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Chapter 12
Introducing and Naming New Products and Brand Extensions
Chapter Objectives
1. Dene the dierent types of brand extensions.
2. List the main advantages and disadvantages of brand extensions.
3. Summarize how consumers evaluate extensions and how extensions
contribute to parent brand equity.
4. Outline the key assumptions and success criteria for brand
extensions.
Overview
This chapter considers the role of brand extensions in creating,
maintaining, and enhancing brand equity. The popularity of brand
extensions, which apply an established brand name to a new product
in the same product category (line extension) or in a dierent product
category (category extension), has been fueled in part by the rising
cost of introducing new brands and by the growing realization among
companies that their brand investments can be leveraged.
Brand extensions can facilitate new product acceptance by reducing
consumers’ perceived risk, raising the probability of gaining
distribution and trial, increasing the e,ciency of promotional
expenditures, lowering the costs of marketing programs, eliminating
new brand development costs, allowing for packaging and labeling
e,ciencies, and permitting consumer variety seeking. They can
provide feedback benets to the parent brand by clarifying the
meaning of a brand, enhancing the parent brand image, attracting new
customers to the brand franchise, and thereby expanding market
coverage, revitalizing the brand, and facilitating subsequent
extensions.
However, brand extensions are not a risk-free strategy. They can
confuse or frustrate consumers, encounter retailer resistance, hurt the
parent brand image if they fail, cannibalize sales of the parent brand,
diminish the parent brand’s identication with any one category,
create unfavorable associations for the parent brand if they succeed,
dilute the overall meaning of the parent brand, and eliminate the
opportunity to develop a new brand with its own unique image and
equity.
The best brand extensions not only create equity for the new product,
but also add to the equity of the parent brand. All else being equal, an
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
extension will be more successful if consumers perceive that the
parent brand and the extension product t together in some way. A
rm engaging in a brand extension strategy should: 1) dene actual
and desired consumer knowledge about the brand, 2) identify possible
extension candidates, 3) evaluate the potential of each candidate, 4)
evaluate extension feedback eects, 5) consider possible competitive
advantages and reactions, 6) design a marketing program to launch
the extension, and 7) evaluate the success of the extension and its
impact on the equity of the parent brand.
The chapter concludes by providing 16 guidelines for brand extensions
based on the ndings of numerous of the academic research studies.
These guidelines can be employed by marketers to maximize the
eectiveness and equity of extensions.
Brand Focus 12.0 discusses the scoring of brand extensions.
Science of Branding
THE SCIENCE OF BRANDING 12-1
WHEN IS VARIETY A BAD THING?
Consumers may like the idea of having more choice—the 8exibility and
sense of freedom it gives, the greater likelihood of nding just the right
alternative—but negative consequences often arise too. Actually
nding the optimal choice can require much eort and result in inner
con8ict and regret. The di,culty of making a decision can be
overwhelming or demotivating, and some consumers may just choose
to walk away.
Product assortment has been dened as the number of SKUs oered
within a single product category. Consumer perception of assortment is
one of the top three criteria, along with location and price, that aect
their retail loyalty. Manufacturers and retailers are thus keenly
interested in factors aecting the optimal product assortment size for a
brand.
Much research has supported the conclusion that reducing the number
of dierent items stocked does not necessarily adversely aect
category volume, especially if the category already has a lot of SKUs or
a few SKUs that are big sellers. Research has also found that consumer
perceptions of variety assortment depend on factors such as the
similarity of items for the brand, the amount of allocated shelf space,
and the presence of the consumer’s favorite item.
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
Marketers and retailers can improve perceptions of product variety in a
category or for a brand. Organized displays have been found to be
better for large brand assortments, whereas unorganized displays are
better for small brand assortments. Asymmetrical assortments have
also been found to lead to perceptions of greater assortment.
Branding Briefs
BRANDING BRIEF 12-1
GROWING THE MCDONALD’S BRAND
Market saturation, global health concerns, and a slumping economy
have presented signicant obstacles to McDonald’s growth. To
overcome these, the company has employed a number of dierent
growth strategies that can be classied using the Anso growth share
matrix. As a result of these strategies, the company’s nancial fortunes
have rebounded, and McDonald’s has outperformed many of its peers
in revenue growth. The brand has even been credited with producing a
“halo eect” that is “driving growth for the entire quick-service
restaurant category.”
Market Penetration
Rather than trying to grow by adding new restaurants, McDonald’s
would grow by generating greater returns from the ones it had. Thus,
instead of investing in new real estate, the rm made huge
investments in upgrading the facilities and operations of existing
stores. One important way McDonald’s made it easier for its customers
to spend more money was by expanding to 24-hour service at many
stores. The menu has been constantly ne-tuned so there are oerings
to suit any meal or snack opportunity. Breakfast has become an
essential part of the McDonald’s revenue equation. McDonald’s
decade-long “I’m Lovin’ It” global advertising campaign has served as
the perfect vehicle to support new product launches and enhance
loyalty.
Market Development
There are over 33,000 restaurants worldwide in 119 dierent countries
today, and 1.7 million employees serve 64 million customers daily in
the United States, Europe, the Middle East, the Asia-Pacic region,
Africa, Canada, and Latin America. One key to its global success has
been McDonald’s willingness to adapt its menu to dierent cultural
preferences and regional tastes. The chain oers specialized menu
items. McDonald’s targets dierent demographic and psychographic
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
market segments as well. The product oerings in Happy Meals have
been tweaked through the years to appeal to both children and their
parents.
Product Development
McDonald’s found its popularity in its core markets under threat as
international concern grew about the role of fast food in poor health
and obesity, highlighted by the 2001 book Fast Food Nation and the
2004 movie Super Size Me, among other critiques. McDonald’s
responded by overhauling its menu, removing “Super Size” options and
adding healthier options such as a number of fresh salads, healthier
versions of kids’ Happy Meals, and adult versions that included salad,
bottled water, and a pedometer to encourage exercise. The shift in
focus toward healthy eating and physical activity was emphasized by
McDonald’s recasting of Ronald McDonald as its “Chief Happiness
O,cer,” a sports enthusiast who donned a more athletic version of his
traditional yellow-and-red clown suit and snowboarded, skateboarded,
and juggled fruit in a new TV spot. The company also tapped into the
growing premium-coee trend in the United States by launching
McDonald’s Premium Roast coee. McDonald’s also introduced a new
line of premium hamburgers—one-third-of-a-pound Angus Burgers.
Diversi%cation
McDonald’s has done some diversication to target new customers
with new service oerings. It extended its brand in 2001 with the
opening of its rst domestic McCafé, a gourmet coee shop inspired by
the success of Starbucks that had debuted in Portugal and Austria.
Another extension is McTreat, an ice cream and dessert shop.
BRANDING BRIEF 12-2
ARE THERE ANY BOUNDARIES TO THE VIRGIN BRAND NAME?
Virgin’s brand strategy is to go into categories where consumer needs
are not well met and do dierent things—and do them dierently—to
better satisfy consumers. Branson founded the Virgin record label and
launched Virgin Atlantic Airways. Later, he made millions on the sale of
his record label, his Virgin record retail chain, and his Virgin computer
games business. After licensing the use of the Virgin name to European
startup airlines, he licensed the Virgin name for use on personal
computers and set up joint ventures to market Virgin Vodka and Virgin
Cola. Later, he took over six of the United Kingdom’s government rail
lines and established Virgin Rail. In 1999, he launched Virgin Mobile
and branched into e-commerce with the debut of Virgin.com. Today,
the Virgin Group employs over 50,000 people, spans 30 countries, and
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
contains more than 300 branded companies marketing such diverse
product areas as travel, lifestyle, media and mobile, money, people
and planet, music, health care, and alcohol.
When Virgin ventures are poorly received, as Virgin Cola, Virgin Vodka,
Virgin PCs, Virgin Jeans, Virgin Brides, and Virgin Clothing were in
recent years, experts worry about the cumulative negative eect of
these unsuccessful brands on the company’s overall equity. Some
critics believe Virgin consumer products will do little more than
generate publicity for Virgin airlines. They also warn of overexposure,
even with the young, hip audience the Virgin brand has attracted.
Among the new products Branson is launching are Virgin Oceanic, for
oceanic exploration, and Virgin Galactic, for space tourism on rocket
ships. Yet Virgin has become more disciplined about its expansion in
recent years: The company pursues new businesses only if they are
expected to generate more than $150 million in sales within three
years. Virgin is also placing great emphasis on sustainability and the
environment.
BRANDING BRIEF 12-3
LEVI EXTENDS ITS BRAND
For years, market power had been shifting away from suppliers like
Levi and toward retailers. Levi adopted a segmentation strategy to
convince dierent types of retailers (department stores, specialty
chains, upscale boutiques, and mass merchants) to carry its products.
Under the segmentation strategy, Levi’s brands ranged from a
relatively inexpensive discount line to $150-and-up vintage designs.
Levi created the Signature by Levi Strauss & Co. brand to sell at mass
merchants and began selling to Walmart in 2003. Signature, positioned
as a premium mass brand, carried new labels and styles manufactured
from less expensive fabric. The Levi Strauss & Co. name appeared in
cursive. At that time, Levi priced Signature jeans at $23—more than
other mass brands but below its $29 regular brand.
Initially, the segmentation strategy created rough spots for other Levi
brands. Orders from department stores slipped and sales of regular
Levi’s, which had nally steadied leading up to the launch of the
Signature brand, resumed their decline. Furthermore, a new
high-fashion line called Type 1 failed. In 2006, Walmart’s
price-chopping move ultimately proved eective and Signature jeans
began to sell more quickly. The company also added lines of Signature
baby clothing, bags and wallets, and men’s khaki pants, selling to
other mass retailers such as Kmart and Meijer.
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
Levi attempted to expand into premium segments, selling premium
lines such as Levi’s Capital E to Bloomingdales and Barney’s New York.
The upward stretch has proven to be more challenging. The biggest
launch was another discount brand, dENiZEN from Levi’s, rst
introduced into Asia in 2010. The name was chosen because it means
“inhabitant” or someone belonging to a community of family and
friends.
Brand Focus
BRAND FOCUS 12.0
SCORING BRAND EXTENSIONS
When identifying and evaluating brand extensions, it is helpful to have
a summary tool to judge their viability. The following checklist can
provide some guidance:
1. Does the parent brand have strong equity?
2. Is there a strong basis of extension t?
3. Will the extension have necessary points-of-parity and
points-of-dierence?
4. How can marketing programs enhance extension equity?
5. What implications will the extension have on parent brand equity
and protability?
6. How should feedback eects be best managed?
It’s also useful to employ more systematic analysis of proposed
extensions. The Brand Extendibility Scorecard is designed to help
marketers conduct thoughtful, thorough analysis of brand extensions.
It serves as a means to an end and is designed to inform
decision-making, not to provide black-and-white “go or no-go”
decisions. Three of its four main criteria follow the classic “3 Cs”
perspectives—the consumer, company, and competitive point of view
—to judge brand positioning. The fourth criterion is unique to the
Scorecard and measures brand equity feedback.
Within each criterion, there are two major factors and one minor factor.
Major factors are scored on a 10-point scale, minor factors on a 5-point
scale. Maximum points are awarded if the extension candidate is
clearly ideal on that factor, using either company or industry
measures. While scoring extensions, relative performance is important
as absolute performance. Ranking extension candidates by their scores
can provide a clear sense of priority. By rst scoring recent successful
and unsuccessful extensions for the brand and even for competitors,
the marketing team becomes more familiar with the scorecard.
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
Discussion questions
1. Pick a brand extension. Use the models presented in the chapter to
evaluate its ability to achieve its own equity as well as contribute to
the equity of a parent brand. If you were the manager of that brand,
what would you do dierently?
2. Do you think Virgin’s brand is overextended? What are the
arguments for or against?
3. How successful do you predict these recently proposed extensions
will be? Why?
a. Mont-Blanc (famous for pens): fragrances and other accessories
(watches, cu,inks, sunglasses and pocket knives)
b. Evian (famous for water): high-end spas
c. Starbucks (famous for coee): /lm production and promotion
d. Trump (famous for hotels and casinos): vodka and mortgage
services
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
4. Consider the following brands, and discuss the extendibility of each:
a. Harley-Davidson
b. Red Bull
c. Tommy Hil/ger
d. Whole Foods
e. Net5ix
f. U.S. Marines
g. Grey Goose Vodka
h. Victoria’s Secret
i. BlackBerry
j. Las Vegas
k. Kate Spade
5. There are four fake brand extensions among the following list; the
other six were marketed at one point. Can you identify the four
fakes?
a. Ben-Gay Aspirin: Pain relief that comes with a warm glow
b. Burberry Baby Stroller: For discriminating newborns
c. Smith & Wesson Mountain Bikes: Ride without fear
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© 2013 Pearson Education, Inc. publishing as Prentice Hall.
Exercises and assignments
1. Challenge students to identify brands with the greatest number of
line extensions. Discuss the implications of such proliferation for the
company, consumers, the trade, and the brand’s competitive
position. Robitussin cough syrup, Trojan condoms, L’eggs
pantyhose, and Pampers diapers are examples of brands with
numerous line extensions.
2. Do #1 above, but look at category extensions instead.
3. Have students pick two competing brands (preferably two that have
not introduced category extensions) and poll consumers regarding
possible extensions for each. Analyze the dierences and the
reasons for them.
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
4. Have students pick out brand extensions that they think failed. The
students may then assess the reason behind the failures based on
the disadvantages of brand extensions the text talks about.
Key take-away points
1. A brand extension occurs when a rm uses an established brand
name to introduce a new product.
2. Extensions can be either introduced in a product category currently
served by the parent brand (i.e., line extension), or a completely
dierent product category (i.e., category extension).
3. Extensions allow rms to reduce the costs of brand-building
advertising campaigns and of educating consumers about specic
product attributes.
4. The risks of brand extensions include dilution of the brand name
and negative feedback eects on existing products.
5. The best extensions are those where the parent brand name helps
the new product and the new product helps the parent brand.
© 2013 Pearson Education, Inc. publishing as Prentice Hall.
