Uses of Brand Extension Strategies

1 - PROBLEM AND ITS BACKGROUND

This chapter contains background of our study, statement of the problem, significance and delimitation of the study. Furthermore Definitions of the terms used in this dissertation are also explained in this chapter.

1.1 Introduction

One of the most famous strategies to leverage brand equity is brand extension. It is believed that consumers will favor new extension if new products are under the label of already established brand name.Familiarity and trust with the parent brand is one of the factor due to which companies hope that their consumers will react in a favorable manner. It is beneficial for the companies because of the positive association which consumers already have with the parent brand.

A brand is the identity of a specific product, service, or business. (Kotler 1996). Brand extension denotes to the corporate activity in which companies bring in new products, new product variants or product improvements by leveraging the brand equity of the existing parent brand.

It is believed that instead of establishing an entirely a new brand, extension of brands can be favorable for companies in terms of promotional and awareness activities, distribution, customer perceived risk in buying any product of service. (Keller, 2002) stated that another major factor for which Companies prefer to use brand extension is lower cost. Introducing a new brand into consumer market can be relatively much higher than introducing new product or product variants under the same brand name. This cost can range above millions of rupees and can not guarantee of any success. So instead of launching entirely a new product, most companies prefer brand extension. Successful examples such as Diet Pepsi and Diet Coke benefited from the brand franchise of their parent products. Coca-Cola introduced six extensions and captured a larger market share than the original brand. For example, Coke’s extension, Cherry Coke, was successful even without considerable advertisement.

Apart from benefits of brand extension there are some potential problems associated with brand extension, such as failure or semi failure of brands like brand dilution or brand cannibalization. Rather than success of brands, failed extension might maculate the parent brand name thus the result would be reduced market share of the parent brand. Brand association in terms of quality and consistency are crucial for any brand extension to be successful in the eyes of the consumers. Association with the brand is also dependent on consumers own values, preferences, taste, buying situation and manager should always focus on what these dependent variables are and when they come into action. Take an example of new Coke; Coca Cola did not pay attention to what the core brand meant to stand for. It mainly focused on the taste and thought that the taste is the only factor which consumers are looking for. This concept was wrong. Coca cola was unable to identify the attachment of the consumer with the original coke before launching New coke, even though Coca Cola spent a lot of money on conducting research before launching New coke.

Brand dilution occurs when consumers loss the original grasp of brand perception on their minds and no longer associate the brand with a specific product. For instance, Sunsilk may experience brand dilution by loosing its strong identity of hair care and shampoo range by running a number of different categories like mashed potatoes, powdered milk and soups. Too broad varieties of product categories run under same brand can frustrate consumers in thinking which variations of products that actually fit to their perceptions. For Example, too many ranges of Sunsilk shampoo include Sunsilk black, pink, white, yoghurt, dandruff can make customers confused in buying a suitable product which actually fit to their needs. Consumers these days have now become selective and demand innovative products. Those brands which are not unique or innovative in any means eventually got tarnished. Consumers do not prefer such extensions which do not offer any innovation or new features in extended brands. Consumers’ perception about parent brand and extended brand is one of the factors which may lead to either success or dilution of brand. Success and failure of brand is also dependent on familiarity with the parent brand and concept of fit between parent brands and extended brand. Brand loyalty by a consumer can be changed in case of brand extension. If brand extension is favorable it may lead to more loyalty towards the parent brand and if brand extension in unfavorable then the effect would be opposite.

As per early research regarding brand extension leads to brand dilution, Aaker and Keller (1990) found insignificant evidence between unsuccessful brand extension leads to brand dilution. Conversely, in a research (Loken and Roedder-John 1993) pointed that inconsistency of product and brand beliefs may lead to brand dilution. Brand dilution and failure of brand can occur when consumer find it difficult to associate the extension with the parent brand, a lack of similarity and familiarity and discrepancy between Integrated marketing communication messages. Brand extension is a strategy which most of the companies are using to minimize risk associated with introducing an entirely new brand and to maximize their profits from the new brand. But in some of the cases brand extension fails, and the reason is the weak brand equity of the parent brand that bears upon the success of the brand extension. If the equity of parent brand is strong, brand extension can be successful and vice versa.

Both Functional and non functional attributes of a brand can harm and eventually dilute the equity of an integrated oriented brand, which means due to the weak brand equity, brand dilution can occur across the parent brand. Such kind of failures of extensions can make customers to create a negative association with the parent brand or even with the brand family. These failures can also agitate and blur the original identity and meaning of a brand even positioning as well. Brand managers already know that there are some advantages and disadvantages associated with brand extension. Nevertheless couple of unsuccessful brand extension in past years was noticed. To be successful in brand extension knowledge related to brand extension should be refined.

Brand extension is successful or not is decided by what factors? One of the most important factors is concept of fit. Fit with the parent brand in terms of quality and image. It is customer perceived fit which plays an important role in making consumers to decide whether extended products are favorable or unfavorable. If fit between parent brand and extended brand is as per consumers’ perception then consumers will respond more favorably to that extension and if fit between parent brand and extended brand are not as per consumers’ perception then consumer will respond to that extension unfavorable and it might lead to the failure or dilution of the brand.

According to Martinez and de Chernatony (2004) brand image has two types: the general brand image and the product brand image. According to them there would be no negative impact on general brand image if the brand image is strong for example, Nike or Sony. Dilution effect would be more on product image instead of general brand image. Therefore, mostly the customers would stick to their beliefs about the parent brand with respect to its attributes and feeling. Nevertheless their study shows that “brand image can be diluted by brand extension, and beliefs and association with the parent brand can also be changed.

In Pakistani environment companies especially MNCs prefer brand extension because they consider it more convenient. Top most cause for this is that products from multinationals already have an image of developed countries. Due to the past record of products from these developed countries, consumers give them positive response. Due to the image of product from these countries in the mind of the consumers, less cost is incurred by the companies on creating awareness and communicating about the product message with the target audience. These products already have good market share and media coverage; therefore it becomes easy to launch brand extension in Pakistan for such companies.

1.2 Statement of the Problem

Since last couple of years, new product failure has been observed quite a few times. As a result companies now are relying on brand extension instead of launching new products. There are couples of other reasons instead of new brand failures, which companies consider for brand extension, such as low promotion and awareness cost, acceptance and less chances of being failed. Though these advantages are considered by companies to use brand extension as a part of their branding strategy, but apart of these advantages there couple of failed extensions have also been observed in last couple of years. Researchers are now focusing to identify the factors which are useful in evaluating brand extension and factors which play a role in either failure or success of brand extension. In this Thesis we will also try to find about the favorability or unfavorability of brand extension.

Most of the researches which were conducted to know about the favorability or unfavorability of brand extension were focused on consumers’ point of view about brand extension. But as a matter fact it is quite difficult for consumers to evaluate whether brand extension is favorable or unfavorable. They can not evaluate it in undifferentiated fashion (Aaker and Keller, 1990, Keller and Aaker, 1992; Dacin and Smith, 1994; Smith and Andres, 1995). Brand extension according to consumers’ point of view was taken into consideration many a times, but very low attention was given to the managers’ point of view about brand extension (Nijssen and Agustin, 1999).Managers’ point of view regarding brand extension can give an extensive knowledge about brand extension because of their deep analysis about consumers and competitors and their personal experiences about the market and the brands. Hence in this thesis we will focus on managers’ perspective about brand extension along with consumers’ point of view.

Both local and multi nationals are into brand extension from a long time. Such as Nestle , Pakola (Pakola, bubble up, Applesidra, double cola, Pakola milk), Sunsilk (Sunsilk black, Sunsilk white, Sunsilk pink, Sunsilk yoghurt, Sunsilk egg), Haleeb food Pvt Ltd (Milk, Juices, Cream, yoghurt), National Food (Pickle, salt, spices), Shan Food(spices, pickle, food), Unilever Pakistan (Lifebuoy, Soaps, Shampoo, Ice creams, Washing powder), P&G (Soaps, Shampoo, Ice creams, Washing powder) Pakistan By keeping above relation in mind, it will be beneficial to have brand managers’ point of view about the success or failure of brand extension.

1.3 Significance of the Study

The significance of this thesis is to explore the use of brand extension strategies in the Pakistan context. Whether the strategy of brand extension is favorable or not, or due to brand extension, brands gets diluted or cannibalized? Since brand extensions is one of the most popular strategies for leveraging brand equity, this study will also focus on brand extension effect on brand equity.

This thesis will focus on brand extension strategies of products from various companies which include Haleeb Foods Ltd Pakistan, Nestle, Pakola and Head & Shoulders. Various companies’ insights regarding brand extension will help us to study favorability or unfavorability of brand extension in a well manner.

We will try to achieve this purpose by answering the following research questions.

RQ1. What are the reasons to choose brand extension as a part branding strategy?

RQ2. Is brand extension favorable or Unfavorable?

Above mentioned two research questions were divided further into a set of questions. Purpose was to gain a deep insight to answer these two research questions. By answering above question, we will come to know whether brand extension is favorable or it leads to brand dilution, and whether brand extension is favorable for those companies who prefer extension and are involved in brand extension from couple of decades. We will also come to know that for what reasons companies in Pakistan are using brand extension, and whether brand extension is in accordance with the successful brand extension concept or not. This thesis will be beneficial in indentifying the success rate or failure rate of brand extension of those companies which have been chosen for this thesis.

1.4 Scope and Delimitation

This thesis focused on brand managers of those companies which are operating here in Pakistan. Only four products have been chosen for which research is conducted to identify whether brand extension is favorable or unfavorable. So the product range is limited to four companies only. Another limitation faced during the course of this study was that brand extension strategy for most of the multi national companies are crafted in their home country and then implemented here in Pakistan. Furthermore, Interview process is chosen to know about brand managers’ point of view about failure or success of brand extension. Out of 4 brand managers, 2 interviews were taken on telephone and 2 were taken face to face. Due to the limitation of telephonic interview, non verbal responses could not be gauged. Other limitation confronted during the course of research was the fact that majority of multinationals (MNEs) formulate brand extension strategies at their head quarters abroad. Lastly, we came to know that in Pakistan brand extension responsibilities is handled by marketing managers instead of brand managers in some companies.

1.5 Definitions

1.5.1 Brand

According to (American Marketing Association 2007 brand is: “A name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition”.

1.5.2 Brand extension

According to (Aaker 1991) brand extension can be defined as utilizing an already established brand to enter from one class of product category to another class of product category. (Kotler 1991) defined brand extension strategy as exploiting a well known and successful brand name either to launch a new or modified product can be termed as brand extension process. As per (Kotler & Armstrong 1990) defined brand extension strategy as an expansion strategy, where companies try to further extend their already established and well known brands into either different other categories or in same category with some modification.

1.5.3 Product Line Extension

(Kotler & Armstrong 1990) defined product line extension as a process of using already established brand name to introduce new items with some extra innovation or modification in the same category. For example Pakola has extended its soft drink named “Pakola” into Pakola raspberry, Pakola leeche, Pakola orange, Pakola lemon. (Aaker 1991) elaborates product line as line extension occurs in the form of introducing new items under the same brand name in the same category with some modification in flavors, colors, specification, ingredients and package sizes. Product line extension is somehow differs with brand extension because brand extension is about using an established brand name to introduce new product and brand in different categories, while line extension leveraging and established brand to introduce new products in same category with some improvements, modification and enhancements.

1.5.4 Brand Dilution

According to (Aaker 1991) brand dilution is depraving of a brand via its overexploitation. This failure of brand occurs when extension is done in a poor manner, or when a brand with poor equity is leveraged to extend it into different other categories. This failure can also occur when an extension becomes unfavorable in the mind of consumers. As per (Kotler & Armstrong 1990), unfavorability of a brand in the mind of the consumers can be due to lack of quality, over pricing, lack of consistency with the parent brand, lack of innovative feature and lack of trust. Brand dilution can be a disaster for a company. Companies use their well known established brands to leverage their equity and image to further extend it for entering into different market segments, which gives them a chance to earn higher profits. This can be true when parent brand equity is strong. But if equity of any brand is weak, then consequences might include dilution or failure of a brand.

1.5.5 Brand Cannibalization

(Kotler 1991) defined brand cannibalization as reduction in sales revenue and diminishing of share of market resulted as the introduction of new products in the same category For example, when diet coke was introduced by Coca Cola, sales for original coke diminished, but eventually it led in expansion of diet soft drink market. In case of Haleeb food, introduction of tea whitener diminished the sales of UHT milk, because consumers previously were using milk for making tea, but with the introduction of tea whitener, some consumers started to prefer tea whitener instead of milk, which resulted in cannibalization of milk category.

1.5.6 Brand Equity

According to (Wood 2000) brand equity can be defined as a profitable relationship between a brand and its consumers. (Kotler and Armstrong 1996) reported that it is quite difficult to measure equity of a brand. Yet a strong brand results in strong brand equity which can be leverage to extend into different other categories. Conversely weaker brand means weak brand equity which can result in failure if extended into different other brands. Strong brand equity may lead to achieve brand loyalty, quality, brand association and awareness. These benefits help companies to incur less cost on communication and awareness.

1.5.7 Brand Association

(Kotler and Armstrong 1996) defined brand association as refers to a degree where consumers discern a brand in rich fashion. Positivity of any brand depends upon how deeply that brand is penetrated in the mind of the consumers in positive fashion. Brand associations are the properties of a brand which consumers recall whenever brand is talked about. Consumer relates a brand name with its implicit or explicit meanings. Brand association can also be termed as the level to which a specific product/service is acknowledged amongst its product or service family. When choosing a brand name, it is important that the name selected must reinforce an essential dimensions and specification or benefit association that forms the position of a product.