The first thing to evaluate in a brand extension is not the extension, it is the market attractiveness of the category. The key question in evaluating a brand extension is the intrinsic value of the category. Later, we examine this from the point of view of the business and the brand.
This presupposes that we are considering not only the present but also the future of the category. An extension is not an overnight affair, it marks the beginning of a desire to invest in a new market. The extension itself is no more than a bridgehead. A realistic analysis of existing strengths, threats and opportunities is therefore required. Clearly, this corresponds to the traditional SWOT model (Figure below).
Opportunities derive from the relationship between the factors for success in the category and the organisation’s key competences, both tangible and intangible. They also derive from the brand’s ability to segment the category according to its own values, or in other words to create genuinely relevant differentiation.
Strategic analysis also analyses the future of competition and the organisation’s relative strengths. Will its entry into the market trigger a competitive reaction, and if so, how big? To answer this question, it is necessary to evaluate the importance of the category to competitors.
To repeat, the fact that a brand can be extended does not mean it should be extended. One must take into account future competition and the costs of remaining a significant player in the category (the rate of innovation, rate of launches, marketing and sales investment and so on).
Extension is not an inside feat: it must deliver a sustainable advantage. For instance, many food companies have thought of launching a frozen pizza, but what would they do next to capture shelf space from Buitoni or McCain, or to defend their own shelf share? In the middle term, who is in the best position to innovate most often? Table 12.4 presents a multi-criteria strategic evaluation grid.
Extension strategic evaluation grid
The question of resources As mentioned above, the main source of failure of extensions is the lack of resources for the launch, and later to defend them.
Should we implement it alone? Partnerships and licences
It is difficult for a company to master the many new competences needed for an extension at the same time, which is why so many companies prefer alliances:Nestlé won the battle in Europe against Kellogg’s once it decided to find a technical partnership with the American General Mills.Weight Watchers’ expansion in the precooked meals category was made possible through a co-branding agreement with Fleury Michon, a leader in this field.Evian asked Coca-Cola to distribute it in the United States, where its core brand urgently needed to be made more available.
It also asked Johnson & Johnson to develop and market Evian Affinity (its cosmetics line) worldwide. One of the criteria in the strategic matrix for evaluating extensions concerns the company’s ability to produce this extension. Of course, we are not suggesting that extensions should be restricted to categories that the company is itself capable of producing.
Mars had no expertise in ice cream, nor did it have any knowledge of the buyers in this category, and hence it subcontracted production of Mars ice cream, its first major extension outside the chocolate bar market. All Cacharel extensions are based on licences: Playtex for hypermarket lingerie until 2004, l’Oréal for perfumes, household items by Arnolfo di Cambio and so on. In total, of a turnover of s35 million last year, royalties (extensions) accounted for s7.6 million.
Licences can enable extensions to move quickly into categories in which the brand has no experience of production, logistics or distribution. Some famous brands have never produced or even distributed their own products, but have instead operated on the basis of production and distribution licences throughout their existence, along with regional sub-licences, while retaining control over design, creation, strategic marketing and communication.