Leveraging programs, products, and services is a tremendous opportunity. Deriva- tives or spin-offs can expand your reach, while enabling you to meet your mission and margin objectives. They can even outperform the parent product (see my December 1998, March/April 1999, and June 1999 columns). But, while extensions often seem like a safe bet, the odds of winning may be longer than they look.
Introducing a new product is risky; 80 percent fail in a few years. The risks include channel conflict, cannibalization, and cognitive dissonance. If the core benefit of the branded product cannot be transferred to the new product class, brand extensions will not succeed and may even harm your parent brand.
Brand Elasticity StretchesOnly So Far Brand extensions run the risk of spreading the assets of a brand too thinly and thus diluting the perception of the brand among prospects and customers.
A common misjudgment occurs when the brand extension works against the original positioning of the parent brand. This mistake results in cognitive dissonance. Such was the case when Levi's attempted to introduce a line of men's business attire. Likewise, if Volvo launched an inexpensive, small, lightweight car, would the brand be affected? You bet! Brands can be damaged if their organizations create extensions that are inconsistent with the established associations in the consumer's mind.
Another mistake called channel conflict occurs when the wrong medium is used to deliver a message. One example might be the use of distance learning to deliver active or case-based learning. Cannibalization occurs when the brand extension takes market share away from the original branded product, program, or service.
Don't Commit an Unnatural Act Before introducing brand or line extensions, consider these four core questions:
1. Are you in a transition market? Because line extensions provide aligned diversification, they can be a strong hedge when markets are shifting. For example, when customers are abandoning traditional product categories or changing the way they buy or use products. In the education and training fields we see a case in point with the evolution toward alternative delivery methods and distance learning.
2. Do you have a power brand capable of being leveraged? Rarely will extensions bail out a brand in trouble. To the contrary, extensions can dilute a weak brand by diverting resources and attention away from the core product. In a study by McKinsey & Company, the consultancy concluded that the fewer products an organization offers, the more likely it is to be successful. Collaborating these findings are those of Hermann Simon; his study of market leaders found that most had very narrow product lines.
3. Can you support the diversification? While there are economies of scale to be realized in the production,, and distribution of related programs, products, and services, it is a mistake to believe you can support two or more related brands for not much more than it takes to support just one.
4. Are the extensions consistent with the parent brand? Some line extensions appear to be a perfect fit, while others are a real stretch. In either case, I recommend you put your extension to an elasticity test: Simply ask prospects, customers, and other stakeholders what they think about the proposed extension. Ask them if it fits your brand's image, doesn't fit, or perhaps even makes people feel worse about your brand.
If you cannot answer yes to at least three of the four questions for a proposed brand expansion, you may wish to modify or abandon your plans. In so doing, you may just save yourself from committing an unnatural act.