Rights and Wrongs of Brand Extension

Lot of times we see a company with a strong brand equity in one product grow exponentially when it takes that brand name and extend to other products. Examples that stand out are Apple and GE among others. At the same time, I can point out companies with a strong brand in one field and start going down as soon as they enter another fields. One that comes to mind right away is Amazon. I don’t know how much of their bad days are due to the extension of their product line to everything, but I (and lot of people will agree) that the pleasure of buying books at Amazon is not the same after all the remodeling they have been through. There is a third set of companies, which don’t fall in either one of these sets. They are the ones which use their brand to extend on to other product areas, the new products don’t catch up well, but at the same time the original product that built the brand remains solid and enjoy the brand loyalty. One example I would point is that of Dell. Dell is still the largest PC maker in the World but the numbers of their television and mp3 players are not that impressive.

Here’s my take on the rights and wrongs of brand extension (yeah I know there are a zillion case studies out there, but lets add one more). I think the companies succeed in brand extension if they apply creativity, innovation and link with existing product line during and after brand extension. Lets talk about Apple. Apple Macs and notebooks were always known for their cool factor. Though not adopted widely in the main stream (thanks to the tight hardware-software company and to certain extent Microsoft), the Apple computers were always liked by the people more involved in right brain activities – the artists, musicians, film makers etc. Apple took that same cool brand image and applied it to ipods, itunes and a lot more i…s to see the reemergence of the company with a bigger bang than ever before.

Creativity – same look and feel. The white color scheme and the sleek design.
Innovation – Arguably the best music player and music downloads site out there.
Link – Same hardware-software combination that Apple is known for, but this time it’s a bit loose coupling (they applied this loose link to Mac as well now, which is really the step in right direction).

Now lets switch to “the long tail” store on web. Amazon has been the model book store, or to generalize, the e-commerce site on the web. They are known to find the customer what book they are looking for as well as recommendation based on data-mining the information they have through the pool of customers visiting their site daily. There’s no denying that they are one of the best-managed content store on web. But the Wall Street view of the company and customer satisfaction numbers have been down stream since they started their brand extension to be a general store of everything, not just books. So what went wrong? I would attribute it to a couple of things. One, Amazon just turned out to be another humongous Internet store which sells everything. The uniqueness which Amazon had, to be a store for book lovers is lost. So by trying to be everything to everyone, they are turning out to be nothing to anyone. Another reason, the innovative idea of recommendations is all lost when it comes to the new areas like kitchen supplies and groceries. That was what Amazon was known for, and they lost, or at least misplaced that entire concept.

Creativity – Same “the long tail” concept of finding things you cannot find in physical stores.
Innovation – Pretty much nothing…hard to distinguish from other Internet stores when it comes to more general shopping.
Link – The recommendation link is all broken when it comes to the new marketplaces.

The third set of companies are the most interesting ones. This happens when a company has solid marketing plan for the existing product market, and then tries to go in for extensions. So the original brand product is not disturbed but the new ones don’t fly for some reason. My favorite example in this case is the Direct marketing place – Dell. As much as I love shopping (or at least configuring) a computer at Dell, I am indifferent to the entire new store they have to sell all sorts of electronics. But what Dell managed to do, that Amazon missed, was to keep the experience on the computer store intact. Still Dell is primary known as a computer store that also sells some electronics (to draw contrast with Amazon which is now a store that sells everything, that includes books as well). So what went wrong with the brand extension to Electronics? What I think happened is that people didn’t find what they were looking for in electronics at Dell. When someone goes to Dell, they expect to get a personalized shopping experience. Dell created this amazing build your own computer scene, so when it came to electronics, and they tried to a certain extent one size fits all, people didn’t buy that, or at least didn’t buy that from Dell. Again…

Creativity and innovation – Nothing can be pointed out as far as selling electronics.
Link – Well “Direct from Dell” is still there. But the link of configure your own is gone, or at least diminished a lot in the new space.

So as to sum it all, brand extension goes right if Creativity and Innovation are properly used in the process and the basic link to the original product of the company, or what the company is known for, is maintained intact.

4 responses to “Rights and Wrongs of Brand Extension

  1. So what you think about google? they are getting into every thing, from car, to space exploration to every possible application on web.

    By the way, what you think about the ‘the long tail’ concept? I think it is flawed? wsj supported my idea with shredding the book and research with hard numbers they blown it away few days back.

    Check july 26th 2006 wsj http://online.wsj.com/article/SB115387606762117314-search.html?KEYWORDS=long+tail&COLLECTION=wsjie/6month

  2. You kind of answered your own question with respect to Google. They are doing brand extension and going after “every possible application on web”. The link to their existing product is intact!
    So if we go for the same 3 points –
    Creativity – Simplicity…I think they made this synonymous to creativity.
    Innovation – Almost every possible application that can be on web and powered by search.
    Link – Software application on Web, the one thing Google is known for.

    I think at this time they fall in the first bucket with the likes of Apple, GE and Virgin.

    As for the long tail concept, I was just about to write a post on that. Well I am in favor of the concept. It might be true that the long tail doesn’t drive much revenue, but it drives traffic to the stores.
    Here’s the scenario – You are searching for one odd song from many years back at every music store you visit, but never found it. Now you look for the same song on Itunes, and here it is! This places Itunes at a special place in your to-go list. I think the next time you want a song, you will go to Itunes because you know you will find it there. So the long tail, though it generates less revenue, pulls a lot of traffic to the store.
    Thoughts?

  3. Pingback: Let’s do brand extension “correctly” « Adscovery

  4. Pingback: For me, it’s still primarily a bookstore… « Adscovery

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