Brand extension is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category.Organizations use this strategy to increase and leverage brand equity.
Brand extension offers a powerful tool to brand managers to mitigate initial risk while entering a new product category. The reason for doing this is simple. It takes a lot of time and money to develop a brand from scratch and it is far more easier to use the same brand name in a different product category . But this is not the only reason, brand managers also do this to reduce potential career risks associated with such product launches. The use of an existing strong brand name at least assures them of first trial among its most loyal customers.
The key to any successful brand extension is , ‘ how your existing consumers/customers sees the new product?’. In simple terms, do you have permission from your most loyal customers to enter a new product category. Also, does the new product aligns with your original brand’s core values that made you successful in the first place. A disconnect with the parent brand can lead to brand dilution.
McDonald’s venture in hotels is a classic example of trying to stretch a brand image in different product category. McDonald positioned itself as a 4 star hotel, when compared to its parent brand image was a huge misalignment. The venture failed and was later sold off.
Starbucks Refreshers energy drink vs. Glock Perform Apparel line
Glock is an arms manufacturer famous for its semi-automatic pistols. Glock is trying to leverage its strong brand following among gun owners and law enforcement officials by introducing an apparel collection. “Glock Perform” . The full line will be available on April 12th
The question here is who are the target consumers? Gun owners or sports lovers. Also, would people be comfortable wearing a polo that advertises gun instead of Nike or Under Armour. Glock is entering the lifestyle category and it would be difficult to compete with Nike or Under Armour. My bet is they would not be successful and their sales would be limited to their most loyal customers.
Starbucks is ready to hold Red Bull by its horns with the launch of Starbucks Refreshers, a natural energy drink. $8 billion energy drink category has performed well and hence, it wasn’t a surprise to see Starbucks entering this category. Starbucks latest brand extension is in its existing beverage category and hence, stands a higher chance of succeeding than Glock which is entering a different product category.
The rational behind brand extension remains the same in both these cases, leverage brand equity and increase product lines resulting in increase in revenue and profitability.
Both these product launches in April and we will know soon whose brand manager got the brand extension strategy right.
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