MGTC12 _Chapter 12 notes.docx

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Department
Management (MGM)
Course
MGMC12H3
Professor
Robert Carroll
Semester
Summer

Description
Chapter 12 New Product and Brand Extensions  When a firm introduces a new product, it has 3 choices of branding it:  Develop a new brand  Apply in some way to one of its existing brand  Combination of new brand and existing brand  Ansoff’s Growth Share Matrix Current Products New Products Current Markets Market Penetration Strategy Product Development Strategy New markets Market Development Strategy Diversification Strategy  Brand extension occurs when a firm established brand name to introduce a product (the last the approaches above)  A new brand combined with existing brand, the brand extension can also be a sub-brand.  An existing brand that give birth to a brand extension is the parent brand.  If the parent brand is already associated with multiple products through brand extensions, can also be called family brand  Brand extensions fall into 2 categories:  Line extensions: Using a sub-brand to target a new market segment within the same product category(adds a diff flavor, diff form or size, diff applications(like Head and Shoulder Dry Scalp shampoo))  Category extension: Using the parent brand in a different product category (Swiss Army Watch)  General Strategies for Establishing a Category or call franchise - extension (Edward Tauber):  Introduce the same product in a different form. Example: Ocean Spray Cranberry Juice Cocktail  Introduce products that contain the brand’s distinctive taste, ingredient, or component. Example: Philadelphia cream cheese salad dressing  Introduce companion products for the brand. Example: Coleman camping equipment and Duracell Durabeam flashlights  Introduce products relevant to the customer franchise of the brand. Example: Gerber insurance, Visa traveler’s check  Introduce products that capitalize on the firm’s perceived expertise. Example: Honda lawn mowers  Introduce products that reflect the brand’s distinctive benefit, attribute, or feature. Example: Lysol’s “deodorizing” household cleaning products  Introduce products that capitalize on the distinctive image or prestige of the brand. Example: Calvin Klein clothes  Advantages of Extensions:  Facilitate new product acceptance  Improve Brand Image: Consumer can make inferences and form expectations about the likely performances of the new product, based on what they already know about the brand itself. These inferences may improve the favourability, strength and uniquess of the brand extension product. (Sony introduces Vaio, consumer feel more comfortable about this new product because of their previous knowledge about Sony)  Reduce Risk Perceived by Customers: Perception of corporate credibility – in term of expertise and trustworthiness – can be valuable associations in introducing brand extensions. Similarly, although widely extended supermarket family brand such as Del Monte, may lack specific product meaning, they may still stand for product quality in the minds of consumers, this can reduce perceived risk and help facilitate the adoption of brand extensions.  Increase the Probability of Gaining Distribution and Trial: Because of potentially increased consumer demand for a new product introduced as an extension, it may be easier to convince retailers to stock and promote it.  Increase Efficiency of Promotional Expenditures: Introducing new product as a brand extension does not have to create awareness for both the brand and the new product in the introductory campaign, instead can only focus on the new product itself. Should be easier to link the new product to the brand already exists. Several researches show that successful brand extensions spent less on advertising than new brand entries.  Reduce Costs of Introductory and Follow-Up Marketing Programs: Because of these push and pull considerations in distribution and promotion, a firm can save up to 40-80% on the cost to launch a new product. Other efficiencies can result after the launch. For example, when a brand becomes associated with multiple products, advertising can be more cost-effective for the family brand as a whole. (Apple introduced the iPod, which quickly became the market leader. In subsequent years, other Apple’s product such as Macintosh computers also experiences sustained 30% growth in sales)  Avoid Cost of Developing a New Brand: Developing a new brands require high amount of money, including consumer research and employ skilled personnel to design high quality brand name, logos, symbols, packages, characters, and slogans. And the number appealing brand name keep shrinking, legal conflicts are more likely to result, to avoid such a conflict, a global trademark search is a must, which can cost a million of dollar.  Allow for Packaging and Labeling Efficiencies: Similar or identical packages and labels for extensions can result in lower production costs and create a “billboard” effect. For example, Stouffer’s offer a variety of frozen entrees with identical orange packaging that increases their visibility when stocked together in the freezer.  Permit Consumer Variety-Seeking: It offered a portfolio of brand variants within a product category, consumer who need a change because of boredom, can switch a diff product type if they so desire without having to leave the brand family. (Suave, includes a variety of personal care product, Suave’s ability to offer a full product line is a competitive advantage)  Provide Feedback Benefits to the Parent Brand  Clarify Brand Meaning: Extensions can help to clarify the meaning of a brand to consumers and define the kind of markets in which it competes. For example, Clairol means “hair coloring” Example of some brands have introduced multiple brand extensions may have broadened the meaning with consumers. (example, Kellogg’s original product is cereal and extensions product are nutria-grain bars, special k bars, so the new brand meaning is “healthy snacking”). Border brand meaning is necessary to avoid “marketing myopia” and help avoid missing marketing opportunities or becoming vulnerable to well-planned competitive strategies. For example, Steelcase is not just to manufacture desks, chairs, etc. for business, but as “helping to enhance office productivity”  Enhance the Parent Brand Image: A successful brand extensions may enhance the parent brand image. One common way that a brand extension affects the parent brand image is by helping to clarify its core brand values and associations. Another type of association that successful brand extensions may improve is consumer perceptions of the credibility of the company behind the extension.(such as the perceptions of the expertise, trustworthiness, and likability of the company)  Bring new customers into brand franchise and increase market coverage: Line extensions can benefit the parent brand by expanding market coverage, such as by offering a product benefit whose absence may have prevented consumers from trying the brand. Creating “news” and bringing attention the parent brand may benefit the family brand as a whole.  Revitalize the Brand: Sometimes brand extensions can be a means to renew interest and liking for the brand.  Permit Subsequent Extensions: For example, Goodyear’s successful introduction of its Aquatred tires sub-brand led to an introduction of Eagle Aquatred for performance vehicles with either wider wheels like the Ford Mustang  Disadvantages of Brand Extensions  Can Confuse or Frustrate Consumers  Consumers may confuse or frustrate about which version of the product is the “right one”. With 35 versions of Crest toothpaste, consumers can easily feel overwhelmed. Moreover, because of the large number of new products, many retailers do not have enough shelf or display space to stock them all. Some consumers may be disappointed when they’re unable or unwilling to stock it.  Can encounter retailer resistance  The number of consumer packaged-goods stock-keeping units (SKUs) outpaces the growth of retail space in year-on-year percentage growth. Additionally, own brand or private brand rose from 15% to 20% of total grocery sales. As a result, it is impossible for a grocery store to offer all the diff varieties available across all the diff brands in any one product category (Campell has more than 100 flavors). A Food Marketing Institute (FMI) study recommended that retailers systematically identify duplicated and slow-moving items and eliminate them to maximize profitability. Many large packaged food brands began trimming their product lines in order to focus on top selling brand.  Can fail and hurt parent brand image  An extension fails and harms the parent brand image in the process. Even an extension initially succeeds, by linking the brand to multiple products, the firm increases the risk that an unexpected problem or even a tragedy with one product in the brand family can tarnish the image of some or all the remaining products.  Can succeed but cannibalize sales of parent brand  The success of the brand extension can be result from customers switching to the extension from existing product offerings of the parent brand.  Line extension designed to establish point of parity with current offerings in the parent brand category particularly may result in cannibalization. Sometimes, such intrabrand shifts in sales are not undesirable; think as a form of “preemptive cannibalization”. In other word, without introduction of the line extension, consumers might have switched to competing brands. (For example, Diet Coke and Coke)  Can succeed but diminish identification with any one category  One risk of linking multiple products to a single brand is that the brand may not be strongly identified with any one product. Thus, brand extensions may obscure the identification of the brand with its original categories, reducing brand awareness.  For example Pepperidge Farm been extended so much (into pastries, bread, and snacks) that the brand has lost its original meaning of “delicious, high-quality cookies.”  Can succeed but hurt the image of the parent brand  If the brand extension has attribute or benefit associations that are seen as inconsistent or even as conflicting with the corresponding associations for the parents brand, consumers may change their perceptions of the parents brands as a results.  For example, Evian licensed its brand to Johnson & Johnson of their skin care products, it risked eroding associations of “pure” and “refreshing” for its water, with associations to skin care, such as “cleaning”, “chemical” and “cream”.  Can Dilute Brand Meaning  The potential drawbacks of a brand extension’s lack of identification with any one category and a weakened image may be especially evident with high-quality or prestige brands.  For example, Gucci brand symbolized luxury, status, elegance and quality. By the 1980s, the product line consisted 0f 22000 items, not only too many items, but some items did not even fit the Gucci image. Gucci refocused the brand, paring the product line to 7000 high-end items.  To protect their brand from dilution, many fashion companies seeking to grow through brand extensions are now forging exclus
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