Brand Extensions: How They Can Make Or Break a Business
When a company, whether big or small, settles down in their industry and achieves enough trust and recognition to be considered a well-established player in the market, sometimes the owners want to explore uncharted waters by doing a brand extension, that is, developing new complementary products to their existing ones or launching an entirely new line of products for a different market.
Brand extensions are common initiatives that entrepreneurs use to leverage the reputation they’ve built with their initial offer to grow their business and increase revenue. Expanding a brand can work well or cause significant damage to a business’s reputation and finances.
We’ll cover the types of brand extensions, their benefits and risks, and explore some well-known examples that will serve you as inspiration (or as a cautionary tale) for your small business.
Types of Brand Extension
There are a few variants of brand extension, and each one has its own set of challenges and opportunities:
1 – Line Extension
This is like when your favourite soda brand introduces a new flavour under the same product line. It’s a variation or extension of the existing product range. Following sodas, a good example is Coca-Cola’s extension from its original flavour to the Zero, Diet, Cherry, Vanilla, and the many other versions that exist (or have existed) of the drink.
2 – Category Extension
Here, the brand launches a different product category altogether. Google is an excellent example of launching new categories, as it started as a search engine that it branched out to offer other services like email, web browser, cloud storage, advertising, and even cell phones and other devices like Google Chromecast.
3 – Companion Product Extension
This involves adding new products that complement existing ones. A classic example is Apple, which started with its Mac computers. In 2001, after the successful launch of iTunes, they extended their product line to include the iPod, a companion device for storing and listening to the music downloaded with iTunes. Later, they introduced the iPhone in 2007, which served as a phone and seamlessly integrated with iTunes, creating a cohesive ecosystem. The iPhone and iTunes became companion products, reinforcing each other’s value. Apple has continued to launch products that complement each other over the years: the Apple Watch and its integration with the iPhone is another example.
4 – Brand Stretching
This is a bit of a stretch (pun intended!) where a brand gives a 180° turn and moves into a completely unrelated market. Imagine a car company starting a line of clothing. It’s a riskier move but can be successful if done right.
When Does a Brand Extension Make Sense?
Extending a brand is an attractive idea to capitalize on your existing offer, but you shouldn’t approach it lightly. Brand extension makes sense for businesses when it aligns with their strategic goals and enhances their overall brand value. Here are some situations where it might be a good move:
- Brand recognition: if a company has strong brand recognition and a loyal customer base, extending the brand can capitalize on existing trust and familiarity.
- Market opportunities: when there’s a clear opportunity for related products or services, a brand extension can help a company tap into new customer segments or meet surging consumer needs.
- Competitive advantage: if competitors successfully extend their brands and the market is responsive, a company might do the same to stay competitive.
- Economies of Scale: if the company can leverage existing infrastructure, distribution channels, and production capabilities, it can lead to cost savings and increased productivity when introducing new products.
- Brand Synergy: when the new product complements the existing brand and reinforces its core values, the synergy created can strengthen the overall brand image.
The Benefits and Risks of Brand Extensions
While brand extensions can work well, this strategy doesn’t come without its risks and pitfalls. Here are the potential benefits and risks associated with brand extensions every business owner considering doing one needs to assess:
- Increased brand value: When a well-known brand introduces new products or successfully enters new markets, it strengthens its position and reputation.
- Cost efficiency: Businesses can use their existing infrastructure and resources (manufacturing facilities, distribution channels, staff, marketing strategies, etc.), which may result in potential cost savings compared to building a new brand from scratch.
- Market expansion: You can reach new customer segments or markets by introducing products that appeal to different demographics or address emerging trends.
- Risk mitigation: Brand extensions can reduce the risk associated with introducing an entirely new brand, as your existing brand already has an audience with familiarity and confidence in what you offer.
- Increase loyalty: Extensions can enhance your customers’ loyalty if you offer them a broader range of products that cater to surging needs, preferences, or occasions.
- Brand value damage: If the new product is not aligned with the known values of your brand, it can lead to its dilution, potentially damaging its value and reputation.
- Consumer confusion: Your customers might be confused about the brand’s identity and what it stands for if the extension is too far removed from your existing products.
- Market Saturation: Overextension can lead to market saturation, making it difficult for the brand to maintain a distinctive position in the existing and potential consumers’ minds.
- Quality perception: If the new product fails to meet the quality standards associated with the existing brand, it can harm the overall brand image.
- Cannibalization: There’s a risk that the new product might cannibalize sales from your original line-up rather than create additional revenue streams.
Real-life Brand Extension Examples: the Good, the Bad, and the Unknown
Now that we’ve covered the theory behind brand extensions, it’s time to look at some examples from real brands, their outcomes, and what small businesses can learn from them.
The Good: Dyson
The British company, first known for its vacuum cleaners, has expanded its brand through various avenues, always following its technology-led innovation and cutting-edge design principles. One of the most relevant category extensions is the hair care line, which started with the launch of the Dyson Supersonic hair dryer and the Airwrap styler in 2016 and 2018, respectively.
Despite their steep price tag (around $500), both products were a massive hit and became a desired cult beauty item for many. The success behind these products is anything but luck. Dyson representatives have claimed that they worked on research & development for their hair care products for ten years before their initial launch. They also have an entire team dedicated to researching groundbreaking ways to style all hair types without damage.
Dyson has also expanded their brand to other venues:
- Bladeless fans and air purifiers: Dyson expanded into the air treatment category with bladeless fans and air purifiers in 2016. These products, like the Dyson Purifier Cool, provide air circulation and include features such as air purification and connectivity to smartphones via the MyDyson app to control them.
- Hand Dryers: Dyson introduced the Airblade hand dryer in 2006, known for its fast and hygienic hand-drying technology. This move expanded the brand into the commercial restroom equipment sector.
- Lighting: Dyson first entered the lighting industry with the launch of their CSYS task lamps in 2015, followed by the Dyson LightCycle and the SolarCycle model later on. These task lights are designed to adjust their colour temperature and brightness based on the user’s local daylight conditions.
- Wearable technology: In April 2023, Dyson entered the wearables market with their Zone headphones, which, besides promising top-notch sound performance, also have an attachable air purifier mask.
Source: Dyson via PCMag
Dyson’s expansions have been in sync with the company’s core values and their commitment to offering innovative products with cutting-edge technology and design that provide high value to their customers.
Dyson’s case is also a good example of how well-executed expansions benefit a brand’s value: a business that started as a vacuum cleaning company has become a high-tech appliances powerhouse.
While smaller businesses may not have the resources to research customer needs as in-depth as Dyson can or the budget to develop futuristic wearables, they can still learn how to do a brand expansion successfully by doing careful planning and market research and offering new high-quality products and services that align with the brand’s existing value proposition.
The Bad: Colgate
I don’t know about you, but when I think about Colgate, I think about clean white teeth with no food residues. That’s why I was surprised (and confused) when I found out that once upon a time, Colgate ventured into the food market with frozen meals, trying to launch “Colgate Kitchen.”
Colgate wanted to capitalize on the booming ready meal market, leveraging their well-established brand, following the logic that people would eat a Colgate dinner and then brush their teeth with Colgate toothpaste afterwards, thus creating a perfect brand synergy.
Unfortunately for Colgate, people didn’t want to eat a meal they associated with mint-flavoured toothpaste, so their food brand failed miserably. The company is so embarrassed about this flop that it deleted any mention of frozen meals from its history and denies its existence.
However, it was documented by the American Institute of Food Distribution that they did attempt launching chicken and crab meat-based frozen meals back in the 1960s, and in 2017, Colgate Kitchen entered the Museum of Failure in Sweden, when it’s exhibited alongside other companies’ failures.
Needless to say, a line of meals was too far removed from what Colgate is known for. If the new product or service deviates significantly from the core values and identity of the original brand, it can create confusion and disconnect with consumers, which is what happened here.
Just because you see a lucrative opportunity doesn’t mean you should jump into it. A successful brand extension requires a deep understanding of both the original brand and the dynamics of the new market. Failing to do so would risk your existing brand’s reputation and even hurt your established products. Colgate is big enough to deny its frozen food failure and keep going strong at what they’re good at, but small businesses don’t have the same room for maneuver.
The Unknown: Alo Yoga
Athleisure brand Alo Yoga has been extending its brand aggressively over the last few years, especially this year. This strategy so far has resulted in an estimated $286.6 Million in yearly revenue and $1 Billion in sales in 2022. Let’s make an overview of how the brand has been building its position as a luxury wellness brand beyond its well-known yoga and fitness apparel:
- Meditation and Mindfulness Products: First, Alo Yoga started its brand extension to offer products and content related to meditation and mindfulness. This includes guided meditation and breathwork sessions, yoga and other workouts in their app Alo Moves, yoga mats, water bottles and other accessories to support an active lifestyle and holistic wellness approach.
- Cosmetics: In 2020, Alo ventured into the cosmetics industry by launching their “clean” beauty line that includes skincare, haircare, and body care products.
- Footwear: In May 2023, the brand announced its debut in the footwear category, launching the Alo x O1 Classic, a unisex sneaker made of premium vegan leather and a high-rebound sole with “revolutionary technology” that promises to support active recovery.
- Supplements: In August 2023, Alo Yoga entered the supplement industry, introducing the Alo Stackable Wellness System, a line of gel supplements.
- Luxe lounge: Alo also has a loungewear category, following their activewear category’s same premium quality principles.
Until now, Alo Yoga’s extensions have been aligned with the brand’s core values of offering products that support a wellness and active lifestyle, targeting customers looking for a luxury experience. But with their latest extension, they may have taken the luxury trope a bit far.
In October 2023, Alo announced “Alo Atelier”, a collection of formal clothing targeting people who want to wear high couture clothes with a “Parisian” feel. The pieces are made of premium materials like cashmere and silk, including faux fur coats, nightgowns and loungewear.
So far, so good. Alo has always targeted people who want (and can) afford luxury items. In the words of Summer Nacewicz, their EVP of Marketing & Creative, “(…) As we’re at a higher price point within the athleisure market, we wanted to see how far we could go if there weren’t any cost restrictions to push the brand to create the highest quality product.”
Based on what we’ve discussed so far, pushing a brand’s limits too much can lead to consumer confusion, and it might be the case with this new atelier collection that aims to sell haute couture clothes people would use at formal events with the Alo logo stamped just like their regular yoga pants:
Source: Alo Yoga
Alo did an excellent job at building its position as a comprehensive wellness brand, so much so that it’s hard to forget that their main focus is yoga athleisure when trying to associate this brand with haute couture clothes. Only time will tell how well their atelier collection will perform. However, it’s still an interesting example of how businesses eventually hit a wall with brand extensions that may backfire if they keep pushing their boundaries.
Brand Extensions Are Worth It If Done Wisely
I hope that you find this exploration of brand extensions useful and serve you as inspiration for your small business. Extending a brand is a great strategy to take advantage of what you’ve built to keep growing, but it shouldn’t be done carelessly. The best way to approach it is to take the time to understand what your audience needs and would like to see from you instead of following trends that constantly come and go. Your customers know how your brand should take its next steps.