Brand Extension as a Competitive Threat

Brand Extension can be an opportunity or a threat.

So far, I have discussed Brand Extension as an opportunity. Many companies don’t see it that way. They have had some company they never thought of as a competitor enter their category with a brand extension and wreak havoc with their sales, profitability and even drive them out of business. For every brand extension mentioned so far which succeeded, some company’s brand in that category took a hit. For most brand extensions entering an established category, it is a zero-sum game where the brand extension gains their share of market from existing competitors.

Acquisitions and mergers have historically been the dominant way for a company to enter an established category. This did not bring a new brand into the category; just new owners of an existing brand. That process was expensive and time consuming. Brand extension changed all that. Since brands are the major barrier to entry in many categories, they became the means to entry for companies with a strong brand that brought leverage to the new category. Brand extension, in many cases has become a superior alternative to merger or acquisition in order to achieve diversification and growth.

Companies have always had threats from traditional sources such as competitors’ actions, a changing customer base, evolving consumer needs, new technology or new processes. But in recent years, brand extension has become one of the major threats companies face. The reason is that they don’t see it coming! Brand extension is a threat to any company because it may be used by a firm outside their industry that at present is not a competitor but could suddenly become one.

Look at the threat Amazon brought to brick-and-mortar stores. Many of the large bookstore chains such as Borders, Christian Family Bookstores and mom and pop bookstores have closed. They never saw it coming. Could these companies have survived if they had diversified using brand extension to enter other less vulnerable categories? Maybe, but they did not and as a result they closed their doors.

Today, many industries are susceptible to disrupters who want to shake up an industry that is stagnant and vulnerable. How do you defend against an unexpected competitor that suddenly enters your industry with a well-known brand name with leverage?

Analyze Potential Threats from Brand Owners Outside Your Industry

Unfortunately, companies are often myopic about would-be competitors that represent threats. They do not see total outsiders as potential rivals. The Swiss watch industry was impacted when Apple launched the Apple Watch; the ‘Do-it-All Swiss Army Knife’ of watches!

One way to defend against brand extenders is to predict and prepare for their potential entry.

There are three ways to Predict and Prepare for Brand Extension as a Competitive Threat:

• Analyze potential threats from brand owners outside your industry where their brand could have leverage in your category

• Diversify to avoid total vulnerability 

• Quickly copy and improve

Ask these questions:

• What are the companies that own brands that would bring a competitive advantage into our industry through brand extension?

• Are there brand names owned by other companies that could be used in our category where customers would want to buy them because of positive associations with their brand names?

• What is the likelihood that they might enter our business?

• What companies outside our industry are vulnerable, in decline and are searching for new categories to enter?

• What companies have a strong brand name that would have advantages in marketing, distribution, sales, etc. in our business?

• Looking at the ten types of brand extension, what brand names offer ingredients, features, benefits and the like that would bring advantages to a product or service in our industry?

Once potential entrants have been identified, develop a possible response that could be used to thwart them.

Example of a Brand Extension Threat Analysis

This hypothetical example uses Chloraseptic, a brand of sore throat spray and lozenges. The objective is to identify brand names that could be used successfully to extend into the Chloraseptic sore throat category and therefore could become potential competitors.

• First, a list of substitute products could be developed. 
• Then benefits, attributes and features of Chloraseptic and other brands that offer these same benefits could be listed. 
• This would become a list of potential competitors that might extend against Chloraseptic. The process can be enhanced by conducting consumer research to produce such lists. 

Examples of substitutes for Chloraseptic

Sucrets

Halls Cough Drops

Vicks

Listerine Lozenges

Coricedan

Benefits, attributes and features of Chloraseptic and examples of brands that deliver the same benefit in another category

• Numbing – Lydocaine
• Kills germs – Listerine
• Cold/allergy relief – Mucinex
• Cooling/soothing – Robitussin, Biotene
• Stops pain – Salonpas

This list of brands represents some that could be extended into the sore throat category and are therefore potential threats to Chloraseptic. What claims could be used by Chloraseptic against them? What advantages would Chloraseptic offer vs. each of these potential entrants?

Diversify

Companies in only one industry are always more vulnerable to extinction because of a lack of diversification. We speak in the past tense about Blockbuster, Kodak, Circuit City, Tower Records, Polaroid, and Blackberry among others. Had these companies extended into other categories, they might be in existence today. An important advantage to brand extending is the diversification it affords.

To illustrate how Chloraseptic could redefine their business to extend their brand, the previous list of benefits, attributes and features provides clues. Rather than defining their business as a product that relieves sore throat pain, they could redefine their business as products that help numb pain. What conditions occur where people would like to numb external pain: sunburn, skin rashes, scrapes, abrasions, scratches, shingles, etc. Chloraseptic could launch ‘Chloraseptic Numbs’, a cream that can be applied to the skin to numb pain. The diversification benefit is that sore throats occur infrequently and thus a bottle of Chloraseptic spray may last years; sunburns and the other skin pain conditions occur much more often and the brand extension could have significantly more volume of sales. Even if dilution occurred in the sore throat category, the additional business might be worth it.

Copy and Improve

Sometimes it is just impossible to foresee an outsider’s plans to enter another industry with brand extension. In that case, the best strategy is to quickly copy and improve. It is not always technology however that obsoletes a company, brand extension can do it too.

Clorox advantage of the association with bleach’s disinfecting power hurt Lysol as Clorox brand extensions were launched into what was Lysol’s almost exclusive terrain. Nevertheless, Lysol did copy and attempt to improve on Clorox offerings.

Sadly, many companies stay the course and hope that their way of serving consumers will prevail.