Line extensions (e.g. a new flavor of Crest toothpaste) and franchise extensions (e.g. Crest Whitestrips) are thought to be more affordable ways to introduce new products and have a higher success rate vs. creating completely new brand names. In this recessionary "do more with less" marketing era, brand extension strategies for new products become increasingly alluring.
However, brand extensions are not always a good idea. Through the years, I have been involved with forecasting the sales potential of hundreds (maybe thousands) of line and brand extensions and wanted to share what I think are some important insights.
Insight #1 - A brand extension strategy for launching a new product only works if your existing brand has high enough parent brand penetration.
In the early '80s, General Mills launched a new flavor of Cheerios called "Honey Nut Cheerios." Concept test results were good but not off the charts, yet when this new flavor was launched, it got an unpredictably high level of purchase trial given its modest advertising and promotion budget.
When I analyzed actual in-market results regarding trial rates for Honey Nut Cheerios and many other line extensions separately by those who bought the parent brand buyers vs. non-buyers, I found that parent brand buyers had a 2-6X HIGHER trial rate (e.g. 18 percent trial among parent brand buyers vs. three percent among non-buyers). The big factor was that the conversion of positive purchase intent into trial among parent brand buyers was much higher. In fact, the knife cut both ways; people who did not buy your brand were less likely to try the new line extension relative to their stated purchase interest than if it had a new brand name.
Insight #2 - Brand extensions that are not connected with the meaning of the base brand are destructive even though they might hit year one sales targets. That's why naming Spaghetti Sauce "Prego" rather than "Campbell" or calling a premium line of autos "Lexus" rather than "Toyota" made so much sense. It's also why I question Starbucks' instant coffee.
In concept testing, if positive purchase interest towards the new product isn't at least 30 percent higher among parent brand vs. non-parent brand buyers that means that your buyers are not seeing the connection between the new product and your existing brand.
Insight #3 - Emphasize brand-building (e.g. advertising, social media) to build the master brand and shopper marketing and couponing to sell the brand extension.
An extension of a brand someone buys enjoys instant credibility because users trust anything they connect with that brand. For new flavor and size line extensions you might not need anymore than to be visible in the store or offer a coupon. Because line extensions are bought out of acceptability, there is random component to whether they buy it or not. Therefore, the more SKUs your brand already has, the lower the trial rate will be among your own parent brand buyers.
Discussion Questions: What are some core strategies for launching brand extensions? Of the points brought up in the commentary, which do you think are most critical to success?