RATIONAL AND BENEFIT OF BRAND EXTENSION.
The cost of launching a new product has increased tremendously and the risk
of failure is high. These constraints have made brand extension strategy very
popular.Brand extension is not only cost efficient but it is less risky as
compared to a new brand launch. The survival rate of
brand extensions is generally higher than a new brand launch.
Of all the reasons for adopting brand extension strategy, the most vital is that
it Facilitates growth .
The biggest advantage of brand extension is that the growth could easily be achieved by keeping the cost
within controllable limits . The penetration capability of a new
product with the same name would be considerably higher than the product
with a new brand name. The brand extension strategy has the potential to
capture substantial market share of growing segment by drawing a parallel
between the positive values associated with the core brand and extended
brand . Brand extension increases the market coverage, its
strength, and creates a segment that was not in existence previously .
In this context, Virgin Company is one of the many companies that have
successfully ventured into new market by using the reputation of the existing
brand. The company initially was a publisher and a retailer of popular music,
subsequently, it successfully ventured through brand extension strategy into
diversified business such as airlines, cola production, and financial services.
Brand extension growth strategy has several economic advantages.
Therefore its popularity has also increased because of this cost advantage.
The cost in brand extension strategy reduces quite considerably as the firms
may not have to incur expenses for searching a suitable name for the product,
advertising expenses would be minimal as the customer may be aware of the
extended brand because of the strong brand name of established parent
brand . According to an estimate, launching a new brand is
expensive as it cost about lakhs of rupees, whereas the cost of
launching an extended brand is a fraction of new brand . The
extended brands inherit a strong positioning from the established core brand,
therefore, the risk of failure of extended brand is also low .
Whether a new product is launched with a new brand or is extended with an
established name in both the cases a certain portion of sales are allocated for
advertising and other fixed expenses. In case of brand extension the
possibility of a reasonable return on small volume is higher as the advertising
and other fixed expenses in this case are reasonably low .Ambler and Styles were of the opinion that the cost
of building awareness is low in case of brand extension because the core brand has a certain reputation, thus
parent and extension both will promote each other as both of them have the same strong brand name.
Advertisement costs in brand
extension are distributed to more than one product, thus this advantage of
economies of scale makes the brand extension more attractive. Customers
are more familiar with the strong brand therefore its extension generally
receives positive and stronger response. In view of high revenue generating
capability of well-managed brand extension this expansion strategy is
becoming more attractive to the firms . While deliberating on the economic rationales for brand extension
Kapferer (2001) warned that the firms should not get mixed up between two different issues which are (1)
increasing profitability and (2) reducing cost.
The production cost, distribution cost and communication cost varies from one
market to other, therefore, the profitability may also vary accordingly. Hence,
the profitably ratios of all the companies may not be the same.
Thus, the brand extension strategy should be used for those markets where the degree
of profit is high and cost structure is low . If the extension is of
a strong brand then the company could take the liberty of charging a higher
premium of about 17% on it extended product .Brand extensions of strong and familiar core brands provide a
certain degree of comfort and assurance to the customers, therefore, the customers would not hesitate in
trying such extended brands. Thus, the trial cost for brand extension would be quite lower than the new brand .
Other researchers also found that brand extension of established name have
several advantages including low cost, high success rate and it helps
“customer trial” .
Brands with strong reputation can capitalize its name and success by
extending it in other categories .
Ambler and Styles also observed that the degree of acceptance between core and extended brand would be
higher if there is a strong association between the two in terms of quality. Customer based equity helps in
increasing the brand image while the parent
brand and the extended brand makes the brand stronger and helps in creating
a “mega brand” . A mega-brand helps in increasing distributors’bargaining power creating investment
opportunities,enhancing value of brands that critically affects brand positioning & The firm, thus, in its media
campaign could focus on perceived
quality and value of brands that helps in avoiding product specification based
advertising battle .The environment is constantly changing, and according to Kapferer (2001),brand extensions
help in increasing and maintaining its equity in this
vulnerable environment within and outside the country. The old brand tends to
have an aging affect. Brand extensions helps in “revitalizing” the old and
aging brands of the company. Launching a new brand with the same name
not only allows the company to recaptures its reputation, but also helps in
enhancing the image, and widens its appeal. The competitors are always targeting the niche gaps that the
prevailing brands may not be protecting effectively and efficiently. Brand extensions help firms to fill those
vulnerable gaps which the competitors may target. Filling shelf space is an important marketing strategy for
preventing the competitors to sneak in. The brand extensions help in filling shelf space in the market and
make it more difficult for the competitors to attack from this end .Some product categories lack quality and may
not fulfill the consumer needs in one part of the world.
The brand extensions help to fulfill the demand of other parts of world where the brand has strong reputation
and more need for it .The company, at times, possesses certain technologies and expertise.
This indigenous technology and the expertise in Research and Development could be utilized to develop a new
product with the objective of extending the strong core brand Consumer perceives the level of transferability of
expertise from one product to other differently. If customer feels that the technological transferability to new
product is difficult the consumer acceptance would be positive, otherwise the level of acceptance would be low .
The cost of launching a new product has increased tremendously and the risk
of failure is high. These constraints have made brand extension strategy very
popular.Brand extension is not only cost efficient but it is less risky as
compared to a new brand launch. The survival rate of
brand extensions is generally higher than a new brand launch.
Of all the reasons for adopting brand extension strategy, the most vital is that
it Facilitates growth .
The biggest advantage of brand extension is that the growth could easily be achieved by keeping the cost
within controllable limits . The penetration capability of a new
product with the same name would be considerably higher than the product
with a new brand name. The brand extension strategy has the potential to
capture substantial market share of growing segment by drawing a parallel
between the positive values associated with the core brand and extended
brand . Brand extension increases the market coverage, its
strength, and creates a segment that was not in existence previously .
In this context, Virgin Company is one of the many companies that have
successfully ventured into new market by using the reputation of the existing
brand. The company initially was a publisher and a retailer of popular music,
subsequently, it successfully ventured through brand extension strategy into
diversified business such as airlines, cola production, and financial services.
Brand extension growth strategy has several economic advantages.
Therefore its popularity has also increased because of this cost advantage.
The cost in brand extension strategy reduces quite considerably as the firms
may not have to incur expenses for searching a suitable name for the product,
advertising expenses would be minimal as the customer may be aware of the
extended brand because of the strong brand name of established parent
brand . According to an estimate, launching a new brand is
expensive as it cost about lakhs of rupees, whereas the cost of
launching an extended brand is a fraction of new brand . The
extended brands inherit a strong positioning from the established core brand,
therefore, the risk of failure of extended brand is also low .
Whether a new product is launched with a new brand or is extended with an
established name in both the cases a certain portion of sales are allocated for
advertising and other fixed expenses. In case of brand extension the
possibility of a reasonable return on small volume is higher as the advertising
and other fixed expenses in this case are reasonably low .Ambler and Styles were of the opinion that the cost
of building awareness is low in case of brand extension because the core brand has a certain reputation, thus
parent and extension both will promote each other as both of them have the same strong brand name.
Advertisement costs in brand
extension are distributed to more than one product, thus this advantage of
economies of scale makes the brand extension more attractive. Customers
are more familiar with the strong brand therefore its extension generally
receives positive and stronger response. In view of high revenue generating
capability of well-managed brand extension this expansion strategy is
becoming more attractive to the firms . While deliberating on the economic rationales for brand extension
Kapferer (2001) warned that the firms should not get mixed up between two different issues which are (1)
increasing profitability and (2) reducing cost.
The production cost, distribution cost and communication cost varies from one
market to other, therefore, the profitability may also vary accordingly. Hence,
the profitably ratios of all the companies may not be the same.
Thus, the brand extension strategy should be used for those markets where the degree
of profit is high and cost structure is low . If the extension is of
a strong brand then the company could take the liberty of charging a higher
premium of about 17% on it extended product .Brand extensions of strong and familiar core brands provide a
certain degree of comfort and assurance to the customers, therefore, the customers would not hesitate in
trying such extended brands. Thus, the trial cost for brand extension would be quite lower than the new brand .
Other researchers also found that brand extension of established name have
several advantages including low cost, high success rate and it helps
“customer trial” .
Brands with strong reputation can capitalize its name and success by
extending it in other categories .
Ambler and Styles also observed that the degree of acceptance between core and extended brand would be
higher if there is a strong association between the two in terms of quality. Customer based equity helps in
increasing the brand image while the parent
brand and the extended brand makes the brand stronger and helps in creating
a “mega brand” . A mega-brand helps in increasing distributors’bargaining power creating investment
opportunities,enhancing value of brands that critically affects brand positioning & The firm, thus, in its media
campaign could focus on perceived
quality and value of brands that helps in avoiding product specification based
advertising battle .The environment is constantly changing, and according to Kapferer (2001),brand extensions
help in increasing and maintaining its equity in this
vulnerable environment within and outside the country. The old brand tends to
have an aging affect. Brand extensions helps in “revitalizing” the old and
aging brands of the company. Launching a new brand with the same name
not only allows the company to recaptures its reputation, but also helps in
enhancing the image, and widens its appeal. The competitors are always targeting the niche gaps that the
prevailing brands may not be protecting effectively and efficiently. Brand extensions help firms to fill those
vulnerable gaps which the competitors may target. Filling shelf space is an important marketing strategy for
preventing the competitors to sneak in. The brand extensions help in filling shelf space in the market and
make it more difficult for the competitors to attack from this end .Some product categories lack quality and may
not fulfill the consumer needs in one part of the world.
The brand extensions help to fulfill the demand of other parts of world where the brand has strong reputation
and more need for it .The company, at times, possesses certain technologies and expertise.
This indigenous technology and the expertise in Research and Development could be utilized to develop a new
product with the objective of extending the strong core brand Consumer perceives the level of transferability of
expertise from one product to other differently. If customer feels that the technological transferability to new
product is difficult the consumer acceptance would be positive, otherwise the level of acceptance would be low .