Principio Marketing


Let's talk about your business!
BOOK NOW!
 

MY ARTICLES

IN-DEPTH
ARTICLES

WHAT IS A BRAND EXTENSION?

Why is it important to have a brand? We regularly talk about this topic, and several reasons are given. But here is another one: because you can take advantage of your brand to market new products or services by doing a brand extension.

What is a brand extension? This is when a company decides to market a new line of products or services under a brand that has already been established. The company can produce the products itself or can choose to partner with other companies through a brand licensing agreement.

The explanation is not very clear? Let us look at examples.

When I started in marketing, I worked for one of the better-known brands in Canada: Kodiak. If you are a worker in Quebec, you know those branded boots. Plus, if you were in high school in the '70s and '80s, those yellow/beige boots were part of the unofficial school uniform.

The Kodiak brand was (and still is) very well known. But what do you do when you have reached that level of notoriety? De we simply make more boots? Certainly, this is the best option. The company is working hard to promote its products to have more sales by increasing its market share.

But who says more sales, says more investments: labor, equipment, raw materials, support team, etc. Of course, this is a nice problem to deal with: there are more sales, so everyone is happy right? Not always. Some investments are fixed and not variable costs. This means that if the increase in sales is temporary, some of the costs incurred will remain. At least, they will not come down as fast as the sales. This is the case with equipment. To meet the increased sales, do you need to have a new production line? The purchase of machines, conveyors, the increase in floor space, the layout of this space (electricity, wiring, heating/air conditioning, etc.) will remain in place even if there is a decrease in sales. It is a calculated risk, but a risk, nonetheless.

Is this the only way to increase sales? No! There is a brand extension. Let us go back to Kodiak, our example. When I was with the company, it was starting with its brand extension strategy. Up until then, Kodiak only made work boots. However, the clientele that bought work boots also bought other items at the same places, such as work gloves, work clothes, socks. The goal was to find manufacturers of the products we wanted to have and sell them the idea of ??having the Kodiak brand, which would help to sell more. In return for this use, Kodiak would receive royalties. This way of thinking about our diversification was less risky than the other option, which was to manufacture such products ourselves. The risk would have been very high, both from a financial standpoint, as well as with the learning curve, the achievement of quality, the risks to our brand erosion if our new product line was not up to par, etc.

Thanks to these agreements, men could go to work, dressed from head to toe in Kodiak branded products. But should we have stopped there? What about casual wear? What about women? Children? And recreational activities? When I was with the company, the Kodiak brand was on casual clothing for men and women, of course, work boots, winter boots, but also shoes, sandals, socks, gloves, and backpacks.

Several advantages come from this strategy:

  • An increase in income thanks to royalties.
  • An increase in the brand's presence in the various outlets (they carried not only the boots but all the other products that complemented it).
  • An increase in the visibility of the brand (products were seen by more people and in return, more people knew the brand).
  • This strategy is not without risk.

    To be effective, you must choose your partners wisely. Ideally, your partners should be comparable to your business in quality, respect, presence, value, size (in some cases), and vision. The chosen company must put the same quality in the manufacture of your branded products as if you would make them yourself.

    You must also be careful not to dilute your brand. Two main factors can be responsible for this: too many products on the market and too much variation in price positioning.

    For the first point, it is important to determine the niches that will be targeted by your branded products because being everywhere is not a good idea. While the financial appeal may be attractive in the short term, being on all products is like being nowhere; we lose what we have worked so hard to build: our competitive advantage.

    The other point is to stay in the same price positioning. If your products are at the high end of your market, partnering with manufacturers who make budget products lowers your brand value. For example, if your boots are at the high end of the spectrum price-wise, then your socks should not be the cheapest. This would harm your brand value.

    Another essential point is the quality of the licensing agreement between the parties. You must clarify points like:

  • How to use the brand.
  • How to manage stocks, returns, and follow-ups.
  • What happens in case of closure? Acquisition?
  • Who is responsible for what?
  • What follow-ups documents are required?
  • The frequency of payments?
  • Etc.
  • As a small business, how can this help you?

    First, this illustrates the importance of having a brand. So, if you are wondering why to invest in your brand awareness, here is one more reason to start.

    More importantly, this should give you ideas for your marketing strategy.

    If you are in the field of service and you have built a good customer base, this network can be “rented” to professionals with complementary specializations. Of course, this needs to be done properly, and not all “rentals” are financial. For example, there can be referral reciprocity, which would help fill up your schedule. There may be other considerations. But no matter what type of agreement you make with your suppliers, from your customers’ point of view, you are offering an "all-inclusive" approach, even if the professionals are not part of your team. All the above considerations come into play; choose suppliers who have the same level of professionalism as yours. Who knows, if this division of your business grows, they might become employees or partners.

    What if you selling products? There are very good arguments for having reputable brands from companies other than yours in your business. These help position your business. But imagine having your own branded product lines. Several manufacturers offer “white label” services, which means that the manufacturer will put your name on products. There will always be minimum quantities to be had, but for some of your top sellers, check your sales volume and see if they are approaching that minimum.

    What would be the benefits of having your own branded product line? You would have “exclusive” products. No more price battles over the same products sold in different places. But this strategy is valid if:

  • You have a brand, and
  • The product in question is not a recognized brand.
  • White label manufacturers are sometimes offered by companies who have not yet achieved a dominant position in the market. This is one of the ways they can stand out and increase their sales volume. The good news is that does not mean the product is not good. But the company may be newer, and it is making itself known. Some companies position themselves in this niche; they make products exclusively for other companies. So, there are several quality options on the market.

    If you have your own branded products, what should you do? Well, you should market them to your customers through your various communication channels. Another advantage is that the advertising so invested will benefit not only for the sale of the product but also will reinforce your brand as it has your name is on it. For example, imagine that you are negotiating with a paint manufacturer for a line of anti-rust paints with your name on it. When you advertise, instead of promoting "Tremclad" for example, you will have all the advertising for yourself. Yes, sometimes companies will have co-op advertising budgets because you are helping to build THEIR brand awareness. But, there are several advantages to doing it for yourself.

    If you have any questions or comments, please do not hesitate in contacting me.

     

    Stéphane Elmaleh-Riel, B.Ed., MBA
    Marketing consultant