Established brand names are for many companies their most valuable asset. Names like Apple, Coke, Mercedes Benz and Marriott have had their financial value quantified, but to their organization, they are priceless. Brand extensions capitalize on this previously paid-for equity in these established names. The consumer awareness and goodwill inherent in brand names is an asset that can be leveraged into new categories.
New products using a well-known existing brand name offer the benefit of launching them at a much lower cost than if a new brand has to be established in the consumer’s mind. If the brand extension is a logical product coming from the company, it will already possess the trust and acceptability that a new brand would not have.
Theoretically, a brand extension should have a higher likelihood of succeeding than the same product with an unknown name.
A further benefit of brand extension is the positive synergies that can be created by umbrella advertising. Because the brand name is the same as the parent, advertising for both products help reinforce each other’s business. In effect, there are more dollars being spent on the brand.
Another benefit is the potential to reinforce the brand in the consumer’s mind. Duck is a brand of tape playing off consumer confusion of calling duct tape “duck” tape! By extending to other items that require adhesives, Duck brand extensions reinforce the parent brand.
Products in mature categories have a difficult time bringing any news to consumers in advertising. Brand extensions, however, offer a way to reinvigorate the brand with new news about a product previously unseen. The end result can often be an increase in sales for the parent product.
For example, what news is there to say about original Smirnoff Vodka? Their newer offering of Smirnoff flavored vodkas, Malt Liquor and Spiked Sparkling Seltzer brings such news. While these are all liquor products, they are in different sections of the store where the newer items compete with beer, malt liquor or even seltzer.
It is very difficult, expensive and risky for a company to enter well established categories where that company has no presence.
Brand names are one of the major barriers to entry blocking would-be competitors from entering a category. Because brand names are often the major barrier to entry in certain industries, they are also a means to entry through brand extension.