Benefits of Brand Extensions
There are significant benefits to a successful brand extension:

• Identify logical new product possibilities
• Capitalize on the paid-for equity in established brand names
• Enable a company to enter new categories at significantly lower cost
• Reduce the risk of failure given the already established awareness and trust
• Create a positive synergistic effect with the efficiencies of umbrella branding and advertising
• Reinforce the consumers’ perceptions of the parent brand name
• Bring news to existing brands when there is otherwise nothing new to say about them

“Brands are the barrier to entry into new categories; they are also the means to entry.” Brands (not production capabilities) are the prime barrier to entry into most categories. Many companies could make a cola, but only Coca-Cola owns that brand. As a result, well known existing brand names can be the way for a company to enter a new category that otherwise would be impossible. Our brand extension study for Reese’s identified peanut butter as a logical brand extension. Hershey could not have efficiently entered the peanut butter category without the Reese’s brand. In effect, brand extensions allow a company to capitalize on the “previously paid for” recognition, reputation and leverageable equity of its brand names. With the prohibitive cost of establishing new brands (just ask ex dot-coms), brand extensions save companies money. When done correctly, they also reinforce the properties of the existing parent product through synergy and bring news to the brand. It is not uncommon to find sales of the parent product rising after the launch of a successful brand extension.

Note how the Olay brand entered the soap business:

Risks of Brand Extensions
Much has been written as scare tactics about the negatives and risks of brand extension. In reality, if a brand extension is so off target or lacks fit and or leverage, it likely will fail and do little damage. Most of these misfires die in limited test market anyway. There can be real damage to the parent brand, however, when too many unrelated brand extensions are launched. Names like Betty Crocker, General Electric and Kraft have been extended profusely. While they have not lost their awareness as household words, the strong associations they once had to specific products and related qualities (e.g. cake mix, light bulbs and cheese) may be diluted. This is especially dangerous when a brand is used synonymously with a specific product. Brands that are not legally generic but are used that way such as Kleenex, Scotch (Tape), and Band-Aid should not be extended broadly or they risk losing this valuable quality.

Can a brand be all things to all people? Some like Virgin and Mitsubishi have tried. Those few that have succeeded with broad based extensions have a benefit thread running through their products that customers of the respective categories want. Virgin offered value in differentiated services like their airline. Their cola, jeans, vodka, etc. flopped. Contrast this with Healthy Choice or Atkins which offered a common thread in all of their products of low fat or low carb. It all comes back to understanding a brand’s extendible equity and staying focused by knowing “What business we are in.”