Be careful with business diversification, it can severely damage your Brand

Brand Extension. Diversifying can generate exceptional business gains. It can also damage and dilute your brand, increase overheads and organisational complexity. But please don’t avoid or discourage entrepreneurism within your organisation because of this potential risk, it can be mitigated.

Continuously considering news areas you may be able to mold and diversify into is a great way of keeping ahead of your competition. Oh, and your customers will love you more. Trying new things and pushing them out existing customers is a great way of embedding your customer into the engagement loop, and getting brutally honest market feedback (even easier with social media channels).

However, choosing the right products and services you want to bring to your portfolio is critical to maintaining your brand, your focus, reputation and respectability amongst your customer base. So with any business diversification comes the need to extend your brand to accommodate these new products and services.

Brand extension then – is the use of your brand name within new product categories

This new category into which you are extending your brand can be directly related or unrelated to the existing product categories. A famous and successful brand helps an organisation to launch products in new categories much more easily.

For instance, and this is hypothetical. Barbour start making training shoes and sportswear? It might be a resounding success, but at the same time might alienate their core brand customers, the country set, who have brought into the Barbour ‘country set image, history and heritage’ brand and will become alienated and dissociated.

And the kings of diversification?

Virgin can probably take that title for me, but Virgin Cola was perhaps a diversification bridge too far as an addition to living the Virgin life. Tescos have done a pretty good job, catering everything woman, child, man and his dog (pet insurance) could possible want.

Another?

I am using one of their products right now to tap away and LOL; I have just received and banner on my iPhone informing me of a Facebook update. Apple, computers, phones, TV and now watches. I am part of the Apple die hard faithful through the dark times of crappy awful ‘what where you thinking’ mac clones, to the awesome Mr Jobs renaissance of thinking and products. Will I buy an Apple watch even though I don’t need one? You bet.

So, back into the room. An existing brand ‘gives birth’ to brand extension is referred to as the parent brand. Pop. If the customers of the product, service or both have values and aspirations matching those of the core business, and if those values and aspirations are encompassed, are apparent recognised in the brand, then the new brand is less likely to be rejected.

Extending your brand outside its core product category and indeed comfort zone can hugely beneficial as it helps to evaluate new category opportunities, identifies resource requirements, lowers risk, and measures brand’s relevance and appeal.

So let’s talk about the great and the good stuff first.

Brand Extension has following advantages:

  1. It makes acceptance of new product easier.
  2. It can increase brand image.
  3. Customer sees a decision to purchase less of a risk
  4. Distributors are more likely to take on the product
  5. New product and services introduced by parent brand create interest and increase the likely hood of purchase.
  6. Advertising and promotional costs are significantly reduced.
  7. Economies of scale as advertising for the core brand and its extension reinforces each other.
  8. Costs of developing new brand are saved.
  9. Consumers enjoy more variety of goods services.
  10. Packaging and labeling efficiencies.
  11. The cost of introductory and follow up marketing programs is reduced.
  12. here are feedback benefits to the parent brand and the organisation.
  13. The image of the parent brand can be enhanced.
  14. It can revive a flagging brand
  15. It allows for further extensions.
  16. Brand meaning can be further clarified.
  17. Widens market coverage as it brings new customers into brand portfolio.
  18. Cross-sell opportunities.
  19. Customers associate original brand to new product, quality, value price association.

Disadvantages of diversification and extending your brand:

  1. Brand extension totally unrelated markets may lead to loss of perceived reliability if your brand is pushed too far.
  2. Organisations must invest time to carefully product categories in where the parent brand will be accepted and successful.
  3. The risk is that the new product or service may have undesirable implications that damage the image of the parent brand.
  4. There is a reduction in awareness and trial because the management may not allow enough investment in time and resources for the introduction of new product, assuming that the momentum of the parent brand name will drive and compensate.
  5. If the brand extension has no recognisable advantage over competitive brands in a new category, then it is more likely fail.

 

 

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