Introduction

Around 70 percent of new products on a market are launched with existing brand names on them [1]. This observation can be explained with the aim of companies to enter new markets with new products successfully and use their strong well-known brands to facilitate this process and decrease the possibility of failure on a new market, relying on the brand loyalty of customers. Brand extension is a strategy of companies for entering new markets with new products under the established and known names of those companies. Kotler and Armstrong defined brand extension as using a successful brand name to launch new or modified products in a new category [2].

For a long period, companies tried to avoid launching new products under the existing brand name, following the lead of the biggest consumer goods companies like Coca Cola and Procter&Gamble. Those “one brand – one product” principles were then rethought by companies under changing trends for growth and economic conditions. After the brand was recognized as one of the most valuable assets of a company, many organisations realized that this value can be used for extension and, consequently, growth of a company [3].

According to the classification, brand extensions are divided in two groups:

1. a line extension, when a new product is launched in the same category where parent brand (the established and well-known brand) is;
   
2. a category extension, when a new product is launched in a completeky new category.
   

Brand extensions can be of different types, like product forms, companion products, brand distinctions, and so far. Although brand extension is supposed to bring benefits to a company, there can also be negative effects from brand extension. To avoid negative effects and get to the desired state after the extension, companies should have very strong brand extension management.

Brand extension is considered as a strategy, and effective management of this strategy can bring the outcomes which an organization aims at.

Literature review

Brand extension is perceived in many ways by different scientists. It was described as “the way of redefining the nature/direction of a firm’s business” by E.M. Tauber in 1981 in the work “Brand Franchise Extensions: New Product Benefits from Existing Brand Names” [4]. Later in 1988, Tauber E.M. in his work “Brand Leverage Strategy for Growth in a Cost-controlled World” described brand extension as the way to achieve growth in cost-controlled world [5].

Brand extension was defined as “the way of gaining economies of scale in advertising” by C.J. Roberts and G.M. McDonald in 1989 [6].

Later, in 1990, brand extension was also described as “the way to introduce new products without advertising” and “the way of assisting a new product’s success through endowing it with the goodwill which allows it to more easily gain trial and distribution” by P.G. Hastings [7] and D.A. Aaker [8] relatively.

In 1991 Blackett T. explained brand extension as “the way of capitalizing on brand assets” in his work “The Valuation of Brands” [9].

On the contrary of the aforementioned definitions of brand extension, which highlight its beneficial side of brand extension, there are two American experienced marketers, Al Ries and Jack Trout, who criticized brand extension, giving arguments that possible success of brand extension will cost the destroy of the brand original image for the organization [10].

Methodology

The subject of the research is brand extension management.

The object of the research is Nivea brand.

Hypothesis: Effective brand extension management provides successful extension of the brand with desired outcomes and predicts negative effects on the brand.

The methods used in the research are analysis and explanation.

Findings

Nielsen Holdings Inc., an American information, data and market measurement company, held research on 115 new product launches on five American and British markets. The aim of the research was to examine and compare which amount of market share was reached by the new products launched under established and known brand names or brand families and new products launched under new brand names. The comparison was done for the mentioned products two years after their launch. The first group of brands (brand extensions) performed significantly better than the second group of products with new brand namesю

There was also another study performed by M.W. Sullivan in 1992, described in the work “Brand Extensions: When to Use Them” [11]. The study examined 84 new non-durable products launched by the firms with established brands. As in the previous study, some products were launched under the name of the brands while others had new names. The study compared the performance and survival rates of the products after six years of their presence on a market and no strong difference was distinguished between the two groups of products (brand extension and new brands). After the six-year performance on a market, around 82% of products of both groups survived. It should be remarked that the products which had been dropped from the market on early stages or during the market testing stage were not considered in the study.

Later, the data of research were used and continued in 2012 the study “Innovation powered by brand stretching”, a multi-part series of Nielsen’s thought leadership on Innovation [12]. The study series examine the power of brand extension as an effective innovation strategy to win in a marketplace. The main findings from the study state that “30% of revenue of top 23 FMCG most trusted brands come from brand extensions”, “brand extension is five times more likely to have success compared to all new product launches with new names”, and “brand extension help to leverage equity, spend efficiency and have faster consumer adoption”. The study also supports the philosophy that a brand is not constrained by one product but holds value which can be transferred to other categories.

The study states that the contribution of brand extension is significant and grows rapidly. Nielsen Audit data shows that the brand extension contribution to brand was almost 30% in 2011 and the contribution to incremental sales was 38% (Figure 1).

Figure 1. Brand extensions are driving growth. Source: Nielsen Inc.

The decision to extend, or “stretch”, the brand is always complicated and controversial, and the outcomes can be unpredictable. From the one side, launch of a new product under the established brand name can be considered as the easiest way, as customers, especially loyal ones, trust the brand and its products, both new and old.

Hence, there can be possible drawbacks of brand extension. First, brand extension can worsen the general core brand image. Brand extension in unrelated markets may lead to decrease of reliability if a brand name extended too wide. There is a risk that new product can reduce the brand value and original brand image. As an example, Heinz faced the negative effect on the original brand image after the company extended from pickles to Heinz Ketchup. The extension and success of Heinz Ketchup came to the company at the expense of its position in the market of pickles [10].

Taking into consideration the possibility of failure of a new product, as well as the possibility of negative effect on a parent brand, many companies do not think whether to extend the brand or not, they think about the ways how to extend it, as the right brand extension management plays crucial role both in success of a new product on a market and in feedback benefits to a parent brand.

This article is going to reveal the main effective brand extension management steps, rules, and questions with the example of Nivea brand.

Discussion & Conclusion

Nivea, a German personal care brand specialising in skin and body care, build itself through brand extensions. The brand is owned by the company Biersdorf Global AG. The company was created in 1912 and was producing only one product: skin cream. By 2003, Nivea has become the leading brand of skin care in the world with average growth of 15% each year and turnover of 2.4 billion euro. The success and growth of the brand fully bases on its progressive and well-managed systematic extensions.

The growth of the brand underlies in two main factors: the modernization of its prototype product, well-known all around the world skin cream in a round blue box, and its regular brand extensions.

The strategy of Nivea on new markets is the following: the company first introduces its prototype product which carries the main values of the brand, and then Nivea comes to the brand extensions. Brand extensions follow the established order: care products first, then hygiene products, then hair, and make-up products the last. The daughter brands of Nivea extend these categories according to specialization, which is based on gender, age, purpose and so on (Nivea Men, Nivea Baby, Nivea Sun, etc.) (Figure 2).

Figure 2. Nivea brand extensions.

Source: Kapferer J. The New Strategic Brand Management.

The other key success factor of Nivea extensions is innovation. The parent brand put a lot of resources and efforts to innovation, as well as daughter brands do. Not only extensions face innovation, even the prototype product is updated according to new customer needs and market conditions.

Extensions play a significant role of success and growth of company, and they form a large part of the business mode of Nivea. The brand also followы the established management rules of brand extension for entering new regions. The rules include launching extensions in the established order: care products, then hygiene products, then hair products, and the last make-up. The line for women goes before the men. Depending on the market potential, Nivea lets each country organisation choose to launch its daughter brand. As an example, the Brazilian market of care products is small as compared to hygiene products, the brand still maintaines its order of extensions.

The brand follows the brand extension management rule regarding the objective of brand extension. The Nivea rand extensions are made not only to increase the core competence and penetration of the category of the new product, but also to improve the parent brand image.

The Nivea brand extension management protects the extensions from failure by assessing the product features, strengths, weaknesses, opportunities and threats, as well as the new market opportunities and competitors. The brand has identified the “no-go” areas for itself, which do not mean that there are no such markets or opportunities on them. This means, that the new products cannot meet the conditions of such markets.

Following the example of Nivea, there are a number of key steps for the brand extension to get to the desired results.

First of all, brand extensions need to be evaluated regarding the parent brand, competition on a market and customers (Figure 3).

Figure 3. Brand extension evaluation framework.

Source: Kapferer J. The New Strategic Brand Management

Brand extension management must include a long-term vision of the parent brand with the exact definition of brand leadership, whether it is the leadership by product, category, target, and so on. Each further step must be evaluated in accordance with the main goal.

To assess the level of risk of brand extension failure, customer research must be provided. Customers tend to make impressions and expectations of the brand. Considering customers’ experience with the brand and developing future customers’ expectations based on it is a crucial step in brand extension management.

Another key step of brand extension management is the estimation of brand value in the extension category and the competition there. Management should include the estimation of the value of the brand assets whether they have a motivation value and whether they can win the competition.

Brand extensions are not defined as only a new product or service, it includes a new marketing mix [13]. In this way, not only the brand, but also the customer should be considered.

Brand extensions can be described as forms of modification or adaptation of the full marketing mix, or 4P’s, which includes product, price, place, and promotion [13]. Managing not only a parent brand and a new product, but the full marketing mix provides opportunities to successful brand extension.

Concluding, Nivea got the following main benefits of brand extensions: leverage equity, efficiency, and fast adoption on new markets. The potential of the brand was used to extend its equity to cover a larger scope of customer needs. Also, the company got benefits of scale for promotion and advertising expenses, as the promoting and advertising activities benefit both the parent brand and the brand extension. Moreover, as the customers knew Nivea brand and trusted it, the adoption of new products was easier.

The main benefits of brand extension include the growth of a brand, delivery of sustainable advantage, increase of efficiency of promotion and advertising for a parent brand and increase of customer loyalty.

The possible drawbacks of brand extension mean that brand extension should be well-planned and well-managed. The brand extension main management rules include the assessment of brand potential and resources of the company, the analysis of new market for new product, the definition of competitive advantage of the brand and the deep analysis of competitors. The rules described in this work can be used for brand extension management of innovation brands in practice.

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Все статьи автора «Замковая Анастасия Николаевна»