What we’re talking about
Brand extension is when a business develops a new product or service in a different area or category than where it's previously been operating. To do this, it leverages its pre-existing brand identity, customer base and resources. It might be a move into an adjacent market (eg, a hat brand starting to make gloves), or it could be extending into a space that doesn't logically follow, but which appeals to its customers and their perception of the business (eg, a restaurant launching T-shirts). Moving into a new market under a well-known brand name is far easier than doing so under an unknown one.
Why it’s important
Given how hard it was to get moving with your core product or service, it might be tempting to steer clear of brand extension and stick to what you're good at. But a well-planned and well-executed extension has plenty of benefits: increasing revenue, reaching new customers, keeping existing ones intrigued and engaged, creating hype, increasing your market share and adding resilience to your business through diversification. Plus, you may already have the necessary infrastructure and key relationships in place.
According to a study by data measurement firm Nielsen, brand extensions among consumer goods companies are up to five times more successful than new brand launches. That being said, the failure rate is still high – at around 80%, according to another study by the University of Hamburg. If you're going to do it, your new product or service must not dilute or damage your brand – it's much harder for small businesses to recover financially from any ill-conceived launches.
Things to note
It all hinges on brand equity. Time to get your head around a concept called brand equity – something you need to have if you're considering brand extension. It basically refers to your brand's value in the eyes of the consumer. According to branding guru Professor David Aaker, it's a combination of brand awareness, brand association, your perceived quality, brand loyalty, plus any assets, like patents and trademarks. A big part of brand extension planning is about picking the right moment – and you're not ready if your name isn't yet sufficiently valuable.
There's more than one way to extend a brand. There are some subtle ways to tackle brand extension that don't rely on your business being super famous, and which can increase awareness – and the quality – of your offering. Agency Parham Santana analyzed more than 500 successful brand extensions, pulling out ideas that you can mine for inspiration here. Think: creating an online counterpart to your physical service; zooming in on your product's key feature and replicating it in something different; or making items that naturally act as companions to what you already sell.
If it's broken, brand extension won't fix it. Brand extension is a useful marketing strategy to help successful businesses (or at least those with high brand awareness) grow. It shouldn't be used to save a floundering one – you'll just end up stretching yourself too thin. You may be better served concentrating on your existing product or service suite and customer base before you invest in something completely different.
Product line extension might be a better fit. Product line extension involves a business adding a new product to one of its pre-existing lines. That could be launching a new item in an existing category, or a new version of an existing product or service. It's typically cheaper, logistically easier, and far less dependent on brand equity. You can read our comprehensive guide on how to do it here.
How to plan a brand extension
1. Survey your brand equity. First, find out whether your brand is strong enough to sustain this change. You also need to know the things that make it valuable, so you can preserve them and build on them. Get a gauge of how you're performing in each of David Aaker's five areas above. Plenty of this can be done by studying your customers: reviews, recommendations, retention and lifetime value. Metrics such as store traffic, search volume and growth rate will also help.
2. Set your goals. Assuming your analysis shows that you're ready for brand extension, really drill into whether this is the right moment and set goals accordingly. Are you actively looking to grow? Is there a gap in another market that you're qualified to fill? Is there noticeable demand among your customers for something new? Are you looking to create some hype? Are there aspects of your brand image you want to build on or change?
3. Review your resources. Successful brand extension comes down to the quality of your idea, but also how equipped your business is to deliver it. Analyze your financials to determine how much cash you can invest. Examine your team's capabilities and capacity, along with any key stakeholders. It's worth noting that if you don’t have the infrastructure or internal capacity, you might be able to partner with another business to deliver a brand extension. Your pre-existing connections may, therefore, influence what you choose to do.
4. Look into wider consumer or market trends. Get a taste of what's popular at the moment. Your intuition might help here, but you can also browse social media – whether that's by following hashtags or industry influencers – and read the relevant media outlets in your sector.
5. Research your competitors. Identify the other players in your market and find out if they've embarked on any brand extensions. This will tell you more about trends, give you some inspiration and flag areas that you shouldn't explore to avoid saturation or copying.
6. Engage with your existing customers. Find out from people who already use or interact with your business what they think about you, and what their wider needs are. You're aiming to find out what they like and dislike about your current offering and brand in general. Follow our guide to user research to get the lowdown on potential methods to use.
7. Narrow down your options. You've now got a decent amount of information and inspiration to take forwards into an idea session with the relevant people. The aim is to come away with a shortlist of potential extension options that solve problems and create opportunities.
8. Get to know your new target market. You're likely going to be targeting customers you don't yet understand. For each of the options on your shortlist, work out who you'll be trying to attract. Then do some further research to get a grasp on consumer demand and positive market conditions. Are there lots of similar solutions out there? What are the strengths and weaknesses of your new competitors?
9. Finesse your strategy. Dig into a detailed evaluation of your brand extension options, considering aspects like potential costs and risks, whether you have the capacity or infrastructure to make it happen and any other relevant concerns. Refer back to your consumer, market and competitor research to ensure you're ticking the necessary boxes.
• Brand extension can help you expand your reach and keep your existing customers engaged – but it can also dilute or damage your brand image if done badly.
• You need a thorough understanding of your brand equity to know whether this is a strategy worth pursuing.
• Consider your customers, competitors, trends and your capabilities – and choose something that solves an existing problem and creates new opportunities.
Perspective. In Financial Express, journalist Vaishali Dar speaks to a whole bunch of small businesses to ascertain why brand extensions do and don't work.
Example. From Washington State University, here are four successful brand extensions – led by Clorox, Dove, Disney and Oprah Winfrey.
Tool. There are several tools out there that can help you measure your brand equity. One major company in the space, Qualtrics, has a free ebook with useful tips on tracking your brand's performance.