Product extensions, on the other hand, are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. An example of a product extension is Coke vs. Diet Coke

A successful brand helps a company enter new product categories more easily.

Brand extension benefits:

• Brand extensions let a marketer take a brand with well-known quality perceptions and associations and put it on a brand in a new category. Not only can marketers capitalize on brand awareness, they can also leverage off of the associations consumers know about the parent brand.
• Second, consumers who favorably evaluate a parent brand are more willing to try and adopt the brand extension than an unfamiliar brand in the same category. They trust a known brand name.
• Brand extensions can also help a firm’s stock prices. Some academic research has found that Wall Street attend to brand extension announcements and that whether they like them or not depends on how much they like the parent band.
• Brand extensions can also help consumers understand the core meaning of the brand name.

One of the principal dangers of brand extension is that the parent brand equity may be diluted. If there is a misunderstanding of consumers’ perception of the brand, it could be moved into a sector that consumers view as “inappropriate.” Quite often the parent brand will have been available for some time, enabling it to build a level of equity and trust with consumers. It will have strong credentials. Over time, its marketing has sought to build and secure these credentials within its target market. An irrelevant positioning has the ability to undermine the parent’s credentials.

TippingSprung’s second annual survey of brand extensions, produced in collaboration with marketing newsweekly Brandweek, revealed which extensions are most effective, which have potential to dilute the brand, and what makes some brands more extendible than others. Major trends in brand extensions were also uncovered.

The Top Brand Extensions.

• best overall brand extension – Iams pet insurance
• best liquor brand extension – Starbucks coffee liqueur
• best co-branding/ingredient branding – The Motorola ROKR phone with iTunes
• best extension of a magazine onto new platform – hardcover books from O, the Oprah magazine
• most overdue brand extendion – The Tide to Go stain removal pen
• best furniture brand extension – Antiques Roadshow
• best extension of a not-for-profit – National Geographic

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[There are] two other sources of brand equity: a consumer’s perception that a brand is better than it really is (“attribute-based” equity), and nonattribute-based equity, for instance, a consumer’s preference for a brand based on the cachet of owning it. If you’re successful in these three aspects, an added benefit is that stores will feel a customer pull to carry your product, and so your availability and hence sales will increase.

Simple awareness ”getting the brand’s name to pop up in consumers’ minds”generates the largest return, followed by consumers’ responding to the cachet of owning the brand (nonattribute-based equity). Attribute-based equity trails in third place. This means that a brand’s image provides a stronger incentive for buying even than the perception that it is a better product. But greater awareness of your brand is the major component driving brand equity.

These are some extracts out of an interesting study with the title Calculating the Dollar Value of Brand Equity made by V.Seenu Srinivasan Professor of Management at Stanford Graduate School of Business along with Chan Su Park of Korea University Business School and Dae Ryun Chang Yonsei Business School. Read more about the study here.

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