When considering a product line extension what is one of the risks that marketers need to consider carefully?

A brand extension is when a company uses one of its established brand names on a new product or new product category. It's sometimes known as brand stretching. The strategy behind a brand extension is to use the company's already established brand equity to help it launch its newest product. The company relies on the brand loyalty of its current customers, which it hopes will make them more receptive to new offerings from the same brand. If successful, a brand extension can help a company reach new demographics, expand its customer base, increase sales, and boost overall profit margins.

• Brand extension is the introduction of a new product that relies on the name and reputation of an established product.
• Brand extension works when the original and new products share a common quality or characteristic that the consumer can immediately identify.
• Brand extension fails when the new product is unrelated to the original, is seen as a mismatch, or even creates a negative association.

A brand extension leverages the reputation, popularity, and brand loyalty associated with a well-known product to launch a new product. To be successful, there must be a logical association between the original product and the new item. A weak or nonexistent association can result in the opposite effect, brand dilution. This can even harm the parent brand.

Successful brand extensions allow companies to diversify their offerings and increase market share. They can give the company a competitive advantage over its rivals that don't offer similar products. The existing brand serves as an effective and inexpensive marketing tool for the new product.

Apple (AAPL) is an example of a company that has a history of effectively using a brand extension strategy to propel growth. Starting with its popular Mac computers, the company has leveraged its brand to sell products in new categories, as can be seen with the iPod, the iPad, and the iPhone.

Companies that are able to successfully extend their brand are often said to benefit from the halo effect, which allows them to capitalize on the positive perception consumers have of their products to launch new products.

Brand extension can be as obvious as offering the original product in a new form. For example, the Boston Market restaurant chain launched a line of frozen dinners under its own name, offering similar fare.

Another form of brand extension combines two well-known products. Breyers ice cream with Oreo cookie chunks is a matchup that relies on consumers' loyalty to either or both original brands.

Brand extension also may be applied to a different product category. Google's core business is a search engine, but it has an assortment of other non-advertising related products and services including the Play Store, Chromebooks, Google Apps, and the Google Cloud Platform.

In the best examples, the brand extension is natural and arises from a recognized positive quality of the original product. Arm & Hammer produces a deodorizing cat litter under its brand name. Black & Decker makes a line of toy tools for children. Ghirardelli Chocolate Company sells a brownie mix. The creation of complementary products is a form of brand extension. The many varieties and flavors of Coca-Cola are an example.

The cost of introducing a product through brand extension is lower than the cost of introducing a new product that has no brand identity. The original brand communicates the message.

However, brand extensions fail when the product lines are a distinct mismatch. The brand name may even cast a disagreeable light on the new product. Before launching a new product, brand managers need to keep their target audience in mind and consider which products fit well under their company's brand.

An example of an unsuccessful brand extension occurred in the early 1980s when popular jeans manufacturer Levi Strauss & Co. decided to launch a line of men's three-piece suits under the sub-brand Levi's Tailored Classics. After years of poor sales, the company discontinued the line. The company couldn't overcome consumers' perception of the brand as one associated with rugged casual wear and not business attire. However, Levi's learned from its mistake and in 1986 introduced Levi's Dockers, a line of casual khaki pants and other men's apparel that has since been a consistent top seller for the company.

Line extension and brand extension address the marketing of commercial goods. The brand refers to the recognized product or company name such as Kraft, Pepsi or Apple. The way in which the company expands its inventory determines line extension vs. brand extension.

Line extension refers to the expansion of an existing product line. For instance, a soft drink manufacturer might introduce a "Diet" or "Cherry" variety to its cola line, while a toy manufacturer might introduce new characters or accessories in its line of action figures. In short, line extension adds variety to its existing product for the sake of reaching a more diverse customer base and enticing existing customers with new options.

Brand extension refers to the expansion of the brand itself into new territories or markets. For instance, if a soft drink manufacturer unveils a line of juices or bottled water products under its company name, this would constitute an example of brand extension. The brand, or company, is an established name, and so the name alone can serve to drive customers to try new products completely unrelated to the older product lines.

A line extension can reinvigorate a product line, bringing it back into the public awareness by drawing new customers and higher profits. A brand extension can increase profits by allowing manufacturers to tap into new markets and offer increased diversity in their inventory. Line extensions and brand extensions both allow companies to promote new products with reduced promotional costs because the new lines or brands benefit from being part of an established name.

• larger shelf space presence
• more potential customers
• increased marketing efficiency
• increased production efficiency
• reduced promotional costs

There are two risks you need to consider before extending a product line or band. First, any time a company introduces a new brand or line, the company name could become tarnished if the product proves to be an immense failure. Consumers might feel less inclined to support the company's new products in the future.

Secondly, extending into a new product or service that doesn't suit your current offerings could cause an otherwise great product to fail. Consider Volkswagen's failed attempt to extend it's popular, generally affordable, brand into the luxury car market with the VW Phaeton. Nobody bought it. As DriverTribe reminds us, this was primarily because the logo didn't fit the new brand. In this scenario, a better role model would be Lexus. Before launching Lexus, its parent company knew that connotations toward their current line of cars would not go well with the luxury car market, which is why so few people even know Lexus is owned by Toyota.

Brand extensions have been the core of strategic growth for a variety of firms during the past decade. The power of such a strategy is evidenced by the sheer numbers. Each year from 1977 to 1984, 120 to 175 totally new brands were introduced into American supermarkets. In each of those years, approximately 40 percent of the new brands were actually brand extensions. In 1986, over 34 percent of apparel and accessory purchases involved licensed names, and these were only part of over $15 billion in retail sales of products using licensed trademarks or brand names.1

The attraction of levering the brand name is powerful — often irresistible, when the alternatives are considered. The cost of introducing a new name in some consumer markets can range from $50 million to well over $100 million. And even such spending levels do not guarantee success. In fact, the percentage of new products that are successful is not at all reassuring. In contrast, using an established brand name can substantially reduce the introduction investment and increase the probability of success. A study of 7,000 supermarket products introduced in the 1970s found that fully two-thirds of the ninety-three products that grossed over $15 million were line extensions.2

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The most real and marketable assets of many firms are the brand names they have developed. Thus, one growth option is to use those assets to penetrate new product categories or to license them to others for use in new product categories. An-other option is to acquire a firm with a brand name that can provide the platform for future growth via brand extensions.

However, this strategy has its drawbacks. A brand name can fail to help an extension or, worse, can create subtle (or sometimes not so subtle) associations that hurt the extension. Worse still, the extension can succeed, or at least survive, and damage the original brand by weakening existing associations or adding new, undesirable ones. Because the extension can dramatically affect a key strategic asset, both in its original setting and in the new context, the wrong extension decision can be strategically damaging.

This article is an overview of the brand extension decision and its possible outcomes — the good, the bad, and the ugly.

David Aaker is J. Gary Shansby Professor of Marketing Strategy at the Haas School of Business Administration, University of California, Berkeley. He holds the B.S. degree from MIT and the M.S. and Ph.D. degrees from Stanford University. His research interests include branding, business strategy, and advertising. He is the author of Managing Brand Equity, which will be published in early 1991 by The Free Press, and Developing Business Strategy (2d edition, John Wiley).

1. See A.C. Nielsen, Testing Techniques 1, No. 1 (1985), p. 3; and L. Kesler, “Extensions Leave Brand in New Area,” Advertising Age, 1 June 1987, p. SI.

2. E.M. Tauber, “Brand Leverage: Strategy for Growth in a Cost-Controlled World,” Journal of Advertising Research, August–September, 1988, pp. 26–30.

3. B. O’Reilley, “Diet Centers Are Really in Fat City,” Fortune, 5 June 1989, p. 137.

4. Tauber (August–September 1988).

5. D.A. Aaker, “Managing Assets and Skills: The Key to a Sustainable Competitive Advantage,” California Management Review, Winter 1989, pp. 91–106.

6. D.A. Aaker and K.L. Keller, “Consumer Evaluations of Brand Extensions,” Journal of Marketing January 1990, pp. 27–41.

7. M.W. Sullivan, “Brand Extension and Order of Entry” (Chicago: University of Chicago, Working Paper, February 1989).

8. Landor Associates, The Landor ImagePower Survey, 1988.

9. H.J. Claycamp and L.E. Liddy, “Prediction of New Product Performance: An Analytical Approach,” Journal of Marketing Research, 9 (1969): 414–420.

10. A. Ries and J. Trout, Positioning: The Battle for Your Mind (New York: McGraw-Hill, 1985).

11. W. Kennedy, “MarketingSolutions,” Adweek’sMarketing Week, 2 January 1989, pp. 44–45.

12. J. Rossait, “Can Maurizio Gucci Bring the Glamour Back?” Business Week, 5 February 1990, pp. 83–84.

13. Landor (1988).

14. K.L. Keller and D.A. Aaker, “Managing Brand Equity: The Impact of Multiple Extensions” (Berkeley: University of California, Working Paper, February 1990).

15. M. Sullivan, “Measuring Image Spillovers in Umbrella Branded Products,” The Journal of Business, July 1990, in press.

16. E.M. Tauber, “Brand Franchise Extension: New Product Benefits from Existing Brand Names,” Business Horizons, March–April 1981, pp. 36–41.

17. Sullivan (1989).

18. For more on creating brand equity, see D.A. Aaker, Managing Brand Equity (New York: The Free Press, 1991).

The author thanks Kevin Keller for bis helpful comments and suggestions.