Companies often use the strategy of brand extension when launching new products. A majority of the marketing managers think that it makes sense to extend and transfer the equity of their established brand than to launch new ones. Nonetheless, a large number of brand extensions have proven to be miserable failures. The Cover Story focuses on the strategy of brand extension, and the factors responsible for its success. It also discusses the fortification process of parent brand equity through its brand extension strategy.
The ever-changing marketplace dynamics, increased competition of the global economy and the evolving customer needs and preferences have amplified the role of brands to an unmatched level. Companies frequently launch new products to meet the above challenges. Launching new products is an attractive and proven growth strategy, but not without risk. According to Booz-Allen and Hamilton, more than 30-35% of all new products fail.
However, others estimate that only about 10% of new products introduced, succeed in the marketplace. Adding to this, the changing market characteristics, the rising promotion costs and tussle for the retail shelf space make it more difficult for new products of companies to succeed and garner a profitable market share. An increasingly popular approach that companies follow to reduce risk during new product launches, has been to leverage on the equity of the existing brand. The two most common approaches to leveraging the equity of the established brands are line extensions and brand extensions. Line extension is the use of an established brand name for a new product in the same product category. The new product is different from the original product in relatively minor ways like composition, price, size, etc. On the other hand, brand extension refers to stretching the brand name into different product categories. |
