Brand extensions – when to extend and when not to?

This article is based on Jean Noel Kapferer’s note on “Extension strategic evaluation
grid” [“Strategic Brand Management”, 4th edition]. Kapferer gives a check list of factors
that impact the success of brand extensions. Each of the factors (listed below) is
explained with suitable illustrations. Please note that while this article gives different
examples for each of the factors, the factors themselves have to be taken into account
collectively to assess the potential attractiveness of a brand extension. The article is
best understood when the examples are read in conjunction with the ads/references
cited about at the end them in the end.

Factors that impact the success/failure of brand extensions

Is it a growing market?

Are its success factors close to our strengths?

Are the brand assets transferable?

Are the brand assets still assets in this market?

Will it impact positively the brand equity?

How entrenched are competitors?

How fast can they copy?

Does the product have a clear differentiation?

Is it a motivating difference?

Can the company produce it?

Can it produce at a normal cost?

Will distribution accept it?

Is it consistent with brand or company identity?

Does it capitalise on the brand or company’s present customers?

Is it consistent with the brand or company’s positioning?

Does it capitalise on the company’s expertise in:

– production?
– advertising?
– logistics?
– sales forces?
– retail location?
– pricing/promotion?

Does is meet the company’s profitability objectives?

Can the company sustain competition

(does it have the financial resources needed to compete)?

The illustrations for each of the factors follow. In some cases there are illustrations of
both successful and unsuccessful extensions for the same factor.

Is it a growing market?
Not all markets grow. For instance, talcum powders market in India is stagnating
because of the assault of low priced deodorants. Markets for some other products are
growing but not as fast as expected. The washing machines market is growing much
more slowly than TVs. The penetration of washing machines in India is 8.8% while that
of TVs is 60% [1]. It will take a long time for washing machines in India to reach global
penetration levels while TVs will do so in a decade possibly. Penetration of
airconditioners is much less than even washing machines. Similarly some segments
that were expected grow failed. Tea bags have a market today, two decades after they
have been introduced. By contrast coffee bags failed. So a tea bag brand like say a
Lipton may not find it attractive to become a coffee bag brand. Some markets might be
growing but not as rapidly as one would wish them to. Frost free refrigerators are
growing much more slowly than expected. After more than 2 decades of introduction
they contribute to 30% of total refrigerator sale. This is why many Indian brands that
tried to extend from TVs to appliances like washing machines were not very successful.
By contrast shampoo sachets grew to contribute to more than half of shampoo market.
Therefore, while the brand might have a natural fit with the category of extension, the
category itself may not be growing.

Are its success factors close to our strengths?

A brand like Tata can in principle extend to any category. However the strengths
needed in that category might be very different from the ones that big corporations
possess. Consider bread for instance. The category has attracted several big players
including Britannia. Tata might enter bread and nobody will be surprised. But bread has
traditionally favored local brands. It is difficult to keep bread fresh for long periods.
Therefore local entrepreneurs tend to fare better. Similarly not many multinationals have
been successful in the masalas market. Even if the market is growing, the success
factors required may be very different from the ones the company or the brand
possesses.
Are the brand assets transferable?
The brand has certain strengths. Can these be transferred into the catgory of
extension? Not always. For instance Lux entered shampoos. While Lux’s equity is that
of skin care, shampoos is more about hair care. The extension did not work. Similarly
Ponds entered every other consumer product category. Their foray into toothpastes was
a failure. Not many customers could imagine a skin related product in their mouth
(though initially the brand did get traction). Similarly they entered premium soaps and
shampoos markets. In neither of the caetgories were they successful. Fastrack the
youth watch brand from Titan entered helmets. Again one is not sure of its success.
Fastrack, the brand does have a modern, young connotation. But for the same reason it
is also seen as somewhat rash (being a youth brand). Is a “rash” brand likely to do well
in helmets? Helmet brands need to connote safety (just the opposite of rash).

Are the brand assets still assets in this market?

A brand is known for something. Is that strength relevant now? This question is
important in technology intensive products. Brands can be reduced to zeros due to
developments in competition, technology and environment. Can a newspaper reinvent
itself as a successful online brand extension? Both are news, but the skills needed to
run the two businesses are different. Similarly can a well known retail chain extend into
an online retail shop? Conversely can an Amazon become successful as an offline
store? The mechanics of the two businesses are very different. Brick and mortar retail
stores need a lot of smart management of front end for the customers. Also there are
problems like pilferage, power availability, maintenance and handling a large number of
store employees. The challenges in online business are different like scale, technology
backend, user interface and logistics. So also a brand might have been very famous in
the past. Is its past fame relevant today? For instance Dunlop was a well known tyre
brand in India. Today other brands have dwarfed it. Will it be able to extend into any
related product category today when the parent itself is weak? Another possibility is the
technology being no longer relevant. Reproduction of printed material was done in
several ways in the past. For instance cyclostyling. That technology is dead, thanks to
photocopying and scanning. That is probably why the brand name Gestetner which was
a big brand in cyclostyling vanished when technology moved to other forms of
reproduction.

Therefore 3 changes might render a brand’s assets irrelevant in a market – i) the skills
from one domain may not extend to another domain ii) past fame need translate into
future brand extension potential iii) technology might make the brand irrelevant in a new
category. Consequently the brand will not be able to use those assets or skills to
extend.

Will it impact positively the brand equity?

Some brands may not want to stretch into other categories even if it is profitable. For
instance though it might be profitable it is unlikely that Tatas enter liquor or Mahindras
enter cigarettes.
How entrenched are competitors?
While the market might be attractive, competition might also be very strong. For
instance very few multinationals that extended into ethnic product categories have done
well. Maggie entered pickles and withdrew. Lipton entered several product categories
including Flora oil before it was taken over by Unilever. It withdrew from all of the
categories. Can a new competitor enter the telecom service provider market today? The
existing players are dropping prices aggressively. What is the possibility of a newplayer
succeeding in this market? There are 24 competitors in life insurance business in India
today. How many of them will survive? Some of them like Exide have extended from a
parent category that is very different from the new extension. HDFC and Max life have
already planned merger. Many of them are likely to sell out. Most competitors are
finding it difficult to compete with the entrenched incumbent LIC. Thus while a market
like insurance can look attractive prima facie, competitors can make it unattractive.

How fast can they copy?

Success - 1.Vim dish bar to liquid dish wash
Vim as a Unilever brand has been in existence since 1885 [2]. But it was predominantly
a cake. In the dish washing cake or bar market it has a dominant market share [3]. Pril
from Jyothy (Henkel) introduced the liquid version for dish washers in 2003. But since it
was expensive it did not have great volumes. However the segment is growing rapidly
now. This is a transition due to growing incomes (A similar thing happened in the past
when customers upgraded from powders to cakes). Vim launched its own liquid
detergent version, as a counter, but withdrew it in 2003. A reconfigured Vim was
launched in 2006 with celebrity endorsement [4]. It is doing much better now. But there
is now a new competitor that Vim has to contend with namely Dettol. Nevertheless,
today thanks to its own liquid version Vim is back in action. It shares honors with Pril in
the liquid dish water category.

The Vim episode has interesting lessons for the brand extensions. Firstly if a brand is
strong in a certain product category it need not be perceived as strong in a new product
form of the same category (just as Vim is the leader in cakes, Sabena is a big brand in
powders and Pril a pioneer in liquids). Comeptitors do not necessarily copy the same
product. They may launch a similar product in a different form. This would in fact be
more than just copying. This would be innovating in a product category. So a product
pioneer must be perpetually ready to compete with substitutes. If it does not, it may lose
custom. Further the product form launched by competitors might change the complexion
of the market. For instance, it is clear that the market will keep growing for liquids and
will eventually plateau for cakes. In most consumer products copying is easy because
the products are not significantly different. Therefore copying by competitors is a strong
possibility. It is difficult to stop competitors from entering rapidly growing categories. It is
therefore advisable to launch new product forms through extensions to avoid
competitors.
Moderate success - 2. HUL Fair and Lovely women fairness cream to Fair and
lovely Max Fairness for men.
After Emami Launched Fair and Handsome fairness cream for men, HUL also entered
men’s fairness cream segment with Fair and Lovely Max fairness. But Emami continues
to lead with a market share of 57.5%, where as HUL’s two brands i.e. Vaseline Men and
Fair and Lovely Max Fairness together have 30% market share in men’s fairness
category. Thus HUL did manage to make a dent in the market with its brands. But it
could not overpower competitor Fair and Handsome [5].
Failure - 1. Godrej No. 1 soap to Godrej Fair Glow fairness cream
HUL's Fair & Lovely, with a 60 per cent share, is the current category leader according
to ORG-MARG data. Fair Glow cream has been launched several years back but has
not notched up big market share. Thus copying a competitor does not automatically
mean success.

 Does the product have a clear differentiation?

Success – 1. Marico’s Saffola cooking oil to Saffola oats
Saffola oil has successfully communicated to its customers that it is good for heart.
Eventually it launched several products like salt and oats leveraging its “health”
positioning. In fact Saffola has a separate web site Saffolalife that showcases the
benefits of a low cholesterol lifestyle. Saffola entered the oats category in 2010. Several
multinationals have tried to establish a presence in oats like Kellogg’s. Saffola has
however managed to grow rapidly with its masala oats which were positioned as healthy
as well as tasty through the slogan “Majeedar Khao Jeebharke”. Thanks to the clear
differentiation Saffola Oats grew into a Rs 100 crore brand [6].

 Is it a motivating difference?
Success – 1. Colgate to Colgate Cibaca Vedshakti
Colgate launched Cibaca Vedshakti basically to arrest the growth of Patanjali’s
Dantkanti (just as it launched Colgate Sensitive to counter Sensodyne). Patanjali’s
brands caused considerable worry to Indian and multinational competitors. Patanjali
grew into a Rs 5000 crore company in ten years. While Colgate did lose market share to
Patanjali, it managed cut its loss due to launches like Vedshakti. The motivating
difference in this case is that Vedshakti is close to a third cheaper than Dantkanti.
Colgate has mastered the art of launching near substitutes for all new competitor
products. These sub brands offer enough motivation to customers to come back to
Colgate [7].
Modest success -1.ITC Sunfeast biscuit(2003) to Sunfeast Yippee noodles(2010)
Maggi comes in rectangular shape and for cooking it needs to be broken into pieces.
Yippee comes in round shape that easily fits into a vessel. Also Yippee positioned itself
as non sticky noodles. It steadily increased its market share from 0.7% in the year of
launch 2010 to 10.8% in 2014 (Euromonitor International). The ban of Maggi noodles
came as a godsend. By Dec 2015 Yipee increased its market share to 28.5% [8]. The
lack of availability of the leader coupled with a differentiated product led to a spurt in
Yippee’s market share.

 Can it produce at a normal cost?

Success-??? Tata from lorries to LCVs to cars
Tatas steadily moved from lorries thro’ LCVs and MUVs to cars. It is difficult to say they
were successful in all these ventures. In fact despite being pioneers they eventually lost
to competitors. For instance, Mahindra, which entered utility vehicles after Tatas raced
past them with their Bolero, Scorpio, Xylo and the like. Tatas’ cars business is also not
very profitable generally. But their acquisition of Jaguar Land Rover (JLR) worked in
their favor and made Tata Motors, the parent profitable. However, JLR doesn’t carry
Tata brand name. The key to Tatas’ ability to enter many of these product categories is
their low cost of manufacture. They could produce tooling at a fraction of the cost of
their multinational counterparts and therefore were able to compete in many automobile
categories. In several segments of HCV and LCV vehicles they are still leaders though
not in multi utility vehicles and cars.
Failure – BPL from TVs to appliances, power, telecom etc
BPL is a throwback to a liberalizing economy in its early years. At that time, production
costs were predictable because they were protected by high tariffs. As the market
evolved and duties went down with the progress of globalization, Taiwan and other
countries started producing consumer electronics much cheaper. Besides as technology
evolved the key to success lay in innovative products. The Korean multinationals
Samsung and LG launched cutting edge products and proved to be more than a match
to their Indian counterparts. Production capabilities of a limited range which were a big
help at one time in entering several product categories were of no use in the new
millennium.

 Will distribution accept it?

Success-1. Himalayan mineral water
Himalayan, the mineral water brand promises pure water tapped from Himalayas. It is
also backed by the Tata brand name. Moreover it entered into a distribution tie up with
Pepsi. Given the brand and the product pedigree, Pepsi agreed to distribute. Tata is
responsible for product development and Pepsi for distribution. Because of the synergy,
Tata’s Himalayan is a leading premium mineral water brand in India. A similar
partnership with greater synergy was struck between Tatas and Starbucks. Starbucks
leverages on Tata’s distribution strength in India. Himalayan, the Tata brand will be
distributed by Starbucks in US and UK [9]. Tata managed therefore to secure a
stronghold in India as well as a foothold in the West thanks to the favorable reception
from distribution.
Failure? – 1. Britannia Biscuits to other food products.
Britannia is one of the leading biscuit brands in India. It extended to cakes, breads, dairy
products etc hoping that its strong distribution network will help push its brand
extensions. But distribution alone is not enough to make brand extensions successful.
Britannia had to close its Daily Bread bakery outlets in Bangalore. Its dairy business
contributes to a very small portion of its overall revenue despite several years of effort.
Its earlier attempts to sell the Milkman range dairy products ended in losses. Dairy
needs big investments upfront. Therefore while distribution is necessary, it is not a
sufficient condition for success [10].

 Is it consistent with company & brand identity?

Success - 1. Park Avenue clothing to men’s grooming
Park Avenue targets the men’s grooming market. It offers the entire range from clothing
(shirts, T-shirts, suits, innerwear, trousers, jeans etc) to toiletries (deodorant, perfume,
body spray). In some categories of men’s products it has been fairly successful. Its
deodorant scored a suprising victory over Axe deodorant. Axe’s “chick magnet”
positioning was strongly challenged by Fogg’s functional pitch (“no gas”). Axe was
already pushed to #2 position by Fogg. Park Avenue pushed it further to third [11].
Men’s toiletries are generally about being attractive to the opposite gender. Park
Avenue deodorant however is positioned on men “feeling good about themselves”. This
is in line with the parent category’s positioning. Therefore Park Avenue is likely to do
well in other men’s grooming products as well.
Failure –1. Coke to Coke Vanilla
“Wakaw” was the promotional acronym for Vanilla Coke. Vivek Oberoi’s retro ad, in a
throwback to Elvis Presley, Lambe scooter, spoofs of Jeetendra songs and R D
Burman’s numbers tried to sell the story of Vanilla Coke [12]. In other words there was
an attempt to position it on nostalgia. Several reasons led to its failure. i) It did not
connect with the parent ii) Not many consumers were excited by the taste (cola that
tasted like ice cream) iii) Young consumers didn’t vibe with the retro ads. It fared well in
Asia Pacific markets but didn’t take off in India [13]. This is true of most of Coke’s
extensions. Several of them like New Coke bombed because customers do not want
Coke to stray too far from the parent’s positioning.
-Advertising?
Success – 1. Dove cream soap to Dove Shampoo
Dove launched by HUL in 1993 was priced at double that of an ordinary soap. It
innovatively used ordinary women to model for the soap. The communication
highlighted the fact that women are more beautiful than they think. The essence of the
campaign was “be yourself”. Encouraged by the response to the soap, Dove entered
other personal care product categories like haircare in 2007. By 2009 the soap clocked
a revenue of Rs 250 crores. Hair care within a couple of years reached a similar
number. The thematic advertising of the brand enabled HUL to communicate the same
message across several product categories and paved way for its success [14].
Today it is a 1500 crore brand spanning several personal care product categories for
women spearheading the premiumization effort of HUL [15].

-Pricing/promotion?
Success – Tata steel premiumization
Tata steel premiumized its offerings through Tata Steelium (cold rolled steel), Shaktee
(corrugate galvanized steel for rural housing) and Tiscon (construction steel). This is
one of the few attempts in India at b2b branding. The extent of success was, of course,
different in different product categories. The most successful was Steelium cold rolled
(CR) steel where Tatas could charge a premium of upto 25%. Steel produced from
ingots and billets is first converted to sheets through a process called hot rolling. This is
followed by cold rolling to impart strength to steel. Major applications of CR steel are
bodies of automobile, washing machines and refrigerators. Prices of commodities could
be trading weak due to global recession. Steel prices might have therefore fallen. But
Tatas did manage to establish a brand and thereby charge a premium in CR coils.
Tatas could premiumize their steel because, at every stage of production their process
and output was superior to that of competition. The reasons for claiming premium are i)
the genuineness of the Tata brand ii) better adhesion of paint iii) glossier looks iv)
reduction in effort, investments and input [16].

 Does it meet the company’s profitability objective?

T-Series – success and failure
Super Cassettes, the firm that owns the brand T-series is an object lesson on when
brand extensions are profitable and when they are not. T-series began its music venture
by exploiting gaps in the law. It sold music cassettes of popular Bollywood film numbers
sung by unknown singers cheap. This proved to be a big hit. Then followed the
diversification into consumer products and electronic products. Apparently this did not
work because we do not hear of any of those any products today. In the music market
itself, it however successfully diversified into non-film music (devotional music, Indian
pop music albums). Further it picked up music rights for films, went digital, partnered
with Youtube to fight music piracy and eventually entered film making. In almost all
these endeavors the company was profitable. Super Cassettes today owns more than
one third of the pie in Hindi film music. All these moves singlemindedly improved the
profitability of the company [17], [18]. However, in unrelated brand extensions like
consumer products and electronics it failed.
  Can the company sustain competition (does it have the financial resources
needed to compete)?
Failure? - Birla from rayon into tyre
Kesoram Industries started with textiles and entered rayon (1959) and tyres (1991)
with the brand name Birla. This expansion was funded by debt. By September 2014
the debt ballooned to close to Rs 4500 crores though the company itself was valued
at half that number. This naturally prompted asset restructuring. While Birlas have
not indicated their intention to exit tyres business, they did sell their Uttarakhand tyre
plant to JK tyres. They also restructured their rayon business which is much smaller.
At the moment they may not exit their businesses. But future prospects remain
cautious at best. Tyres market, in particular, is extremely competitive. It has well
established local players like MRF, Apollo, JK. Besides there are multinationals like
Michelin, Bridgestone and Goodyear. Beyond this there is competition from cheap
Chinese imports. Therefore Birla tyres have to work smart as well as hard to sustain
in this market [19]. The future of this brand extension depends on how skilfully
Kesoram manages its finances.

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