In our first article on brand extension, we looked at the kind of method a brand should follow when it extends. Every brand’s strategy and brand core—and, with them, its ideal method and area for expansion—differ from the next, so the extension strategy it chooses has to be its own. We examined eight effective methods for this in a separate article. Here, we’ll dig into the advantages brand extension offers, and the disadvantages that (usually when it’s done badly) come with it.
1. The Advantages of Brand Extension
When it’s carried out successfully, brand extension brings a host of advantages. The most fundamental, of course, is that it unlocks the existing brand’s hidden potential in many ways and grows the brand, increasing its value. Beyond that, it has plenty of concrete upsides.
Reaching new audiences: Brand extension can put your brand on the radar of new target audiences, which usually grows your overall customer base and lifts sales. When Dove reached a male audience with its Dove Men+Care sub-brand, when Starbucks began selling ready-to-drink coffee in supermarkets, or when Mini Cooper launched an SUV, each reached a different audience.
Cost efficiency: Alongside new opportunities to earn more, brands want to save on marketing spend and brand management. In a brand extension, because customers already know and recognize the brand (and here, how well and in what way they know it—the brand core—matters), less budget is needed to build awareness. That frees the company to spend its budget and energy on introducing the new product itself, its difference, and its benefit.
Greater brand trust: Thanks to the familiarity effect, a consumer is more likely to try a new product from a brand they already know and trust. If it’s an area that benefits from existing penetration, reach will be very fast, too. Extending the brand’s current strength—in a way that stays meaningful within its existing strategy—to include new products can increase the company’s power in customers’ eyes. The brand thereby widens its sphere of influence and dominance. And because people are exposed to the brand across more channels, it contributes to overall awareness and trust. The packaged products from a coffeehouse chain like Costa Coffee that you see on the supermarket shelf offer a real benefit to the parent brand.
Sharpening brand strategy and image: From time to time, brands feel the need to refresh their image. There can be many reasons: market dynamics may have shifted due to external factors, or an aggressive competitor may have entered and changed the whole game. In that case, a brand may choose to enter new product areas to develop its image. Depending on its nature, a new product area can help the brand reach different audiences, adapt to critical trends shaping the market, and stay current.
Reviving the brand: Sometimes brands need renewal. This may come from a brand having sat too long without relevance, or from market dynamics accelerating and changing. Launching a new product or service can breathe new life into the business.
Leaving no room for competitors: In some cases, beyond the financial or image returns of the new area, brand extension benefits the brand simply by protecting its place on the shelf. Otherwise, a competitor can grow its shelf share, visibility, and brand strength.
Locking customers into an ecosystem: One reason you can’t switch away from your Apple phone may well be that you use a MacBook. In some cases, brand extension makes it possible to create an ecosystem. Even if a customer isn’t thrilled with a product or particularly interested in it on its own, leaving the entire ecosystem creates a far greater emotional and financial pain.
2. The Disadvantages of Brand Extension
As tempting as the dream of extending a brand is, if it isn’t done right, extension can hurt the company and the brand. More than half of brand-extension cases end in failure. Here are the likely effects when they do.
Loss of credibility: If the new products and value propositions aren’t connected to the existing brand core and strategy—or don’t perform as well as them—brand extension can damage the brand’s reputation. A failed extension signals a failed business strategy, which can be read as a management weakness.
A negative effect on brand image: If a brand launches a product or service that underperforms relative to its value proposition and the quality of what it already offers, the parent brand’s image can suffer. And if a brand extends into an area sharply at odds with its brand core and strategy, it can lose standing even for its existing product—because for some brands, the brand core is their personality and values. Offering products or services that violate those values amounts to betraying the core audience. (Mercedes producing more affordable cars—its A-Class segment—is a case worth studying here.)
The drag of brand heritage: In some cases, a brand’s negative heritage is so strong that it becomes a serious ball and chain. Even a new product area may not transform that negative legacy. Here, carrying out the extension with a different brand can be a less costly path with a higher chance of success. The solution lies in structuring the brand architecture model correctly.
Catching a competitor’s eye: Sometimes extending your brand into a strong competitor’s territory can draw its attention and disturb the comfort you enjoy in your own core area. A brand focused on freezers and coolers extending into other home appliances can seriously irritate a few dominant players in that market—who may then, even at the cost of losing money, pressure you in your core area.
Diluting energy and focus: Many kinds of extension beyond adding to a product line—especially when you enter a different category or change the sales channel—can cause a serious loss of energy and focus, and may even require reorganizing the company. In that case, a company can pour excessive effort into extending when it might have grown its brand in other ways. Some furniture brands, for example, spent enormous effort and time trying to extend into carpets, and none succeeded. Those resources could have gone into developing collections, design, and experience—or even into deepening penetration.
The advantages of brand extension are, of course, many. But even when it’s driven by optimism and big dreams, if it isn’t done carefully and correctly, the brand can end up worse for it.
