Underlying Premise of Brand Extension:
In any organization, the opportunities for growth depend on how management defines what business they are in
The process of exploring brand extensions represents a reasoned approach for selecting new categories a company might enter with their brands. Inherent in this process is the identification and decision of answering the question “What business are we in?”
The heart of brand extension research is the effort to identify what business the brand is in from the perspective of the consumer. The objective of every brand extension research study is to uncover and articulate this definition of the business of the brand hidden in the mind of the consumer!
What Business are they in?
In 1960, Harvard professor Theodore Levitt highlighted this basic strategic question in his classic paper Marketing Myopia. He challenged management to think broadly about what was or could be their realm of domain. He pointed out the failure of the railroads to recognize they were in the transportation business. The result was missed opportunities.
Sometimes there are alternative definitions that are possible and management has to choose. Originally offering pens, Bic chose to define its brand as disposables rather than office supplies. So they extended accordingly. Management should make an implicit choice about this definition. This helps to focus brand extension activity. Unfortunately, some companies do extend indiscriminately. Note the extensive licensing activity of Sunkist extending to candy, soft drinks, vitamins, pistachios, etc.
When consumers are asked what business xyz brand is in, they draw a blank or just state the category. Consumers might say: Clorox is in the bleach business. Hershey is in the candy business. Duracell is in the battery business. Nestle is in the chocolate business. Dole is in the pineapple business. And so on….
However, when we research these brands we find a range of properties that are associated with them. Examples are things such as ingredients, benefits, attributes, expertise, etc. (See the section on the 10 types of brand extension.) Using our proprietary methods, we can discover what the brand “owns” – its extendable equity. Then we write a definition of the business of that brand. This definition usually contains issues relating to what the brand cannot be as well as what it can. The true test of the accuracy of this definition is that it allows us to predict with any new category whether consumers would find the brand fits there and has leverage. (See examples in our case histories). In almost every brand studied, there has been a difference – sometimes a huge difference – between what management thought the brand’s definition and boundaries were and how the consumer defined and set boundaries! The company that makes a product has one database from which it perceives its brand. The consumer has a far different and more personalized database that he or she uses to form impressions about the brand, its extendibility and competitive advantages.