Copyright 2013 Pearson Education CHAPTER:12 INTRODUCING AND NAMING NEW PRODUCTS AND BRAND EXTENSIONS

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1 Copyright 2013 Pearson Education CHAPTER:12 INTRODUCING AND NAMING NEW PRODUCTS AND BRAND EXTENSIONS

2 Learning Objectives Define the different types of brand extensions List the main advantages and disadvantages of brand extensions Summarize how consumers evaluate extensions and how extensions contribute to parent brand equity Outline the key assumptions and success criteria for brand extensions

3 New Products and Brand Extensions When a firm introduces a new product, it has 3 choices for branding it: 1. It can develop a new brand, individually chosen for the new product 2. It can apply one of its existing brands 3. It can use a combination of a new brand and an existing brand

4 New Products and Brand Extensions New products and brand extensions Sub-brand: New brand combined with an existing brand.

5 New Products and Brand Extensions New products and brand extensions Parent brand: An existing brand that gives birth to a brand extension.

6 New Products and Brand Extensions New products and brand extensions Family brand: Parent brand associated with multiple products through brand extensions.

7 New Products and Brand Extensions Brand extension: When a firm uses an established brand name to introduce a new product Line extension - Adds a different variety, a different form or size, or a different application for the brand

8 New Products and Brand Extensions Brand extension: Category extension - Marketers apply the parent brand to enter a different product category from the one it currently serves

9 Advantages of Extensions Facilitate New- Product Acceptance Provide Feedback Benefits to the Parent Brand

10 Facilitate New-Product Acceptance Improve Brand Image Reduce Risk Perceived by Customers Increase the Probability of Gaining Distribution and Trial Increase Efficiency of Promotional Expenditures Reduce Costs of Introductory and Follow-Up Marketing Programs Avoid Cost of Developing a New Brand Allow for Packaging and Labeling Efficiencies Permit Consumer Variety-Seeking

11 Provide Feedback Benefits to the Parent Brand Kellogg s cereal Nutri-Grain bars Healthy snacking Clarify Brand Meaning Enhance the Parent Brand Image Nike From shoes to athletic shoes, athletic clothing, athletic equipment Tylenol tablets Tylenol capsules Bring New Customers into the Brand Franchise and Increase Market Coverage Revitalize the Brand Cadillac CTS sedan Permit Subsequent Extensions Billabong Surfboarding, Snowboarding and Skateboarding

12 Disadvantages of Brand Extensions Can Confuse or Frustrate Consumers Can Encounter Retailer Resistance Can Fail and Hurt Parent Brand Image Can Succeed but Cannibalize Sales of Parent Brand Can Succeed but Diminish Identification with Any One Category Can Succeed but Hurt the Image of the Parent Brand Can Dilute Brand Meaning Can Cause the Company to Forgo the Chance to Develop a New Brand

13 Understanding How Consumers Evaluate Brand Extensions Managerial assumptions Brand extensions and brand equity Vertical brand extensions

14 Managerial Assumptions Consumers have some awareness of and positive associations about the parent brand in memory At least some of these positive associations will be evoked by the brand extension Negative associations are not transferred from the parent brand Negative associations are not created by the brand extension

15 Brand Extensions and Brand Equity Creating extension equity Creation of a positive image is based on three factors: 1. Saliency of parent brand associations. 2. Favorability of any inferred associations. 3. Uniqueness of inferred associations in the extension category. The more dissimilar the extension product is to the parent brand, the more likely that points-of-parity will become a positioning priority, and the more important it is to make sure that category POPs are sufficiently well established.

16 Brand Extensions and Brand Equity An extension must strengthen or add favorable and unique associations to the parent brand and not diminish the strength, favorability, or uniqueness of any existing associations. Effects of an extension on consumer brand knowledge will depend on four factors: 1. Compulsion of the evidence about the corresponding attribute or benefit association in the extension context. 2. Relevance of the extension evidence will affect parent brand evaluations only if consumers feel extension performance is indicative of the parent brand in some way. 3. Consistency of the extension evidence with the corresponding parent brand associations. 4. How strongly existing attribute association is held in consumer memory for the parent brand.

17 Vertical Brand Extensions Extend the brand up into more premium market segments or down into more value-conscious segments are a common means of attracting new groups of consumers. Pros- An upward extension can improve brand image, because a premium version of a brand often brings positive associations with it. Extensions in either direction can offer consumers variety, revitalize the parent brand, and permit further extensions in a given direction. Cons- Vertical extension to a new price point, whether higher or lower, can confuse or frustrate consumers who have learned to expect a certain price range from a brand. Successful downward extension has the possibility of harming the parent s brand image by introducing associations common to lowerpriced brands. It will destroy the sales of the parent company.

18 Vertical Brand Extensions Examples Many companies have succeeded in extending their brands to enter new markets across a range of price points. Armani Up Giorgio Armani Privé & Emporio Armani and Down Armani Jeans HolidayInn Up Crowne Plaza, Holiday Inn Hotel & Suites and Down Holiday Inn Express

19 Vertical Brand Extensions Naming strategies Firms often adopt sub-branding strategies to distinguish their lower priced entries. It is difficult to change people s impressions of the brand enough to justify a significant upward extension. Honda (Acura), Toyota (Lexus) and Nissan (Infiniti) It is possible to use certain brand modifiers to signal a noticeable, although presumably not dramatic, quality improvement. Ultra Dry Pampers, Extra Strength Tylenol To avoid the potential difficulties associated with vertical extensions, companies sometimes elect to use new and different brand names to expand vertically. Banana Republic x Gap x Old Navy

20 Evaluating Brand Extension Opportunities Define actual and desired consumer knowledge about the brand Identify possible extension candidates Evaluate the potential of the extension candidate Design marketing programs to launch extension (e.g. packaging POPs versus PODs to help distinguishing the extensions) Evaluate extension success and effects on parent brand equity

21 Evaluate the potential of the extension candidate Line extensions of strong brands are more successful than extensions of weak brands. Line extensions of symbolic brands enjoy greater market success than those of less symbolic brands. Line extensions that receive strong advertising and promotional support are more successful than those extensions that receive meager support. Line extensions entering earlier into a product subcategory are more successful than extensions entering later, but only if they are extensions of strong brands. Firm size and marketing competencies also play a part in an extension s success. Earlier line extensions have helped in the market expansion of the parent brand. Incremental sales generated by line extensions may more than compensate for the loss in sales due to cannibalization.

22 Figure Brand Extension Guidelines Based on Academic Research

23 Figure Brand Extension Guidelines Based on Academic Research

24 To Sum Up Brand extensions occur when a firm uses an established brand name to introduce a new product The basic assumption behind brand extension Consumers have some awareness of and positive associations about the parent brand in memory Brand extension will evoke at least some of these associations

25 To Sum Up... The extension s ability to establish its own equity will depend on: Salience of consumers associations with the parent brand How compelling and relevant is the evidence about the corresponding attribute How strong consumers existing attribute or benefit associations are for the parent brand To evaluate brand extension opportunities, marketers need to consider strategies by applying managerial judgment and consumer research

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