It seems that everywhere we look these days we see brand extensions. Jim Beam's name is now on barbecue sauce, Dannon is selling Dannon water. The Sony name is on everything from Playstations to Walkmans to digital phones, DVD players, notebook computers to even record labels. The list is endless- Jello Pudding Pops; Skippy Peanut Butter Bars, Ralph Lauren sheets. Bic even once tried to put its name on perfume.

What's the deal? Why do so many companies want to paste their brand name onto so many different products? What are the benefits? What are the risks? And how do we know whether doing so is a good idea?

WHY BRAND EXTENSIONS?

Brand extensions have many benefits. First, they let a marketer take a well known brand with well-known quality perceptions and associations and put it on a brand in a new category. Not only can marketers capitalize on brand awareness, they can also leverage off of the associations consumers know about the parent brand. If consumers know that Arm and Hammer Baking Soda is deodorizing, they will immediately infer that Arm and Hammer kitty litter will be deodorizing too.

Second, consumers who favorably evaluate a parent brand are more willing to try and adopt the brand extension than an unfamiliar brand in the same category. They trust a known brand name. For these reasons, brand extensions make new product introduction less expensive.

Brand extensions can also help a firm's stock prices. Some academic research has found that Wall Street attend to brand extension announcements and that whether they like them or not depends on how much they like the parent band. Brand extensions can also help consumers understand the core meaning of the brand name. When Arm and Hammer, extends its name from baking soda to deodorant, kitty litter, shoe inserts, its core "deodorizing" brand concept is enhanced. Arm and Hammer MEANS deodorizing—no matter what it is on. So, in this sense, brand extensions truly help to build equity in the brand name itself.

WHY NOT BRAND EXTENSIONS?

On the other hand, are brand extensions always a good idea? Not really.

First, academic research has identified a number of instances in which a brand extension has hurt the image of the brand concept. This is particularly true if the brand extension involves some kind of disaster of negative publicity. When Audi had a problem with sudden acceleration in one of its models, all models with the Audi name were hurt (although the Quattro—with a different name—was not.

A core brand concept can also be diluted if it is extended to too many different product categories. What does Samsung stand for if it is linked to such disparate products as life insurance, automobiles, microwave ovens and the like? Also, a successful parent brand does not always guarantee a successful brand extension. Bic is a great brand in the context of pens and disposable razors, but perfume? Well, that's another matter altogether.

WHAT SHOULD YOU DO?

So how does a manager know whether developing a brand extension is a good idea? When will it help the core brand and when will it hurt? When will it lead to a liked and tried extension and when is it be avoided like the plague? Academic research tells us that a number of things are relevant.

THE IMPORTANCE OF "FIT"

First, think about the associations consumers have with the parent brand and category and think about whether these associations will work in the extension category. Heinz is associated with what, "thick" and "ketchup", "hamburgers and hotdogs" and "you can find it everywhere".

These associations work well if Heinz is going to extend to a category where thickness is good and tomato flavor is desirable (e.g., Heinz spaghetti sauce), or where the usage context involves a complementary product also used with hotdogs and hamburgers (e.g., Heinz relish, hot dog buns), but may lead to less than pleasant associations if thickness, tomato like flavor, or meals on the grill is irrelevant or undesirable (Heinz grape juice; Heinz).

This psychological fit is really important because if consumers associate the brand extension with anything undesirable, they are not likely to buy it, no matter how favorable the parent brand name is.

Companies sometimes forget this. Sometimes brand extensions are based on capabilities of the companies without considering how consumers will interpret the extension. Sure, Welch's makes a great jelly. They have all kinds of suppliers for getting grapes, have grape pressing machines, bottling facilities and the like. And, perhaps these facilities can be used to make a really great wine.

But what do you think of when you hear "Welch's wine"? Not something you would serve at your next dinner party! It's too common, it's too geared toward children and fun. It's not serious, adult and sophisticated—something more appropriate for wine. Bic might have great production facilities and expertise in molded plastics that would allow it to make a great spritzer for perfume. But what do you think of when you hear Bic perfume? Smells like butane? Will stain like ink or make you flammable when spritzed on your neck or wrists?

There are many ways that a brand extension can (and cannot) fit with the parent brand—similar attributes, benefits, uses, users, usage situations, distribution channels, and price. Each needs to be considered. And don't forget to do consumer testing. Invariably consumers will think up some associations that you didn't and that might need to be considered in developing ads.

Parent Brand Affect Academic research has also shown us that the affect or attitude that consumers attach to the parent brand is another big determinant of how much they like the brand extension. If they love the brand, they will likely love the extension (assuming fit, of course). If they're not too crazy about the parent brand, chances are they'll react in a lukewarm manner to the brand extension.

Concept Type Research also shows us that how far away we can go from the parent brand depends on the kind of brand concept it has.

Think about the differences between a brand like, say Maytag, Cross, and Pepsi. Maytag stands for durability and reliability in washing machines. It has, what we might call, a very functional brand concept. The brand is designed to solve problems (clean our clothes) and not create new problems (by breaking down, overflowing, or ripping our clothes). Arm and Hammer, Crest, and Dell are other examples of brands with functional concepts.

Cross, on the other hand, stands for prestige, style, exclusivity. It is designed to say something about the user. Hugo Boss, Rolex, and Polo Ralph Lauren are other examples. It's concept is primarily symbolic—saying something about who the user is and what makes them unique or different from other consumers. Starburst stands for great tasting, gushy flavor and fun. It has an experiential concept. Disney, Pepsi, and Ben and Jerry's are other examples.

The thing is that if you have a functional concept, it is more difficult for you to stray from your center. Arm and Hammer might be able to extend to other functional categories, particularly those that are very central to deodorizing and cleaning, but it will never make it further than that. On the other hand, Polo might be able to extend to lots of very different categories—shoes, clothes, eyeglasses, sheets, home appliances, and so on. Brand with functional concepts are more constraining.

Price Extension Finally, some research has shown that whether consumers like a brand extension and whether they think it is going to be a high quality brand depends on whether the parent category is higher or lower priced than the extension category.

Say a maker of microwave ovens decides to make a toaster oven. They would be pursuing a downward price extension because the price of the brand extension category (toaster ovens) is much less expensive than the price of parent category (microwaves). If on the other hand, the same company decided to make a full sized convection oven, they would be pursing an upward price extension because the brand extension category (convection ovens) is more expensive than the parent category (microwave ovens).

Consumers tend to infer that brand extensions are of higher quality and are higher priced and have higher quality when a downward vs. an upward extension are used. They also like the brand extension better (perhaps because they think it's quality is better). On the other hand, a downward extension tends to hurt consumers' quality image of the parent brand. It seems like consumers wonder, "why are they making a cheaper product? Maybe they aren't as good as I thought they were".

So if you are going to make an upward or downward price extension it seems like either the parent brand or the brand extension will be hurt. The question becomes, which do you want to hurt least?

Obviously, brand extension decisions are complicated. But hopefully, they are better informed and have fewer adverse effects on the equity of the brand if these issues are considered.