What is a brand extension strategy
A brand extension strategy entails using an established brand name in a new product/service category. Note that a new product/service category need not be related to existing products or services that the brand’s owner offers.
For example, Wipro was a brand initially associated with computers before it extended into the cleaning product category. Now, most people associate the brand with soap, detergent, and shampoo, i.e., products unrelated to the initial brand offering.
As revealed in the above example, implementing a brand extension strategy is to ease consumer adoption of a new product/service offering. Wipro embodies an ideal scenario whereby a brand extension strategy attains notable success in launching a product/service into a new market segment.
Significance of Brand Extension
Launching a new product/service in any market segment typically comes with a considerable risk of failure. In most market failure scenarios, the new product/service offering incurs a high CAC(Customer Acquisition Cost) compared to the offering’s customer LTV (Lifetime Value).
Market failure occurs when a new product/service offering fails to generate good customer adoption to recover the money and time invested in creating the product/service.
In this context, a brand extension strategy reduces the high CAC that typically accompanies the launch of a new product/service into a new market segment, i.e., the brand owner has little to no experience in the target market segment.
Brand Extension Strategy Scenarios
Beginning with the Wipro brand extension strategy example above, below are three viable scenarios for implementing a brand extension strategy.
Subsidiary Business
Creating a subsidiary business enterprise to a primary parent company to explore new product/service market avenues(i.e., new product/service categories) is ideal for applying a brand extension strategy.
The only condition is that the parent company possesses a considerable brand-specific market share in another product/service category, i.e., regardless of whether the product/service category is related or unrelated.
However, the likelihood of brand extension success depends on understanding the possible implications of extending the brand into a new related/unrelated product/service category.
New Uses and Applications
The emergence of new production/manufacturing/engineering applications of existing in-house techniques and new uses of primary raw materials and by-products describes another ideal brand extension strategy scenario.
As with a subsidiary enterprise, the first condition is that the brand owner possesses a significant brand-specific market share in another product/service category. Ultimately, success depends on a keen understanding of brand perception in the new product/service category.
Expansion of Product/Service Portfolio
The third and final ideal brand extension scenario revolves around a product development strategy that entails expanding a business’ product portfolio by making a foray into a new product category, i.e., launching a new product/service offering into a new or existing market segment.
As with the preceding brand extension scenarios given above, it is highly desirable that the portfolio already have a product/service offering with a significant market share. But as with the other scenarios, success depends on understanding consumer perception in the target new product/service category.
