Is There a Way to Improve Success in Brand Extensions?

CHALLENGE:
To paraphrase Ohio State Football coach Woody Hayes, “Three things can happen in a brand extension, and two of them are bad.” If a brand extension is too similar to the existing product, cannibalization occurs. If a brand extension is dissimilar enough to avoid cannibalization, the extension will be unable to exploit the equity in the existing product. Is there an answer to this dilemma? One solution is to extend along the existing brand’s personality dimensions but outside the product category. An example is Porche’s extension into eyewear and watches.

HOW THEY RESEARCHED IT:
Rajeev Batra and Peter Lenk from the University of Michigan, as well as Michael Wedel from the University of Maryland, conducted two studies measuring the “atypicality” and “fit” between brands and brand categories. “Atypicality” is the degree to which the associations and imagery of a given brand extend beyond its product category; brands that are perceived more broadly receive higher atypicality scores. “Fit” is described as the extent to which perceptions of a brand correlate with perceptions of a potential brand extension category, wherein a high correlation indicates a better fit. The first study used a national sample of 200 consumers from an online panel. Participants were asked to rate ten brands from each of three categories (cars, jeans, and magazines) on five dimensions (sincere, exciting, competent, sophisticated, and rugged). The second study assessed the levels of atypicality and fit for the 30 aforementioned brands based on category perceptions created from brand data and the researchers’ own statistical model.

WHAT HAPPENED?
Results suggest higher “atypicality” scores indicate a better candidate for brand extension, however the evidence is not conclusive. Still, one positive example is Porsche, which has an exceptionally high atypicality score and fits with multiple other brand category perceptions, has successfully extended into markets such as eyewear, briefcases, and watches, and is a strong candidate for further expansion. The better generalized finding is that brands with higher “fit” scores are more likely to succeed as brand extensions. For example, whereas GQ, Polo, Gap, Honda, and VW are all companies with high atypicality scores, each “fits” with the imagery of another category, suggesting that GQ could succeed extending into the jeans market, Polo and Gap could license or brand cars, and finally VW retains the image acceptable to launch a magazine.

WHY MANAGERS SHOULD CARE:
Companies invest considerable time and money researching, testing, and surveying consumers regarding potential new brand extensions. The statistical model created through studying atypicality and fit scores reduces the need for managers to imagine all possible brand extensions. As opposed to polling consumers on their reactions to extensive lists of hypothetical products, company research can instead ask consumers about their perceptions of current brands. Results can then be used to find the category with the “best fit” to those associations. Atypicality and fit scores also provide managers the ability to generate brand extension combinations that are more likely to succeed – especially relevant as the current rate of brand extension failure is estimated at 70%. Though the inherent knowledge covered in the research is not new, it is “the first to apply a statistical model that draws on established-brand imagery data to strategically generate ideas as to which brands have the greatest potential for succeeding in an extension, co-branding, or licensing.”

CAN YOU HELP:
Comment back by describing any successes or failures your company has had in creating brand extensions. Do the results fall in line with your personal experience in brand extensions?
From: Rajeev Batra, Peter Lenk, and Michel Wedel, “Strategic Planning of Brand Extensions Using Fit and Atypicality Measures” 2009 (MSI Report No. 09-111)