Foods Ltd Pakistan, Servis Shoes, Lakson Group, and Chen one, Nestle, Sunsilk, Pakola and Fair & Lovely. Various companies’ insights regarding brand extension will help us to study favorability or unfavorability of brand extension in a well manner.

We will try to achieve this purpose by answering the following research questions.

Brand extension is more beneficial than launching new products with respect to customers know how about the parent brand.

Brand extension is beneficial in Terms of Consumer Knowledge and Consumer Trust about the quality and association of Parent brand?

Brand extension is beneficial in terms of refreshing Parent brand.

Brand extension can result in dilution of Parent Brand.

Brand extension can lower the credibility of Parent Brand.

Brand extension can result in cannibalization of Parent Brand Sales

Brand extension can be a disaster and may lead to brand dilution if extension is not fit (Similarity and consistency) as per the concept of Parent brand.

Moderating factors like brand quality, customer know how, customer certainty and brand equity affect brand extension?

By answering above question, we will come to know whether brand extension is favorable or it leads to brand dilution, and whether brand extension is favorable for those companies who prefer extension and are involved in brand extension from couple of decades. This thesis will be beneficial in indentifying the success rate or failure rate of brand extension of those companies which have been chosen for this thesis.

SCOPE AND DELIMITATION

The study is carried out from a viewpoint of brand extension in our home country (Pakistan). The research conducted for this thesis is based on limited and chosen product category and Another constraint confronted during the course of research was the fact that majority of multinationals (MNEs) formulate brand extension strategies at their head quarters abroad. Finally, it was learnt that since the concept of brand manager in Pakistan is in infancy stages therefore normally it is the marketing manager who carries out the responsibilities of brand manager when it comes to brand extensions.

DEFINITIONS

Brand

According to (American Marketing Association 2007 brand is: “A name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition”.

Brand extension

Using an established name of one product class for entering another product class (Aaker 1991). Using a successful brand name for launching a new or modified product or line is known as brand extension strategy (Kotler 1991). An expansion strategy in which firms use already established and successful brand name for introducing a new or modified product (Kotler & Armstrong 1990). Using an established brand name for introducing a new product into product category which is new to the company is known as franchise strategy (Hartman & Price & Duncan 1990).

Product Line Extension

A product line extension is the use of an established product’s brand name for a new item in the same product category.

Line Extensions takes place when a company stretches its product line and introduces extra items in the same product category under the same brand name for example new nips, forms, colors, added ingredients, package sizes. This is a little different from brand extension in which a new product is introduced in an entirely new category, While Line extension occurs when the company increases its product line outside its current chain. Product line can also be stretched as down market stretch and up market stretch.

Brand Dilution

Brand dilution is the subverting of a brand though its overutilization. This often happens when brand extension is done poorly. Price cut can also bring a brand down and can damage the brand, even though it increases the volume of the product. Brand dilution can be a severe headache for companies that rely mostly on their strong brand for higher profits. Companies who possess strong brand image wishes to leverage its equity to sell and earn as much profit as they can, but the same strategy to leverage a brand equity can also lead to damage a brand name and eventually result in brand dilution.

Brand Cannibalization

Brand cannibalization pertains to a decrease in volume, revenue of sale and diminution of market share of a product which results from the introduction of new products by the same producer. For example, when diet coke was introduced by Coca Cola, sales for original coke diminished, but eventually it led in expansion of diet soft drink market.

Brand Equity

Brand equity is a relationship between customers and brands, resulting in a profit to be realized at a future date (Wood 2000). Kotler and Armstrong (1996) were of the opinion that measuring brand equity is a tedious job. Nevertheless, a powerful brand means high brand equity that helps in achieving ‘higher brand loyalty, name awareness, perceived quality, and strong brand associations’. Some of the major benefits of brand equity are brand awareness and consumer loyalty which helps in reducing marketing costs. Brand is an important equity; therefore, it should be carefully preserved by adopting strategies that would help in maintaining or improving brand awareness, perceived brand quality and positive associations. (Kotler & Armstrong 1996)

Brand Association

Brand association refers to level by which a brand is recognized by a consumer in a deep manner. If a brand is deep seated in the mind of the consumer in a positive manner, it will be recognized positively. Brand associations are the properties of a brand which consumers recall whenever brand is talked about. Consumer relates a brand name with its implicit or explicit meanings. Brand association can also be termed as the level to which a specific product/service is acknowledged amongst its product or service family. When choosing a brand name, it is important that the name selected must reinforce an essential dimensions and specification or benefit association that forms the position of a product.