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" If you’re serious about building your brand and growing your business, I suggest you begin by deciding which business you’re really in. "

The Pitfalls of Brand Extension

(+ How to Avoid Them)

Michael Jordan is a pretty good golfer, generous philanthropist, shrewd businessman and prolific product spokesman. But when I say, “Michael Jordan,” you think “Basketball.”

Do you suppose that bothers him very much?  If it does, he’s crying all the way to the bank.  Because Michael Jordan understands something most of us forget: No matter how many things you do – and do well – the world will only recognize you for one of them.  So, it’s better if you decide what that one thing will be.

The annals of advertising are filled with cautionary tales of marketing Goliaths toppled by disruptive Davids, all because they overestimated the elasticity of their brand equity.  Time and again, we’ve been shown that brand extension rarely works; that you can’t be famous for this and that and the other thing.  But that doesn’t stop more marketers from trying; from chasing after every new market trend and uttering those fateful words: “We should do that, too.”

Size Won’t Save You

It doesn’t matter how big or beloved you already are. Just three years ago, the bluetooth speaker pioneers at Jawbone were the darlings of Wall Street, with a market valuation of $3.2 billion.  Then someone decided they should get into health and fitness tech wearables, too.  How hard could it be?  They certainly had the capital, right?  Last month, they began liquidating the whole company.

And does anyone actually use Google+ for social networking anymore? Of course not.  Because that’s not what they “do.”  Once consumers start asking each other to “Google the answer” or “hand me a Kleenex,” your brand competency is pretty much carved in stone.

It also doesn’t matter if your new products or services are in the same basic category. The more famous the brand, the less consumers are willing to stretch its equity.  Very few of us would buy a Harley-Davidson bicycle or Rolex alarm clock, even though such products would fall into the same general category (Two-Wheeled Vehicles and Timepieces), and these manufacturers are widely considered best in class.

Sins of the Fathers

One of the more subtle (and seemingly safe) forms of brand extension is the parent/child endorsement.  Newborn or adopted brands are introduced with a different name, but endorsed as being “from,” “by” or “part of” the parent organization.  But the only time this strategy has proven even marginally successful is when the parent brand is clearly superior.

Courtyard hotels have succeeded in part because Marriott had already earned a reputation for high standards in hospitality.  At the same time, Crowne Plaza hotels have traditionally struggled because far fewer travelers are willing to pay $400 a night to stay in a Holiday Inn. No matter how nice it purportedly is.

Revenue Leaks Through Absorption

Even when the endorsement brand is renowned and well respected, parent companies run the risk of liquidating brand equity or alienating customers.  At first blush, Nordstrom’s recent acquisition of custom shopping service Trunk Club makes perfect sense.  Given the department store’s legendary reputation for personalized service, it seemed only natural that they promote the new e-tailer as “A Nordstrom Company.”

But what happens when current or prospective Trunk Club customers start worrying they’ll only be able to “try and buy” the same stuff they’d find at Nordstrom.com (or in any Nordstrom store through their in-house shopping service)?  Last Fall, the company took a $197 million write-down on Trunk Club; more than half of what they paid for the company.

Brand Extension Pitfalls + How to Avoid Them.

Singularity Promotes Superiority

Why is this so difficult?  Why are consumers so unwilling to transfer brand equity from one product or service to another?

For one thing, we’re easily confused.  We don’t pay nearly as much attention to your brands as you do or the specific claims regarding each product.  Our lives are very full without knowing a thing about your company, so the most we can do is file your brand away in our mental Rolodex under a simple, categorical heading.  And, as Al Reis and Jack Trout pointed out 40 years ago, the consumer’s mind only has enough room for a few brands per category – and one category per brand.

We’re also pretty cynical.  Excellence in anything takes such dedicated focus that we simply don’t believe you can spread your attention across multiple disciplines and deliver superior results.  Consumers – particularly American consumers – want specialists, not general practitioners. We shun the “jack of all trades” for the king of one.  Kraft makes cheese.  Land O’ Lakes makes butter.  And we don’t buy milk from either of them.

Perhaps most importantly, we like options. We like different.  We like hearing there’s something new out there that was invented specifically for us – not just a retread of something old that was originally meant for someone else.  So, if you’re going to introduce a new product or service, then give it a new name and do your best to separate it from what you already offer.

Flawless Market Expansion

The most tragic fact regarding these brand extension pitfalls is that they’re all completely avoidable.  Today’s marketing and media technology (like the Intelligent Pixel® platform from Modern Impact) turns Big Data into smart data and allows you to test the feasibility of everything – from proposed brand names and potential new products to prospective targets and creative messages.

Best of all, this market intelligence is based on what consumers actually do and buy – instead of just what they say they will.  No more guessing.  You’re working with empirical evidence, not personal opinions.  And it all happens with the push of a few buttons.

So, if your company is exploring new opportunities or trying to identify the next real trend, a company like Modern Impact could help you become the “Michael Jordan” of your industry.  But if you’re serious about building your brand and growing your business, I suggest you begin by deciding which business you’re really in.

Brand Strategy

As a seasoned veteran with three first names, RAP (as we call him) brings 30+ years of brand strategy expertise to the clients of Modern Impact. Having lived on all three sides of the agency-media-client equation, he provides a unique, universal perspective on the branding process. His talent for building strong brands spans Real Estate, Insurance, Health and Fitness, CPG, Automotive, Travel and several other categories. That radio voice and razor-sharp tongue mean there’s never a dull moment with RAP in the room. Then you realize you’re walking out smarter (or at least more sarcastic) than when you walked in. Read RAP’s blog posts and you’ll see what we mean.

Thanks for connecting.

We look forward to doing business with you.