Sometimes it pays to stick to the known

Brand extension, that is use of the same brand name for new products, continues to dominate many companies' corporate strategy despite the fact that the risks and failures are often colossal.

Hangzhou-based Wahaha, for example, enjoyed initial success with an extension of the corporate brand name from children's' drinks to purified water for adults but then fell into the "stretch too far" trap with a further extension into children's' clothes. Haier have experienced a similar fate with an extension of their corporate name from refrigerators, their core product upon which their early success was built entirely, into mobile phones and computers, despite successfully exploiting their name in the washing machine and air conditioner markets in China.

So, the question remains, when, where and just how far should you extend your brand? Before providing guidance on this most strategic business issue, we need to define and differentiate between different types of extension, such as line extension, brand extension and brand stretch.

Line extension: This involves extending the name within the same product line, such as Li Ning's now vast range of sports shoes, and huge array of one of China's most famous shampoo brands Rejoice as well as the plethora of different types of toothpaste brands, and is therefore usually least risky and often the first step in any product portfolio expansion. There are risks here though, for example, confusion among the customer base if a plethora of items appear with the same brand name. Shopping for shampoo and toothpaste often quickly results in habitual decision making due to the overwhelming variety on offer.

Also, there is the distinct possibility of some sort of cannibalization of sales with the line extension approach. This is a real danger where customers simply switch from one of the company's brands to another.

Brand extension: What usually follows line extension is brand extension which involves using the same brand name to move into different but related product categories, such as Haier's move from refrigerators to washing machines. While this is nearly always more risky than line extension it doesn't usually lead to customer confusion and also avoids the cannibalization danger of line extension. Brand extension requires greater financial outlay but is often a necessity if sales and profit growth are to continue. A step-wise series of related extensions often follow, as exemplified by Haier's progression from washing machines to air conditioners.

Brand stretch: By far the greatest risk occurs when companies attempt to stretch their brand name way beyond its original core product area. Stretching the Haier name from refrigerators, or more generally household appliances, to mobile phones and personal computers is clearly far more than brand extension. However, the difference between "brand extension" and "brand stretch" is sometimes difficult to define, depending on a brand's perceived core product area and its core customers' perception of brand image.

Yanjing beer, a well-established brand in Beijing, used the "Yanjing" brand name to expand into the soy sauce market which might be seen as "brand extension" as soy sauce and beer could be classified broadly under "food and drink". However, the Yanjing name is so firmly associated with beer, and only beer, by its loyal customer base that any move beyond the drinks sector should probably be considered as "brand stretch". This is the crucial point, that customer perception is key and not traditional industry classification. Yanjing's extension into bottled water, therefore, has proved far more successful.

Of course the main advantage of all of these forms of brand name extension is speed and low cost. Building an entirely new brand with a completely unknown name takes time and considerable investment, particularly in marketing communications activity. However, simply extending the same name places limitations on diversification and may lead to a lack of innovation and creativity. How could P&G boast such a vast range of successful brands in so many, so different, industrial sectors if they had chosen brand extension?

When and when not to use the same brand name depends most on brand image but also internal company capabilities.

Internal company capabilities: it is all too easy to focus too much on customers and consumers and also become over-confident due to success in certain product categories but most companies possess only a few core strengths and, therefore, struggle when stretching their brand too far from their "bread and butter" product category. Haier's launch of "Haier Real Estate" is a good example of a stretch way too far. Not because of the lack of "fit" between the Haier brand image and the image that real estate customers value, after all "Haier" to most Chinese signifies "trust" and "reliability", but because the real estate industry could not be more different from household appliance manufacturing.

A common "stretch" too far is a move outside a company's original industry base, however careful scrutiny of a company's internal strengths may reveal capabilities which can be applied successfully to other, quite different industries. For example, the UK food retailer TESCO, now firmly entrenched in Asia with stores in Beijing, has succeeded, with the TESCO brand name, in financial services as well as causal clothing and consumer electronics. Indeed venturing outside a company's initial area of success may well help to nurture a more innovative, entrepreneurial culture. Step-wise progression appears to work best though with a gradual approach stepping to different but related industries rather than a rush from service industry to manufacturing for example.

Brand image: or rather customer perception of brand image should determine any brand extension decisions more than anything else. That said, measuring and tangibilizing customer perception is becoming increasingly difficult. Successful brands enjoy an emotional image and are seen less for their functional qualities but such an emotional image is far more difficult to determine. Research studies over many years nearly always reveal "sincerity", "excitement", "competence" and "sophistication" as most common among customer perceptions of the successful brands. But perhaps it is only "competence" among these whose meaning is relatively easy to define.

Extending or even stretching a brand name could be considered where there is "fit" between the current brand name image and the image that customers value in the destination brand. But that brings us back to the problem of defining clearly what a brand's image actually means. Pepsi stretched their brand name all the way from soft drinks to shoes and clothes probably on their "understanding" that Pepsi soft drinks are seen as "exciting" and "cool" that younger generations around the world value "exciting" and "cool" clothes and shoes. Unsurprisingly, Pepsi shoes and clothes have not succeeded, probably because "fashion" and "style" are the brand values that younger generations associate with desirable clothes and shoes.

Delicately defining in minute detail a brand's perceived image can be achieved by delving into the customer's mind with all sorts of brand association tests, such as if the brand was a person/car/animal, what sort of person/car/animal would it be?

Brand extension in China: Most aspects of marketing and strategy need to be reviewed thoroughly when doing business in a very different culture and brand extension is no exception. Where brand extension is concerned some of the key differences are:

Chinese consumers are more brand conscious, successful brands are, therefore, more likely to succeed with more extreme brand stretch in China.

Chinese consumers are less open to change, certainly among older generations, especially those born before 1980. Chinese consumers remain brand loyal. This also may lead to more successful brand extension rather than any individual product branding strategy which could cause confusion.

The author is a visiting British professor of brand management at China Agricultural University. The opinions expressed do not necessarily reflect those of China Daily.