Brand Extension

Updated on April 25, 2024
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Brand Extension?

A brand extension happens when a company releases a new product using its renowned brand name. The company leverages its well-known brand to offer a new product to customers and tries to get their attention to the new offering. With an already established brand identity backing it up, customers trust the new product.

Brand Extension

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A successful brand extension strategy can reward the company with a well-endorsed product launch. This can boost their business profits and further reinforce their brand identity. On the other hand, a misfired brand extension can degrade the reputation of the parent brand.

Key Takeaways

  • Brand extensions use the same brand to announce new products to clients, using the existing consumer base to secure a strong launch.
  • Some famous examples of brand extensions include product launches by Amazon, Apple, and Starbucks.
  • There are several types of brand extension strategies. Each one leverages the brand in a unique way to market new products to existing customers.
  • Unlike brand extensions, line extensions provide new products previously offered by the brand.

Brand Extension Process Explained

Brand extension is a popular marketing strategy that has been widely used since the second half of the 20th Century. It consists of utilizing a currently existing brand to launch a new product. Therefore, it is understandable for reputed and popular brands to bank on their trust over its other related products that are already enjoying a good market presence.

Most of the time, the existing loyalty of the consumers helps companies widen their reach. Consumers have to make several choices in a short period whenever they’re shopping. So, naturally, they tend to base their decisions on their previous knowledge or experience.

If they already know a brand and like it, it increases the chances of buying a new product from the same company. So even if they are not loyal customers, the brand’s brand awarenessBrand AwarenessBrand Awareness is a measure of consumer’s brand recall and brand recognition.read more may have a positive impact.

A brand extension can help a company diversify its products and acquire a larger market share if done correctly. Also, the increased awareness created by the second product may even help the company to sell more of its core offering.

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Examples

Let us consider the following real-world brand extension examples:

Example 1 – Amazon

Amazon started as an online bookseller in 1995. After that, however, it started selling other products online, such as toys, electronics, etc. Today, Amazon has one of the largest e-commerce platforms, and it deals with streaming, technology, and other services.

This report from Bloomberg portrays the company’s impressive growth from the beginning. It currently dominates 80% of the book sales online, 62% of toys, 51% office supplies, and 32% of food and beverages.

Example 2 – Apple

Apple initially worked only with computers. But one of its most well-known and earliest products was the iPod, which was essentially an MP3 player. The change happened when the market was changing rapidly, and Apple saw the opportunity to enter this new technology niche. This report from Statistica shows how successful the company was with the iPod, selling over 22 million units in the first quarter of 2009 alone. Moreover, it cemented the path to launching new products like the iPhone, which sold over 77 million units in the first quarter of 2018.

Example 3 – Starbucks

Another fine example is the popular American chain Starbucks. The company initially got famous around the world for its coffee shops. A few years later, it started to sell energy drinks as well. Energy drinks are naturally a different product from coffee and not something you would normally find at a coffee shop. However, the company used its popularity to sell something that could create a related effect. Both coffee and energy drinks are stimulants used for similar purposes. So the brand extension worked.

Types

Brand extensions can use customers’ expectations and tweak them in profitable ways. There are mainly eight types of brand extensions:

Brand Extension Types

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  • Current product form extension: This is the launching of an item similar to what was offered before but with brand new packaging. An example would be when Microsoft started to sell the Windows Phone. It’s the old Windows operating system, except for phones, not computers.
  • Extension of companion product: This is the launching of a product that goes well with an already established product. They will go well together and maximize the value of each other when used together. A company that sells ice cream could start selling fine chocolate flakes alongside, enhancing the taste of ice cream. The customers who already like the ice cream would probably enjoy the same with chocolate flakes.
  • Distinctive ingredient or flavor in a new product:  If a product is well-known for its flavor, customers would want it in other forms. An example would be a candy that is derived from Coca-Cola soda. Oreo flavored many different variants from the original basic cookie. Many eateries serve Oreo-based shakes, cakes, and ice-creams.
  • Designer image/status or Brand Distinction: Brands such as Armani produce luxury items. The company sells clothes and shoes, and other items, which put out a certain image and status symbol to someone when used together. What the extension offers, in the end, is a new way to use that image or distinction.
  • Extension of a benefit/feature: The new product offers something that the older product already provides in different shapes and forms. An example would be Starbucks selling both coffee and energy drinks, both stimulants.
  • Offering new products to the same customer base: : If a company sells expensive men’s suits, they can also sell expensive watches, as the people who may buy one could be interested in purchasing the other.
  • Utilizing similar expertise for extension: The company could use the expertise that it already has to offer new products. For example, Nvidia, a company that sells graphic processing units, also started to sell machines that can be used to mine BitcoinBitcoinBitcoin is a digital currency that came into existence in January 2009, speculated to be created by Satoshi Nakamato, whose true identity is yet to be authenticated. It provides lower transaction fees than the traditional online payment systems, is controlled by the decentralized authority, and is not like government-issued currencies.read more.
  • Vertical extensions: A business can offer something that it already produces in a more refined and finished form. For example, a company that produces plywood can also start offering chairs or other furniture, as it uses the same material.

Advantages & Disadvantages

To understand the brand extension meaning clearly, it is important to understand how it affects a brand both positively and negatively:

Advantages

Brand extension strategies are as varied as marketing strategies. However, they all follow the same concept: They maximize profit by leveraging existing reputation to back up the launch of a fresh and unknown product.

There are different brand extension strategies, so it’s important to know which project will positively impact the customer base. It requires extensive studies about the client base and the new product. A brand extension needs to feel natural to the customers, or it may alienate them and cause brand dilution.

Disadvantages

Brand dilution impacts a business negatively. Take, for instance, the case of Amazon. They already sold books online, and hence selling music was just another small step and a smooth transition. However, when they tried to sell their smartphone, the Amazon Fire Phone, a completely new product, the company failed miserably.

It wasn’t what people needed, and the only reason they launched it was that they wanted their clients to be on the platform all the time.

The company had a $170 million loss with the product, and it became a classic case of a brand extension failure.

Brand Extension vs. Line Extension

One should not confuse a brand extension with a line extension. In the first case, the company offers a new type of product that was not previously available under that brand. On the other hand, a line extension is launching a new product line from a product already on the market.

Brand Extension vs. Line Extension

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Let’s use an example to make it clearer. When Starbucks started offering energy drinks, it was an extension of the brand because now people will relate Starbucks to energy drinks and coffee. However, if the company had launched a new type of coffee, it’s still coffee. So, in this case, it’s an extension of the company’s previously available line of coffee.

Frequently Ask Questions (FAQs)

What is a brand extension example?

Some popular brand extension examples are companies like Amazon, Starbucks, Apple, etc. Amazon has used its brand identity to start selling new products online. Initially one of the top sellers of books online, Amazon gradually started selling other items like toys, electronics, clothes, etc. They are now one of the largest e-commerce platforms in the world.

Why is a brand extension a popular marketing strategy?

Brand extension is a powerful marketing strategy for an established brand. Since there are many options for a normal customer and shopping has to be done in the most effortless way possible, they tend to follow the brands that have already gained their trust. The brands can use this trust to introduce new products that will most likely be accepted.

Why do brand extensions fail?

Brand extensions that lack proper vision and strategy can fail. For example, a company selling clothes cannot just start selling electronic goods to their customer base one day. The brand extension should always be somehow related to the brand or the chain of existing products.

This has been a guide to what is Brand Extension. We explain it with examples along with vs line extension, types, advantages & disadvantages. You may also have a look at the following articles to learn more –