What is a 'Brand Extension'

Brand extension, also known as brand stretching,  leverages the reputation and popularity of the well-known brand to increase demand for new products. Brand extension is the use of a well-established brand name for a new product or new product category.

BREAKING DOWN 'Brand Extension'

For the brand extension to be successful, there must be a logical association between the original product and new item. A weak or nonexistent association can result in the opposite effect, brand dilution. Even worse, if a brand extension is unsuccessful, it can harm the parent brand.

Brand Extension Examples

Successful brand extensions allow companies to diversify offerings, increase market share, and increase profits.  The existing brand serves as an inexpensive, yet practical, marketing tool for the new product. 

There are many ways companies can extend the popularity and reputation of their brand into new territories. Brand extension can be as natural as offering an original product in a new form. As an example, a made-to-order pizza restaurant may offer the sale of frozen take-home pizza or sell their name brand proprietary sauce in retail stores.

Another form of brand extension is with the combination of products. For combination extension, two businesses, or branches of a single company, will come together to offer a new twist to their unique existing products. The extension of both brands can be seen in the partnering of a chocolate and pretzel company to provide chocolate-covered pretzels. 

Moving into a new market segment and capturing a more significant market share of the market are other forms of a brand extension. A car company, known for its engineering prowess, can start a motorcycle division, selling those motorcycles based on their superior engineering history of quality. The creation of complementary products can help to increase market share.  For example, a peanut butter company could offer jellies and jams to leverage its brand and the popular relationship between the products. 

The risk of failure through brand extension is lower than the risk and the cost of introducing a new product with no associated established brand.  The success of the brand communicates a message of value and serves as an acceptable standard.  

Brand Extension Disadvantages

Brand extensions fail when the brand extends to products or product lines so distinctly unrelated that the general perception of the brand is skewed. For example, Colgate, a brand synonymous with dental care products, failed when it extended its brand to food products.  Most people associate minty-flavored toothpaste with Colgate, and that association was a barrier to the successful adoption of Colgate foods. 

Other brand extension failures include Zippo, known for lighters, and Harley-Davidson, known for motorcycles, expanding into the women's perfume market.  The original brand was associated with fuel odors, and just like Colgate, consumers could not disassociate that experience from the brands well enough for the extensions to be successful.

RELATED TERMS
  1. Brand Awareness

    Brand awareness is the extent to which consumers are aware of ...
  2. Product Line

    A product line is a group of related products manufactured by ...
  3. Corporate Umbrella

    A corporate umbrella is a large, generally successful brand name ...
  4. Filing Extension

    An filing extension is an exemption made to both individual taxpayers ...
  5. Brand Piracy

    When a product is named similarly to a well-known brand so that ...
  6. Parity Product

    A parity product is a brand of good that has enough similarities ...
Related Articles
  1. Small Business

    The Power of Branding

    Power of branding is the ultimate economic moat, and we look at the approaches and effects of good and bad branding.
  2. Insights

    Tech and Auto Companies Dominate World's Most Valuable Brands List (AAPL, GOOG)

    Brand consultancy firm Interbrand released its 2016 ranking of the most valuable brands in the world, and technology and automotive brands dominated by holding a combined 29 positions. According ...
  3. Small Business

    9 Brands Resurrected Into Household Names

    All of these brands saw a dip in their popularity, only to have a revival to even greater heights.
  4. Investing

    Best Buy Betting On House Brands

    Best Buy uses its house brands strategically, but is this hurting the company or helping it to stay on top?
  5. Insights

    4 Addictive Brands Consumers Crave

    Many product brands breed loyalty and obsession. Discover which ones people can't seem to live without.
  6. Small Business

    Reinventing Brands: Makeover Or Move Over

    Brands undergo various changes to remain competitive. Discover those that changed and those that fell behind.
  7. Small Business

    6 Branding Tips For Small Business Owners

    One of the most important areas for all businesses to utilize is branding.
  8. Trading

    Constellation Brands Begins 2018 With a Mojo Buzz

    Constellation Brands has an elevated P/E ratio of 27.27 with a puny dividend yield of 0.86%.
  9. Investing

    Top 5 Positions in Charles Brandes' Portfolio (ERJ, MSFT)

    Learn about Charles Brandes' investment philosophy and largest positions. To which industries is Brandes exposed and how has his fund performed?
  10. Investing

    Acuity Brands Trades Ex-Dividend Thursday

    Acuity Brands will send its dividend payment on Feb. 1 to shareholders of record as of Jan. 23.
RELATED FAQS
  1. What are the elements of an effective value proposition?

    Learn what a unique value proposition is, and understand all of the elements that a company must include in constructing ... Read Answer >>
  2. What are the key barriers to entry for companies in the electronics sector?

    Learn how the entry barriers of economies of scale and scope, research and development, capital and brand loyalty affect ... Read Answer >>
  3. What are the similarities between product differentiation and product positioning?

    Learn how two marketing strategies, product differentiation and product positioning, are similar and work together to effectively ... Read Answer >>
  4. How do travel rewards cards work?

    Travel reward credit cards use a points-based system to help consumers earn bonuses and other incentives, such as airline ... Read Answer >>
  5. Is it more important for a company to lower costs or increase revenue?

    Examine the question of whether a company's desire for increased profitability is better served by focusing on cutting costs ... Read Answer >>
Hot Definitions
  1. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  2. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  3. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  4. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  5. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  6. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
Trading Center