Brand Extensions In An FMCG Sector

Brand Extensions are a vital element for a business and it has become a very common practice for the companies, especially in the FMCG sector to grow in its sales and profit targets. Although, how much ever advantages brand extension possesses, it can still be of major risks in terms of brand dilution and its equity (Loken & John, 1993).

Understanding the consumers better is what adds of significant value or if not could lead to major failures. Brand owners or managers need to have a very thorough and holistic approach in this without damaging their brand image and equity built over the years.

The purpose of this article is to find how Indian customers evaluate brand extensions within an FMCG context; How significantly different are they in respect of evaluations of their competitors around the world? Most significantly how well does the present literature on the topic of brand evaluations of brand extensions fit within the context of Indian consumers?

As launching a new product takes considerable amount of time and money, companies are adopting brand extension strategy in order for them to achieve growth. Major FMCG (Fast moving consumer goods) companies like Unilever and P & G, the use of brand extension is quite common as they concentrate on big brand names in order to generate sales. “The logic of brand extension is that the brands value to consumers reduces the cost of market launch by gaining readier acceptance than creation of a new brand” (Barwise & Robertson, 1992, pp.277).

The key reason for choosing this topic is to know how Indian consumers evaluate brand extensions in an FMCG context. This is relevant seeing the significant economic growth the country is experiencing even when other nations are struggling to recover from the global economic downturn. Furthermore, India’s economic growth is projected to reach 10% in couple of years and expected to beat China in the next four years (The Hindu, Business Line.com).

1.2 Motivation for choice for this topic

“Customer based brand equity occurs when the customer is familiar with the brand and holds some favourable, strong and unique brand associations in memory” (Keller, 1993, pp.02). If

a company chooses a wrong category of extension, then it can lead to a negative image of the parent brand. Lack of communication for promoting a new product can devaluate the Brand Equity as the wrong criteria of category extensions can create the perception of diminishment in the value of the brand.

This article explores to find out as to which brands are more likely to succeed as brand extensions into new categories within the Indian packaged consumer goods environment. This could be better understood by understanding if certain established Indian FMCG brands be extended into other FMCG categories that they do not currently compete more successfully than newer brands? How do Indian customers actually seek to evaluate brand extensions and does this differ from greater literature covered in this topic?

Introduction

Across the globe, many companies are stretching the brand across different product areas to gain confidence to customers. In the UK a very prominent example is the Virgin group. With one single brand “Virgin”, the founder and CEO of the group, Richard Branson and his team have introduced and promoted so many diverse kinds of products, starting from airlines to mobile phone to Virgin Active. Since the start of the Virgin group in 1970s, Virgin has at the moment over 200 companies under its belt (Virgin.com). The success behind all this rapid expansion of the company according to its CEO is simply by its brand extension strategy.

This article focuses influences on the type of brand on customer perception of the proposed brand extension and how distant each particular brand can be extended. A large percentage of brand extensions like the Virgin Cola end up as major failures. This has a very high influence in harming the reputation of the brand as well. To summarise this article discusses both on a existing literature on the topic and to know how Indian customers evaluate brand extensions?

2.1 Strategic framework of Brand Extensions

Due to an ever increasing competition, brand marketers seek to achieve growth while reducing the cost of both new product introduction and the risk of new product failure (Swaminathan et al., 2001). Usually well managed brand extensions, cannot only help in reinforcing brand meaning but can also help to build up brand equity. However, a concern for many managers is its failure in the same way as how new products fail in the market.

With the global recession recovering at a very slow rate, all kinds of luxury goods have been going on sale at very low prices. Prada is an example where there has been a tremendous decrease in its appeal in recent years. Although its runaway couture is pretty well made, but it bags are just another way to make money out of its brand name. These bags are not being sold for nearly more than half the price of its selling value.

Due to the brand equity held by major brands, many risk not to extend their brands into new categories, mainly due to the equity held by these brands. Like that of Prada, many companies seek to launch into new brand names often failing in the process. There are another group that leap in without even understanding what exactly the customer wants and leading to a very high risk if they can be successful in their approach or not. New product launch criteria will require a very careful thought as to which and how the branding strategy needs to be applied, with which a new brand could be launched successfully. Furthermore, in the market today, the centre of attention among brand managers is rapidly moving towards leveraging those brands in their existing portfolio of branded products.

2.2 Key Objective of Investigation

This article investigates on how consumers view the stretchability of existing Indian FMCG brands across multiple product categories. Can established and emerging Indian FMCG brands be extended successfully into new product categories, not related to the core brand?

2.3 Dissertation Structure

The basic structure of this dissertation is as outlined below in the diagram:-

Introduction

Literature Review

Methodology

Findings and Discussion

Conclusions, Recommendations & Further Research

References

Appendix

2.4 Limitations

This article is limited to investigating whether there is coherence between the recommendations in the literature and the findings from the research on how the consumers evaluate brand extensions in the Indian FMCG environment.

Literature Review

3.1 The Objective of the literature review

The main objective will be to understand in greater depth the key drivers that impact upon brand extension acceptance or non-acceptance in a new product category, the dilution/improvement of the brand image due to new extension and the effect that congruent

and incongruent brand extensions have on customers perceptions of the core brand (Thorbjørnsen, 2005). Furthermore, a critical evaluation of previous works, in order to find a thorough consistency of thought on this topic. In this way, the reader can get a theory base pertaining to my literature review.

According to Hofstee (2006), a good literature review shows:-

The author is aware of what is going on the field

There is a theory base on what the author intends doing

How the authors work fits in with what has been already done in the past

The work has a significant value

This work will lead to a new knowledge

3.2 An Introduction to Brand Extension

Brand Extension is the use of established brand names to enter completely new product categories (Aaker & Keller 1990). It is the most frequently used branding strategy in business reality (Völckner & Sattler 2006).

In contrast Kotler, 1991 states that a brand extension strategy is any effort to extend a successful brand name to launch new or modified products or lines.

Brand extension strategy can help companies leverage on its existing brand equity both within and the original category of products. Although, the profitability of brand extensions is not guaranteed, due to the high failure rate of 80% FMCGs (Mahajan et al,.2000 and Völckner & Sattler, 2006).

Kim, 2003 states that there are two broadly classified extension strategies namely:-

Line Extension: A new Product within a current product category;

Category Extension: A new product in a different product category, currently served by the parent brand;

Close Extension/ Remote Extension: Distance of extension from the parent brands is uniquely and strongly associated.

Tauber, 1981 states:-

Franchise Extensions: To explain the phenomenon of leveraging the existing brands into new categories.

Although all the above discussed extensions are quite clear in theory, the limits are much less clear in practice. For Example: Diet Pepsi could be placed in a new, narrower category of “diet drinks”, “colas” or “carbonated soft drinks” etc.

Tauber, 1988 lists the below 7 types of brand extensions, a company should adopt:-

Same Product in different form: When the company changes the form of the product from the original parent product;

Example: Snickers Ice-Cream Bar or Mars Chocolate Thick Shake.

Distinctive taste/ ingredient/ component in the new item: When a brand owns a flavour, ingredient or a component that the company owns and making it part of an item in a new category;

Example: Kraft extended distinctive taste of Philadelphia into Philadelphia Cream Cheese Salad Dressing.

Companion Products: Same brand extension of what the company actually makes;

Example: Colgate Dental Tooth Paste with Colgate Tooth Brush.

Same Customer Franchise: Here a brand extension represents a marketers efforts to sell something else to its customer base;

Example: TATA extending its offering into consultancy, steel, automobiles, hotels, salt etc.

Expertise: To offer extension in a category where consumers believe the company has skilled knowledge or skill;

Example: Johnson and Johnson in baby oil, soap, baby bottles etc.

Benefit/ Attribute/ Feature Owned: Many brands own a benefit or feature that can be extended;

Example: Nivea Moisturising Cream, Shave Gel, Deodorants, Face Wash etc.

Designer/Image Status: Using status or expertise in one area to strengthen offerings in another;

Example: Giorgio Armani watches, spectacles, cosmetics etc.

Co-branding is defined as pairing two or more branded products (constituent brands) to form a more sole and separate product (Park, et al., 1996). This has become increasingly evident in India and its FMCG market.

The marketing of Gillette A3 Power Shaving equipment with Duracell batteries (both brands owned by Procter & Gamble).

Dabur, one of Indias leading FMCG companies have tied up with Disney consumer products by using the character Mickey Mouse to adorn Daburs Real brand jice and nectar packs.

Indian Automobile giant Maruthi having partnership with Suzuki of Japan and Maruthi co-branding with Kenwood for its car stereos.

Co-branding is the result of combining two brands to name a product and when evaluating that product, one has to consider overall fit between the brand pair and the product (Hadjicharalambous, 2006). Figure 3.1 represents the different types of brand extension classifications:-

Figure 3.1: Typology of Brand Extensions (Hadjicharalambous, 2006)

3.3 Branding as a new Concept

Shocker, et al., 1994 says that speed is an important element in building stronger brands as if not the competitors can leverage on similar technologies to duplicate similar products and identifies these criterias :-

Harvesting the best customers:- Most innovative companies pick up customers who are more likely and willing to pay more;

Occupying the mental corner stone:- Buyers keeping the option of selecting only few important brands over others;

Developing a reputation for innovation:- Establishing a reputation of developing latest technology, part of brand equity and developing business customers;

Shorter order fulfilment cycle:- GE uses a quick response programme using fast information technology, that lead to reducing inventory requirements by 200$;

Mass Customization:- Permitting the brand manager to take advantage of market segmentation while controlling costs. Dell computer is the leader in this approach whereby all its products are made to order according to customer tastes.

Keller (2001) states that building a strong brand has been main priority for many firms for financial rewards and suggests a Customer Based Brand Equity (CBBE) model to assist management in brand building steps which involves the following guidelines:-

Establishing proper brand identity with proper breadth and depth of brand awareness

Creating the appropriate brand meaning through strong, favourable and unique brand associations

Eliciting, positive, accessible brand responses and

Forging brand relationships with customers characterized by intense, active loyalty.

Competitive Brand positioning especially during this current economic climate has become intense, when there are local brands competing with large multinationals to gain customer trust. According to Keller (2002) following are the five pitfalls to watch for:-

Companies sometimes try to build brand awareness before establishing a clear brand position.

For Example: Many dot-coms know this pitfall well as a number of them spent heavily on expensive television advertising without first being clear about what they were selling.

Companies often promote attributes that consumers don’t care about.

For example: For years, companies that sold pain-killers claimed their brands were longer lasting than others. Eventually, they noticed that consumers wanted faster relief more than sustained relief.

Companies sometimes invest too heavily in points of difference that can easily be copied. Positioning needs to keep competitors out, not draw them in as a brand that claims to be the cheapest or the hippest is likely to be leapfrogged.

For Example: Fast food chains like Pizza Hut investing too heavily in their business, but unable to understand that what customers actually want is lower prices which the customers are able to get from non-recognised fast food outlets.

Certain companies become so intent on responding to competition that they walk away from their established positions.

For Example: General Mills used the insight that consumers viewed honey as more nutritious than sugar to successfully introduce the Honey Nut Cheerios product-line extension. A key competitor, Post decided to respond by repositioning its Sugar Crisp brand, changing the name to Golden Crisp and dropping the Sugar Bear character as spokesman. But the repositioned brand didn’t attract enough new customers, and its market share was severely diminished.

Companies may think they can reposition a brand, but this is nearly always difficult and sometimes impossible.

For Example: Although Pepsi-Cola’s fresh, youthful appeal has been a key branding difference in its battle against Coca-Cola, the brand has strayed from this focus several times in the past two decades, perhaps contributing to some of its market share woes. Every attempt to reposition the brand has been followed by a retreat to the formers successful positioning.

Care should be taken to see a brand is nurtured well before extending it so diversely in different categories. With the success of the core product in the short span, brand owners are tempted to extend its parent brand much sooner than done in the past. One such classic example is the “Maggi” brand launched in India in 1982 by Nestle India Ltd (NIL), the Indian subsidiary of global FMCG major, Nestle SA. NIL introduced a new category of instant noodles in Indian market called as Maggi Noodles. Due to the first mover advantage, NIL maintained its strong leadership in instant noodles category until the early 2000s. Furthermore, over the years Maggi brand was extended into soups, ketchup’s, sauces etc. Unfortunately, these product extensions were not as successful as the instant noodles.

The failure of the extension into ketchup, soups suggests that the brand owners have been too quick in their philosophy that sufficient equity was built by their core brand (Maggi Noodles) for the transfer of positive effect to occur.

Core Brand: Noodles Sauce Extension Soup Extension

Successful Un-Successful

Figure 3.2: Maggi Noodles Brand Extension Evolution

3.4 Brand Extensions in framework

Tauber, 1981 suggested a growth matrix that differentiated brand extensions from other new product forms. This was done by viewing opportunity from the viewpoint of the brand owner. Following figure represents the different types of opportunities characterized according to whether they are in a product category new to the company and if the brand name used is actually new or already familiar to the consumer (Tauber, 1981).

Product Category

New Existing

New

Brand Name

Existing

Figure 3.3: Growth Matrix (Tauber 1981)

Given the fast phase of change taken place in brand extensions since 1981, the above growth matrix was no longer considered of adequate use to guide brand strategy. This is when Lane and Sutcliffe, 2006 proposed a “Jigsaw Brand Matrix” to extend the existing literature on brand portfolio strategy. He proposed additional four options and five additional strategic categories (Figure 3.4) as illustrated below:-

Figure 3.4: Jigsaw Brand Matrix (Lane & Sutcliffe 2006)

The four additional growth options as described by Lane and Sutcliffe, 2006 are as follows:-

Piggybacking: When products enter a new category with a related brand name, then this is being used as a related brand name to launch new products

For Example: Figure 3.5 shows “Parle-G”, India’s leading biscuit manufacturer attempting to enter the confectionary and snack market with Kisme Toffee bar and Poppins.

Figure 3.5: Parle-G Piggybacking Strategy

Associate brand: Here the product launch is related to a product category with a new brand name as the new product can work side by side with the parent in order to extend to new consumer segments.

For Example: Below Figure shows an illustration by global beer supplier United Brweries extension from Beer into spirits, wines, vodka and in champagne to name a few.

Figure 3.6: United Breweries (UB) Group Example of an Associate Brand Strategy

Strength Extension: In order to capitalise and strengthen a parent brand, strategy of using an existing brand name to a related product category is being used.

For Example: Below Figure illustrates Kissan Jam into Squeeze bottles of mango and in apple flavour.

+

Figure 3.7: Kissan Jams strength Extension

Flanker: An established product having a related brand name fights for a fixed position within its parent category.

For Example: In India, Hindustan Unilever Limited are masters in developing flanker brands and often have three or more products under the same brand name, targeted at different consumer segments as with the “Surf” brand.

Figure 3.8: Hindustan Unilever Limited Flanker Extension Strategy with Surf Excel

The other additional strategy directions are:-

Matrix Branding: Here the brand and category extension are utilised without adopting a fully diversified or multi-branding category approach

Diversified Branding: Dissimilar brands enter in a partly related or unrelated segment

Elastic Branding: A broad range of related and non related product extensions centred around the core brand name

Focus Branding: Use of existing core brand ad category to develop any product or service

Multiple Branding: By focusing on the company’s core brand category new brands are being focussed frequently.

The “Jigsaw Brand Matrix” by Lane & Sutcliffe, 2006 needs to be still verified across a different number of industries, although it is quite helpful for marketers in capturing branding strategy for extensions. However, the only disapproval is that this particular model doesn’t address co-branding, which is widely used technique in the FMCG industries.

3.5 Advantages of Brand Extensions

“Brand Extensions enable firms to fill out their product lines, expand into related markets and increase revenue by licensing brand names for use in other product categories” (Srinivastava, et al.,1998, pp.11). This has been supported by Smith & Park, 1998 who demonstrates the positive impact of brand extensions have on the market share and advertising and proves on how brand extensions can lower significant costs. This is evident in the current economic downturn when firms try to extend their brands rather than venturing into new business.

Volckner & Sattler, 2006 provides an overview of conceptual framework (Figure 3.9) proposing that the success of a brand extension is influenced by direct effect of determinants, mediating effects and moderating effects. They determined the success of brand determinants into four groups namely:-

Parent and Brand Characteristics;

The extensions marketing context;

The relationship between the Parent Brand and the extension product;

The extensions product category characteristics.

Figure 3.9: Overview of Conceptual Framework in Brand Extension (Volckner & Sattler, 2006)

Brand Equity too helps in the effectiveness of brand extensions as consumers who display trust and loyalty towards a brand are then willing to adopt brand extensions (Lassar et al.,1995)

Research Design

The objective of the research

The objective of the research is to investigate the impact of similarity and dissimilarity between:-

The original brands and the extension,

Brand reputation,

Core brand image,

Brand dilution

Effects of co-brands on the customer evaluations of brand extensions in the FMCG sector within the context of Indian environment

Methodology

The research method used during this stage will be of quantitative with questionnaires by use of face to face interviews. The main objective behind the methodology will be to measure the attitudes, beliefs and behaviours of respondents towards brand extension concepts

The key steps being undertaken during this process will be as follows;-

Checking all the possible ways to test my stated hypotheses

Arriving at the exact optimum approach

Drawing on a strict time-table for various research tasks

Finalising the questionnaire

Collection of data and structuring it into Excel and SPSS

Finalising the questionnaire

Analysis

Conclusions and Recommendations

Project Planning Schedule

Work on the project is intended start in the first week of June 2010 and last a periods of sixteen weeks. Figure below gives a summary of how the project is intended to be carried out. It also shows the milestones to be achieved, the task management and the writing schedule as well.

Task

Duration

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Detailed Literature Review

7 weeks

Background to Questionnaire

2 weeks

Familiarization with Methodology/Research Objectives

4 weeks

Design of the Structure of Report

1 week

Analysis of Hypothesis formulation

2 weeks

Interviews

and Data Acquisition

4 weeks

Data Analysis and Conclusions

10 weeks

FINAL WRITE UP

Introduction/ Literature Review

3 weeks

Surveys and Data Acquisitions

3 weeks

Results, Discussions and Conclusion

4 weeks

Abstract, Reference and Appendix

2 weeks

Final Review

3 weeks

Figure: Gantt chart showing Dissertation Planning Schedule

Apart from the above schedule, regular meetings with my supervisor whenever necessary either personally or by email and keeping updated on my progress on a regular basis through draft, for review and feedback.

Also, meetings as a group/individual will be attended to the deadlines as mentioned before by the supervisor.