As a marketer, especially if you're a senior marketer, you likely have a pretty good idea of what price elasticity is. So let's use that as an introduction to the idea of brand elasticity.
If you could use a quick reminder, however, price elasticity is, according to Harvard Business Review Contributing Editor Amy Gallo, a calculation marketers use to determine how a change in a product's price (up or down) affect demand for that product.
Price elasticity is a rear-view mirror metric that allows a marketer to know the impact on demand after the change in price. Its formula looks like this:
Beyond the value of precisely measuring a product's price elasticity, there is benefit from a broader understanding of just how sensitive (or not) a product is to price swings.
That simple understanding of how sensitive one attribute is to the movements of another attribute also lies at the core of the concept of brand elasticity, which gauges how sensitive consumer preference is for a certain brand when it stretches beyond its positioning or expands into new categories.
Whenever I talk with a marketer about brand architecture, one of the fundamental concepts always at play is brand elasticity. To marketers who are unfamiliar with the term, I share the following example: Imagine a new brand of ice cream brought to you by Exxon Mobile. Crazy, right? Of course it is: We all recognize that Exxon Mobile cannot stretch into a category so distant from its own and be credible, let alone create preference, in the category.
That extreme example may be a case of what academics would refer to as "perfect elasticity." What it means is that any shift away from the oil and gas category will absolutely be met with a dramatic change (in this case, negative) in consumer preference. In other words, variability is assured.
At the other end of the spectrum is a brand that is "perfectly inelastic," meaning it can pretty much enter any category it desires without much change to customers' preference for it.
(Editor's note: In the context of this article, it might help to associate "elasticity" with "distortion," so that "inelastic" would be "undistorted"—meaning its brand image and preference for it would not suffer damage—whereas "elastic" would imply "distortion" and thereform brand harm.)
Virgin is an example that might be as close as a brand can get to being perfectly inelastic. Virgin can span categories ranging from airlines to bridal services and still generate preference (this has a lot to do with brand positioning, but that, along with a host of other brand architecture considerations, is a topic for another day).
Of course, seldom do real-world issues fall neatly at one end of the spectrum. Extremes are rare; most brand portfolio challenges occur within the far messier middle.
With that in mind, an instructive way to think about brand elasticity is to consider the most defining attributes of a brand and then think of them as a center point, around which orbit a series of ever-expanding concentric circles, each with its own set of secondary, tertiary, etc. attributes. When deciding about how best to brand a new offering, think about how proximate that new offering's core attributes are to those at the center point of another brand already in your portfolio.
By way of example, consider Adidas. The brand is all about athletic performance, the byproduct of which is sweat. So why not stretch into personal care, specifically Adidas deodorant? There is a solid case to be made that the Adidas brand is sufficiently inelastic to enter into this new category. If, however, the distance is too far, such as the case with Exxon Mobile and ice cream, the brand is probably too elastic—i.e., it responds too dramatically to movements beyond its established category.
As noted earlier, the extremes are easy; it's in the middle where the action is. So consider the viability of outdoor retail brand REI's coming out with a new towable camper. Or what about Marriott's introduction of in-home housekeeping services? Or imagine if Match.com were to introduce romantic vacation packages?
Conceptually, each brand extension might work, but best-guessing gets a marketer only so far. Here's where market research can help.
One reasonable approach could be to field a conjoint study, in which the brand representing the offer is varied, while price and other factors are held constant. In other words, the brands are "traded off" while customer preference among the choice sets is measured. Such a study would deliver valuable insight into how receptive the marketplace is to the new offering when associated with each of the considered and different brands.
Using one of our examples above, a test might compare preference for REI's new towable camper with the following four brand constructs: (1) REI Camper, (2) Hitch by REI, (3) The Subaru Outback Trailer available exclusively at REI, and (4) Hitch, unassociated with the REI brand yet sold at only REI stores. The options are many, but you get the idea.
With product description, price, and feature sets fixed, the test would shed light on the degree to which the REI brand drives preference for a towable camper—i.e., its elasticity with respect to such a product category. Should REI "master-brand" the camper (as in condition 1); endorse the camper (as in condition 2); use another brand (as in condition 3); or simply create a net-new brand with no REI brand association (as in condition 4)?
Brand architecture is an often complex practice area within brand strategy. Applying the conceptual framework of brand elasticity—and, whenever possible, quantifiably gauging elasticity through testing—is a meaningful approach to assuring brand equity is properly extended without stretching a brand to its breaking point.
