I am often asked by small business owners about brand extensions and how they can extend their brands to build their businesses. One of the first things I tell them is that they need to understand the ways they can extend their brands and how each way can affect their business before they can make any plan or decision.
Branding is crucial to every business, but it’s so much more than a few colours, nice fonts and a fancy logo. It tells people that you care about what you deliver, that you live up to what you promise, and it shows off a glimmer of your personality — after all, it’s the make-up for your public image; an identity that people can relate to.
If managed well, branding can meet customers’ expectations and drive your authority through the roof. You’ll see a surge in new customers, leads, and conversions if you do one thing to your entire brand: make it consistent.
Also, many brands find themselves at a point where they have achieved some success with their line of products, and they are feeling pressure from investors and business partners to keep growing. The solution seems to be launching more products similar to their successful product. However, a research by Havard Business Review showed that 80% of new product launches fail. That is saying they fail to bring in the projected sales figures. Therefore, many brands choose to mitigate that risk by doing a product line extension.
Product Line Extension
A product line extension is the launch of a new product in a product category where the brand already sells products. The new product sells alongside the existing products. Typically a line extension is a new flavour, fragrance, formula, colour, size or style of a product in a current product line. WAMCO’s Peak 1-2-3 milk is an extension of the popular peak milk. For example, Diet Coke is a line extension of the parent brand, Coke. While the products have distinct differences, they are in the same product category. The new product is oftentimes referred to as a spin-off.
Extending a product line is less risky than launching an entirely new product or performing a brand extension because customers are already familiar with the existing products and are more likely to try the new product. The new product can leverage the same retail partners, supply chains, packaging, and other things that it shares with the old products. Less advertising and communication is required because of the similarity to the old and well-known products.
There is less risk, but there is less potential reward as well. The brand is essentially competing with its old products. There is less opportunity for incremental sales because sales of the new product might come at the expense of the existing products.
While a product line extension is when the same brand puts out a new product in their existing category, a brand extension is when an existing brand offers a new product in a product category the brand has never competed in.
For example, Ferrari is known for its exotic cars. But in 2010, they extended the Ferrari brand into theme parks by opening the Ferrari World in Abu Dhabi. Google started off as a search engine in 1998 but today it has used brand extensions more eagerly than any other company. Gmail, Google Docs, Google Chat, Android, Made by Google, Google+, and many more all try to leverage the Google name to find the next big revenue source.
The main difference between product line extensions and brand extensions is the product category. If the product category is new for the brand, then it is considered a brand extension. But if the category is the same as old products for the brand, then it is merely a line extension.
Line extensions are safer than brand extensions. If a brand shows up in a new product category, then they have to convince potential customers that the new product works and the brand makes sense in the category.
The boundaries between product categories can be blurry. Reasonable minds will differ whether a new product constitutes a line extension or a brand extension. I consider two products to be in the same category if they meet the same need. You could swap one for the other for a customer, and they could accomplish what they were after.
If we swap a toothpaste from a mint-scented one to a lemon-scented one, that wouldn’t be a problem. If you swapped someone’s hair cream for body lotion, then they cannot maintain their hair. Hair cream and body cream are separate product categories.
Product Line Extension versus Brand Extension
Line extensions are safer plays for brands, as they are small experiments within arenas in which the business is already succeeding. Adding a little variety to the product offerings rarely hurts the original. But just as it is a relatively low risk, the reward is typically also smaller. This can be a good place to start for newer brands or well-established brands that have not changed their offerings much during their many years in business.
The other side of the coin, brand extension, is a complete departure from the core business that a brand is known for. But, if the new line is perfectly aligned with the brand and what customers want, then it can pay off handsomely. This is a good strategy to leverage if you have especially strong brand equity. Think of a brand like Supreme, popular for their sportswear lines and accessories but not many people know that they also sell shower caps? Very few brands would be able to pull that off and have such a seemingly unrelated product fly off the shelves. It is a testament to the strength of their brand and understanding of what their customers are willing to pay for.
Last line: Once a brand has been proven to be successful, it’s natural for business owners to start thinking about how they can leverage that success in new ways to build their businesses even more. Brand extensions are an obvious option. However, extending a brand is a strategic decision that requires research and analysis. Don’t jump into a brand extension based on a hunch. Make sure you have the data to back up your decision!