A brand extension can be a source of new offering ideas, bursts of energy, brand enhancements, brand building economies and new growth platform. The extension option is not always optimal, but it should be part of most strategy and new product discussions. One key step is to identify extension product categories where a new entry will benefit from and contribute to the brand associations.

The process usually involves identifying the associations and brainstorming where they might be relevant. A more systematic approach is to explore the 10 routes to brand extensions that come from an analysis of successful extensions.

“One key step is to identify extension product categories where a new entry will benefit from and contribute to the brand associations.”

A friend of mine, Ed Tauber, considered the father of brand extensions, did a classic and influential 1988 study of 275 successful extensions in which he concluded most companies employed one of seven approaches to extensions. The Parham Santana extension agency, in conjunction with Ed, has reprised that study by identifying 500 successful extensions and systematically identifying 10 routes to brand extensions. Each of the extensions fit into at least one of the routes. The study furthers our knowledge of strategic extensions and makes the search for potential extensions much more robust and efficient.

10 Examples of Successful Brand Extensions:

1. Shift the form: Starbucks Frappuccino, Snickers Ice Cream Bars, Black & Decker Role Play Tool Toys, Clorox Bleach Pen, Dial Hand Wash.
2. Transfer a component: Crayola soap paints (creative color), Entenmann’s “Fresh Baked” Candles, Dr. Scholl’s shoes, Ghirardelli Brownie Mix.
3. Transfer a benefit: Arm & Hammer Car Litter Deodorizer, Mr. Clean Magic Eraser, Ziplock Food Containers, Weight Watchers Ice Cream Bars.
4. Leverage an expertise: Food Network cookware, Honda lawnmowers, Gold’s Gym 7-in-1 Body Building system, Mayo Clinic Diet, Reebok Sports Club.
5. Companion products: Coleman Sleeping bags, Coppertone Sunglasses, Harley Davidson Apparel, Mr. Coffee Premium Coffee, Steinway Furniture Polish, Weber Seasonings.
6. Leverage the customer base: Trix Yogurt, Smith & Wesson Tactical Police Mountain Bikes, Sesame Street Toys, Barbie Scooter, Adidas Watches, Fisher-Price Diapers.
7. Leverage a lifestyle: Biggest Loser Kitchen Scale, Coach Fragrance, Cover Girl Sunglasses, Discovery Kids Telescope, ESPN Restaurants, Esquire Furniture, Porsche Kitchen Appliances, Rolling Stone Restaurant.
8. Leverage a celebrity expertise: Jack LaLanne’s Power Juicer, Jack Welch Management Institute, Jan Fonda Workout DVD, Martha Stewart Bedding, Ralph Lauren Paints, Wolfgang Puck Frozen Pizza.
9. Leverage a celebrity lifestyle: Cindy Crawford Jewelry, Donald Trump Signature Collection Apparel, Eddie Bauer Baby Stroller, Jessica Simpson Luggage, Kelly Ripa Shoes, Lakers Bottled Water, George Foreman Grill.
10. Change the game by changing a brand image: Old Spice High Endurance Deodorant, V8 V-Fusion Vegetable and Fruit Juice, Zagat Health Survey Doctor’s Ratings

Of course, getting ideas on the table, even good ones, is only a first step in an often complex decision – see my book Brand Portfolio Strategy. Two points illustrate this complexity.

First, the extension decision is best made in a larger strategy context looking out years and for a stream of extensions rather than as an ad hoc, one-off decision. The “next extension” may not be justified unless the value of adding or changing associations is taken into account.

Second, a key element is the ability of the extension to represent a distinctive solution to a real customer need. We know empirically that “me-too” products seldom succeed, no matter how they are branded. Truly distinctive products that have “must haves” that define new subcategories are the big winners. So even if the extension makes brand sense, there needs to be a compelling offering that is brought to the market.

When I was writing my book, “Brand Portfolio Strategy“, I would ask executives which firms had excelled in developing a brand portfolio strategy. The most mentioned firm was L’Oréal.

L’Oréal today maintains an admirable “house of brands” strategy in which some 20 brands are used to span the relatively narrow area of cosmetics and skincare in the US. There is a high level of clarity, differentiation and leverage. The portfolio is first divided into four groupings, with little overlap in customers and outlets.

Out of the 20 L’Oréal brands, four are “consumer products” and are distributed through drug and discount stores, 13 are “luxury products” distributed through department and specialty stores, four are “professional products” used by hairstylists, and four are “active cosmetics” sold to dermatologists and other specialists. Within each grouping, the brands have very distinct positioning.

Consider the brand portfolio strategy of these four consumer product brands:

• Maybelline New York (Maybe she’s born with it, maybe its Maybelline) is trendy, innovative and infused with New York energy.
• L’Oréal Paris (Because you’re worth it) is affordable luxury with excellence around the Parisian beauty Claudia Schiffer.
• Garnier (Take care) is inspired by natural ingredients and dermatological science.
• Softsheen & Carson (My style, my way) is focused on women of color who are looking for confidence, individuality and flair.

All are highly differentiated with strong positions that connect to their audience. In addition, L’Oréal Paris is aggressive with branding innovations such as Pro-Retinal A or Silk & Shimmer Conditioning Technology and is giving them legs. They have a host of sub-brands and endorsed brands such as L’Oréal’s Age Perfect, Couleur Experte, and Feria.

“Each brand has a role and the portfolio as a whole has energy and coherence.”

Finally, the firm also generates descriptive umbrella brands such as Eye Studio, Instant Age, and “Can I help you?” the L’Oreal Paris’ community site. Each brand has a role and the portfolio as a whole has energy and coherence. Consider, in contrast, Shiseido, much more of a branded house, which spans a wide quality/price spectrum and struggles to resonate in segments targeted by L’Oreal, especially in the US and Europe. There is too little attention paid to the brand portfolio and how each brand needs a role and reason d’être. In part this is due to decentralized organizations that fail to coordinate brands and in part this is because portfolio strategy is simply neglected.

The brand identity (BI) model, sometimes called the Aaker Model, was introduced in my book “Building Strong Brands” back in 1996 and was refined and elaborated four years later in my book “Brand Leadership.” Although there are many dozen competitive models, the BI model has a worthwhile market share – as reflected by the fact that some 170,000 copies of the two books have been sold.

But why? What are the differentiating beliefs or principles that the model is based on? Let me identify six.

1. A brand is more than a three-word phrase.

In fact, a motivation for developing the BI model was the prevalence of advertising agency brand models that needed a single thought to guide an advertising campaign. The BI model usually has six to twelve of them that are termed identity elements, values, pillars or principles. These elements are created by listing the aspirational associations, clustering these associations into coherent groupings and finally generating a phrase to describe each cluster. Some of these associations can be points of parity in that they are critical to being relevant but do not differentiate.

2. The “one-size-fits-all”/“fill-in-the-box” models are too confining.

The BI model does not pre-specify dimensions that all brands in all contexts must contain. It also doesn’t elevate those dimensions to equal weight, even those dimensions that are minor or make no sense. Nor does the model discourage people from introducing dimensions for which there is no box. Users are encouraged to draw on organizational associations and values, symbols, emotional benefits, social benefits, self-expressive benefits, personality, user imagery (values and lifestyle), functional benefits and bases of authority. The freedom to use (and exclude) any dimension when establishing the BI can be powerful.

3. Extended identity elements play a useful role.

The identity elements are prioritized. A core set of two to five that will drive programs are identified, but there is also an extended identity set (usually three to five elements.) The extended identity can provide texture to the brand vision and allow strategists to make judgments as to whether a program is on-brand. It can also provide a home for a brand characteristic that is important but will not be a program driver and for a brand personality that often doesn’t make the cut as a driving differentiator, especially in B2B contexts. Finally, an extended identity element sometimes evolves into a core element – staying visible keeps it alive.

“The extended identity can provide texture to the brand vision.”

4. The brand essence should be optional.

The brand essence can represent much of the brand identity. However, there are times in which the core identity is compelling, and the insistence of an essence will only divert energy and cloud the strategy going forward. If the essence is not compelling, it will become a focus and the whole brand identity will suffer. One firm had leadership, partnership and trust as its core identity. An essence, in that case, would only get in the way, and a compulsion to create one would have distracted.

5. The elaboration of the core identity leads to the identification and prioritization of programs.

The ultimate goal is to create effective brand building programs that bring the brand identity to life. To create the bridge and discover brand-building ideas, each core identity element should be elaborated. The elaboration could include defining strategic imperatives (programs that need to be developed if the brand is to deliver on the aspirational promise), proof points (assets and skills now in place that support an identity element), external role models (other brands that have achieved an aspirational association) and internal role models (people, products or programs that best illustrate an identity element).

6. The brand should be able to be adapted to different products, markets or countries.

Wherever possible, the same brand identity should be applied especially so that effective programs can be scaled and efficiencies will result. However, the goal should be strong brands everywhere, not the same brand everywhere – adaptation is often necessary. The BI model is well suited to adaptation because an identity element can be added, de-emphasized or redefined. The result is an effective strong brand in each context that is never inconsistent with the overall BI. Chevron, for example, has this type of adaptation available to its business units. The BI model’s six principles serve to make it a less confining, more flexible model than many of its competitors. But any framework is better than none, especially if it is not rigid in its execution. A business that manages its brand in an ad hoc manner without a guiding framework is unlikely to create a brand that will support the business strategy.

The only way to achieve real growth is to create offerings so innovative that they contain “must-haves” that define new subcategories because market inertia makes alternatives ineffective. What is needed is substantial or transformative innovation that disrupts the marketplace. The remarkable fact is that such innovation rarely occurs in the organizations that have strong profitable positions in established categories, and thus have the resources to deliver change. Why? It is the curse of success that can take several forms:

First on the list is the insidious and common “stick-to-your-knitting” curse. Firms have been successful in focusing on their core businesses: investing vigorously in incremental innovation to reduce costs and improve the offering, pursuing “my brand is better than your brand marketing” to engender more customers and higher loyalty, and building assets and capabilities that support the business. This commitment strategy, however, leads to:

• A failure to see opportunities even when they are obvious
• A bias against any innovation that may cannibalize the core business. Why invest in an offering that may kill the golden goose?
• An organizational structure that gives undo power to the large existing silos
• A fear of going outside the existing set of skills and assets

“What is needed is substantial or transformative innovation that disrupts the marketplace.”

Second is the related “too small to matter” curse. McDonald’s, Intel, Frito-Lay, Microsoft, and Coke all have had innovation smothered by their huge brands and businesses. Any embryonic business idea will simply not matter financially, so why bother?

Third, is the “competing story” curse. Nearly every executive in the organization will have a list of investments that are worthy, even indispensable, for his or her silo business. A proposed new offering, particularly a game-changer, will compete for those resources. Even though most will represent marginal new offerings or more marketing that is unlikely to foster growth, they will have strong advocates. There is also the competing story that emphasizes the risks of the technological barriers that will not be overcome, that the market is smaller than planned, and that the customers will not respond. With decision influences biased, the competing stories are likely to win.

Finally, there is the “short-term financials “curse.” The pressure to create short-term growth and margins, driven by the needs of stock investors and by managers with short job tenures can be intense. Short-term results can best be obtained by diverting R&D funds to support or enhance the core businesses. Creating a new business platform is risky, expensive, and likely to result in short-term financial pain.

I am off to Japan to introduce the Japanese translation of my book Brand Relevance: Making Competitors Irrelevant. The Japanese version has a different title — Category Innovation. It’s actually a far better title because it highlights the message of the book.

The only way to grow, with rare exceptions, is to engage in category innovation, to create a new category (or subcategory) and then manage the perceptions toward, the purchases of and loyalty toward that category. To that end, the brand should become the exemplar or representative of the category, but the focus should be on the category not on the brand. It should be “my category is better than your category” rather than “my brand is better than your brand.”

“The brand should become the exemplar or representative of the category.”

Winning is when the category is defined by “must-haves” that the competitor lacks. As a result, competitors will not have the visibility and credibility to even be considered and will thus be irrelevant or weak at best. The goal is no longer to increase market share but rather to create a context in which the brand is dominant and there is no need for brand preference competition.

Muji, one of the strongest retail brands in the world, has created its own subcategory. BrandJapan has measured brand strength for 1,100 brands in Japan for eight years. Muji is always in the top 30 and usually in the top 20, a spot shared by only three other retail brands.

After opening its first store in 1983, it now has over 330 stores nearly one-third of which are outside Japan. Few brands deliver more emotional and self-expressive benefits than does the Muji brand. Yet, the Muji brand vision is not to be a brand!! It is the no-brand brand.

Muji is about simplicity, moderation, humility, and self-restraint. The Muji philosophy is to deliver functional products that strive not to be the best but “enough.” Enough does not mean compromise and resignation but a feeling of satisfaction knowing that the product will deliver what is needed but no more. Superfluous features and attributes that are unrelated to function are omitted. The aspiration is to achieve the extraordinary by modesty and plainness in the pursuit of the pure and ordinary. Not a contradiction at Muji.

“Enough does not mean compromise and resignation but a feeling of satisfaction knowing that the product will deliver what is needed but no more.”

A visit to a Muji store is an eye-opener. One of the first things you notice is that the clothes are all bland, mostly white or beige and never bright. Beige works. And there is no logo on the front of the shirt, in fact there is no label at all not even on the inside of the garment. Why would you want a label? The furniture, cookware, and office equipment is plain but functional. The designs are simple but not for some minimalist statement, they just provide what is needed to deliver function.

The store setting supports the products and the philosophy. The music in the background is soothing. The ambiance is relaxing and delivers emotional benefits that are very Japanese but also travel well. In essence, Muji is a lifestyle brand without the usual associated energy. Very different from the loud visuals and sounds that come with Abercrombie and Fitch for example. Muji can be described as a reaction to the glitz of the Ginza and other shopping centers that are filled with brands each trying to be more upscale than the next. Muji is anti-glitz. There is an explicit desire to eliminate the self-expressive benefits that people aspire to.

The badge of Louis Vuitton is the polar opposite of Muji. Ironically, this desire to eliminate self-expressive benefits actually provides self-expressive benefits. Shopping at Muji and using Muji products makes a forceful statement about who you are. You are above looking for badge brands. You are, rather, a rational person, interested in the right values, connecting with a firm that is interested in promoting social good and satisfaction from life.

The Berkeley-Haas School under the leadership of Dean Rich Lyons has created a brand identity that could be a role model not only for other schools but other service organizations. The process included solid research, inputs from stakeholders, an excellent feel for the school’s culture and strengths and a very involved Dean. Far more than a communication guide, it stimulated extensive changes in programs as well as how they were presented.

The vision over several years was refined and elaborated as it and its many programs were stress-tested and implemented. The result is an extraordinary asset. (For full disclosure, I am a Professor Emeritus at Berkeley-Haas and had a small role to play in the creation of the brand identity.) The structure follows my brand identity model with four core identity elements and brand essence.

“Far more than a communication guide, it stimulated extensive changes in programs as well as how they were presented.”

The essence is “We develop leaders who redefine how we do business.” A different take on innovation and leadership, it aspires to redefine the business rather than simply refine it. The redefinition could involve the culture, the value proposition, the product market scope, social or ethical concerns, substantial or transformational innovation, and more. The essence differs from the tagline “Leading through Innovation,” which is an externally oriented expression of the brand. The essence nicely captures the four core identity elements and their elaborations which are:

Question the status quo.

“We lead by championing bold ideas, taking intelligent risks, and accepting sensible failures. This means speaking our minds even while it challenges convention. We thrive at the world’s epicenter of innovation.” Captures the aspiration of big ideas and the vitality of the innovation process.

Confidence without attitude.

“We made decisions based on evidence and analysis, giving us the confidence to act without arrogance. We lead through trust and collaboration.” I particularly like this one as it does reflect the attitude of the students and others and makes a statement about how Haas-Berkeley differs from its major competitors.

Students always.

“We are a community designed for curiosity and the lifelong pursuit of personal and intellectual growth. This is not a place for those who feel they have learned all they need to learn.” Supports the executive education mission and the confidence without attitude culture as well.

Beyond yourself.

We shape our world by leading ethically and responsibly. As stewards of our enterprises, we take the longer view in our decisions and actions. This often means putting larger interest above our own.” Gives the school and students a broader mission and purpose than being profitable. This identity has served to help communicate the core culture and programs of the school to a host of constituencies, but it has also driven change.

The premise that there is one key to success is an illusion. There are nearly always 5 to 10 and the absence of any one can kill an offering. Take Segway. Segway is the upright, self-balancing, two-wheeled, people mover that was introduced in 2001 and was a market failure in the eyes of most observers because it fell far short of its expected sales.

Steve Jobs predicted that it would have as great an impact as the personal computer and the production was geared to turn out 500,000 units a year, but the actual sales for the first seven years were under 30,000 units. Segway did so many things well.

1. The technology was brilliant and was protected from competitors by patents.
2. As an energy saving device, it delivered self-expressive benefits.
3. It was a lifestyle product that attracted a loyal following reminiscent of Harley. There were Segway Fest event to celebrate the Segway lifestyle.
4. The product was produced nearly flawlessly. Even the early ones did not have glitches. It did exactly what it was supposed to.
5. The introductory publicity was incredible, maybe the most visible product of its time.

It was featured on network shows and in major magazines. It was everywhere. A New Yorker cover, for example, showed Osama bin Laden traversing the Afghan countryside with an all-terrain version of the Segway. So why did the Segway fail to meet expectations? The fatal mistake was its distribution. Because the unit required some training, it needed to have a reliable customer interaction point. If a retailer like Sears, Costco, Home Depot, or Target could have been the key points of customer contact, the product could have been successfully sold to a wide marketplace. Instead, Amazon was the vehicle for the general public.

A related mistake was a focus on those in the postal and security fields which could be reached by direct marketing. The problem was that postal workers needed both hands while walking and security workers preferred a bike that did not have a limited range. Both these mistakes were caused in part by a weakness in the marketing team.

The talent was in technology and production. Two learnings. First, excessive expectations are in general a good thing. It is usually impossible to overhype the benefits. You want buzz and as many to jump on the bandwagon as possible. However, in this case, had expectations been lower, the product would have not got the loser image.

As we learn from the stock market, an image (or illusion) of success comes from beating the earnings expectations. Segway, in fact, is very much alive, enjoys a niche and meaningful following, and continues to innovate. There is now a golf transport, a second generation product that allows steering by leaning, a set of robotic products, and a possible future two-passenger vehicle.

“An image (or illusion) of success comes from beating the earnings expectations.”

There is also a social networking site and a set of dedicated dealers that blanket the US and beyond. But it has been a difficult uphill road, and the hype did not help. Second, a new offering will have multiple keys to success and the absence of any one of them can be fatal. A strategy is only as good as its weakest link.

When I wrote my second brand book, Building Strong Brands, I studied the success of Saturn. I then concluded that Saturn’s success was based on their car design (from scratch—not a version of an existing design), the new dealer area network that supported the no price haggling policy, the company culture (customer is a friend), the focus of the advertising on the company and not the product (a classic new subcategory strategy), a gifted CEO (soft-spoken charisma), a new plant in Spring Hill Tennessee (which give a US message), a different union relationship (the contact was a few pages instead of a telephone book), the passionate users drawn to self-expressive benefits (of owning a quality US car).

If any of those elements had not been there, the success would not have happened. All were necessary.

While market expenditures in brand preference competition rarely move the needle, the successful creation of new categories and subcategories does. There are plenty of case studies in every industry. In the automobile industry, the Chrysler minivan went 16 years with a viable competitor and to date has sold over 12 million vehicles.

Enterprise Rent-A-Car arguably went 35 years with no competitors. Prius dominated the market for ten years and still has a 50 percent share. But there are also quantitative data to support the premise. McKinsey, analyzing a database of over 1,000 firms from fifteen industries over forty years, found that new entrants into the database achieved a higher shareholder return than their industry average for the first ten years after entry. That return premium was 13 percent the first year, falling to 3 percent in the fifth. Thus, since new firms are more likely to bring new business models than existing businesses, the implication is that those creating new categories or subcategories will earn superior profits.

“Since new firms are more likely to bring new business models than existing businesses, the implication is that those creating new categories or subcategories will earn superior profits.”

Another study of fifty venture capital firms found that six had abnormally high profitability. The common characteristic of these six was that they identified a prospective area of promise such as Internet-supporting technologies and seeded companies around the area. They were thus investing ahead of others that waited for the trend to become more visible and mature. As a result, a proportion of their investments was successful at creating new categories or subcategories earlier than competitors and often enjoyed first-mover advantages.

More direct evidence comes from a study that considered strategic decisions within a firm. In their Blue Oceana book, Kim and Mauborgne looked at 150 strategic moves spanning a century. The 14 percent that was categorized as creating new categories had 38 percent of the revenues and 61 percent of the profits of the group. New product research suggests that new offerings creating new subcategories receive abnormally high profits. Dozens of studies have shown that new product success is substantially driven by differentiation—it must be one of the most robust empirical relationships in business.

My book Brand Relevance: Making Competitors Irrelevant discusses two ways to compete. The first, to win the brand preference competition by making a brand preferred over other brands in an established category or subcategory, is tough and expensive. The second, to win the brand relevance competition by creating new categories or subcategories for which competitors are irrelevant is a route to growth and profitability.

What is Brand Preference?

In its simplest form, brand preference involves incremental innovation to make a brand even more attractive or reliable to customers or potential customers. Faster, more affordable, and better is the mantra. It is also the first and most commonly used route to win the competition among other brands considered by customers.

Resources are expended on communicating more effectively with more clever advertising, more impactful promotions, more visible sponsorships, and more engaging social media programs but such efforts rarely break out of the clutter. The problem is that incremental innovation and investments in marketing rarely change the market share structure. Customers are just not inclined or motivated to change brand loyalties in established markets.

Brands are perceived to be similar at least with respect to the delivery of functional benefits, and often these perceptions are accurate. As a result, a brand preference strategy is usually a recipe for stressed margins, unsatisfactory profitability, and, ultimately, a decline into irrelevance. It is so not fun.

Brand Relevance vs. Brand Preference: Which Is Preferred?

Brand relevance, the second route to competitive success, is to change what people buy by creating new categories or subcategories that alter the way that existing customers look at the purchase decision and use experience. Winning under the brand relevance model, now very different, is based on being selected because competitors were not relevant rather than not preferred, a qualitatively different reason.

“Incremental innovation and investments in marketing rarely change the market share structure.”

Some or all competitor brands are not visible and credible with respect to the new category or subcategory. The result can be a market in which there is no competition at all for an extended time or one in which the competition is reduced or weakened, the ticket to ongoing financial success. The brand relevance strategy involves transformational or substantial innovation to create offerings so innovative that new categories or subcategories are created. It involves an organizational ability to sense changes in the marketplace and its customers, an ability to commit to a new concept and bring it to market, and a willingness to take risks by going outside the comfort zone represented by the existing target market, value proposition, and business model.

Read this blog in Chinese: 品牌偏好和品牌相关性 — 两种竞争方