Risks of Brand/Line Extension
Zippo Perfume. Brand extension, or dilution?
While there can be significant benefits to brand-extension strategies, there can also be significant risks, resulting in a diluted or severely damaged brand image. Poor choices for brand extension may overextend the brand so that it no longer stands for something meaningful and valued by consumers. This phenomenon is called brand dilution. It causes the core brand to deteriorate, and it damages brand equity. According to research, there is a higher rate of brand extension failures than successes. Studies also suggest that when brand extensions fail, not only does the new product fail but the core brand’s image and equity also suffer. When products fail, negative associations and a poor communications strategy can harm the parent brand and even an entire brand family.
A common, visible example of brand dilution occurs when fashion and designer companies extend brands into fragrances, shoes, and accessories, furniture, hotels, vehicles, and beyond. Often the products being introduced are no different from the offerings already available in the market, with the exception of an added brand name (and probably a higher “designer” price tag). Brand dilution is almost guaranteed when consumers no longer see the branded product adding value. Brand dilution can also happen when the new products do not meet the standards consumers expect around quality, workmanship, price, design, or other differentiating features of the brand. An inferior brand extension leads to negative associations that reflect poorly on the original brand. Customers no longer trust the brand in all product categories, and they may be less willing to pay a price premium for it in the future.
Line extensions carry similar risks. If the new line extension fails to satisfy, consumers’ attitudes toward other products carrying the same brand name may be damaged. Additionally, there is potential for intra-firm competition between the parent product and the line extension or between two or more line extensions. The key to avoiding intra-firm competition is to clearly differentiate between products. Although similar, the products must be different enough that they will not compete with one another as much as they will with the brands of rival companies.