 Assalamu alaikum khabati nuhasrat. Wasim Ahsan welcomes you to the virtual University of Pakistan. We are getting into lecture number 23 of the Brand Management and the topic of discussion is brand extension. We left our discussion on the subject in the previous lecture by completing our understanding on the concept of line extension and knowing that the line extension and the brand extension are through very well differentiated concepts. Let us now start talking about what brand extension is. Brand extension like you will recall is the study and the practice of brands which go across the boundaries where they already exist into markets which are new. New in the sense that they are all to satisfy a different need altogether. The example could be a company into the ship building for example also getting into the car manufacturing. This is a company which I talked about in the previous lecture or maybe lecture before that. You have companies which you are very well aware of and which also form part of the marketing literature that are into things like electrical appliances and electrical appliances for your kitchen, electrical appliances for your family rooms like televisions and then they are also into lighting systems for your homes, they are into lighting for your streets and then there are companies that are into the area with personal care products, cosmetics and so on and so forth and they are also at the same time are into detergents for example and from there they also get into food items. This is an example of the brand extension and I hasten to add the concept of brand extension is not only confined to the multinationals meaning MNCs as we call in the business literature. The concept is being undertaken and applied very successfully also in our market. There are companies for example that are into automotive parts and they are also getting into food items only because the brand is very strong. Examples could be so many. Now the question is having had an understanding of what brand extension is and how it differs from the other concept of line extension, why do we extend brands? What really are the motivating factors or the reasons behind that? One is that brands have to stay up to date and modern in order to satisfy needs of the customers what brands do they try to surpass themselves. What that means is they create their newer and higher benchmarks not only in terms of quality but also in terms of satisfying different kinds of needs. An example could be a bicycle manufacturer getting into motorbikes that is something which is taking place right now in our market another example could be a manufacturer who is into spices getting into the jams and chutneys and so on and so forth. Brands therefore have to do something in markets which are different from where they are already in order to prove to the customers that they are responsive, they are responsive to the needs and they are responsive to the practices of the customers in the marketplace and you will recall they do that out of the energy that they muster during the total marketing process. If they are successful and valuable they muster so much strength and so much value that they really like to and they want to pay back to the marketplace meaning their customers by way of satisfying their newer needs and expectations. There are certain needs and expectations which you will find out through the research process which consumers think are not being met. That happens in terms of consumer consumables and that also happens in terms of consumer durables but there are certain needs that are capitalized by the brands meaning customers either could have that thing sitting very dormant at the back of their mind or they are not really aware of that particular need and that is the duty of proactive marketing. Those are the kind of needs. I mean the fulfillment of those kinds of needs are the ones which really touch that emotional card with the customers by introducing something that you prove to your customers or your prospects that here is a need of which you may not be aware of and we have tried to capitalize on that need so that it could be fulfilled to your benefit, to your satisfaction, to your pleasure. Example could be cars. There are many innovations that are taking place not because the customers really think of those needs all the time it is because the brands basically communicate those added up benefits to the customers and then present themselves for their fulfillment. Another example could be electronics like the kind of innovations and the kind of improvements and improved benefits which you enjoy so much are not the ones which you thought of but the manufacturers have the thought of those and they thought of those because they really wanted to satisfy that particular need at the same time staying ahead of the competition or staying in base with the marketplace because of the competitive pressures. So brands that really rely on communication alone in order to maintain their image or further improve their image by having just a single product usually have not been as successful as those brands which get into different other categories. This is what has been proved by time and there's a lot of evidence relating to this fact. So to stay modern and responsive in present days brands have to stay in tune with developments that are taking place in the market. As habits change and like I said earlier as expectations change the brands have to make use of the energy that they create in the marketplace by being so interactive and they are interactive because they are communicating with they are loyal customers and also prospects all the time they are being consumed meaning the customer patronage is being provided to the brands day in day out and because of that patronage the brands gain more and more energy and it is because of that energy that they like to pay back and the payback in terms of again not only consumer durables in terms of consumer consumables by meeting those expectations which they really have developed. Now a company that is into spices for example if that company decides to get into selling iodized salt it is an example of the brand extension because the company needs something very different in order to be prepared and in order to stand on that platform to start making and then selling that. So in other words it is the brands you know which at many a time create situations in which they may you realize that here is a need which if satisfied is going to be up to the mark and up to your expectations. Look at the situation when there was no packaged yogurt in the market the yogurt was sold as a generic product and there was no branding and ever since the introduction of yogurt into the packaging we have come a long way in terms of the different positionings and in terms of different points of differentiation but getting back to the main point of the brand extension expectations are something which are to be met and it is not important that that packaged yogurt is offered to the market by a company which is already into something very very close to it. Yogurt that was introduced packaged yogurt when it was introduced to the back in the 80s probably or maybe 70s it was not introduced by a company which was into foods at all that is a historical fact this company was into another operation which was way off the yogurt market. So brands like to pay back to the market through the energy they have generated for themselves by being successful in one particular category and then they go into other categories and start fulfilling customers needs and in the process if they become successful they all start on a very positive note so if they become successful they become more valuable they become more powerful and they add value not only to the company but they offer value also to customers. So in other words when brands get into other categories they also insulate the company from different kinds of threats in the market and those threats could be having more dangerous proportions if the company is just a one product and one brand company so when you are into other categories you are insulated from those threats to the quite an extent because if something goes wrong with one category or one product you can compensate that situation by the help of the strength and by the help of the power that your brand has into another category so the resourceful companies do follow this practice of getting into a brand extension second reason apart from trying to be up to date and the modern and getting into so many different categories to satisfy needs and all that second reason is that the chances of success are higher if you extend your brand meaning just like line extension you use the same name if you use the same brand name which has been very powerful and successful in one category you like to transcend into another category with the same name because the chances of your getting success there are on a higher side and we can see this with the help of this illustration which shows five different years this again is a result of a market study carried out in one of the western markets and we all have reasons to believe that these kind of happenings do have applicability I mean a parallel applicability into our market and markets like ours as well when brands as brand extensions as new brands start off they start off with the possibility of 100% success you never start off with a lower possibility thinking to yourself that maybe the brand is not going to be successful and maybe it is going to be successful well if you have negative thinking you are starting on the wrong foot and that must not be the case so this illustration shows you the two different types of brands meaning brand extensions with those dark blue dots the upper line and that line with the light blue dots the lower line are two lines that represent the brand extensions by way of the dark one and the new brands by way of the lighter ones I mean light blue both start off in the year one with the assumption that the success factor is going to be 100% but then look what happened after 5 years or what happened through a 5 year cycle let's take a look at the brand extensions first the line goes down because not all the brands are successful some just fizzle out and some stay in the market they survive the rigors of the marketing dynamics the market dynamics rather and of the 5 year brand extensions you can see that the brands that survived were 50% of those that were introduced or those that started on a very positive note of being successful by 100% conversely they take a look at the other line which is like an elbow and that line through the years I mean it is very interesting that if you take a look at year two there's a dip and quite a tremendous dip from 100% in the very second year the standalone of the new brands they go down to 50% and 50% are already out of the race and the remaining they show a gradual process of failing and getting out of the market and by the time they hit the year five they are out of the market by a factor of 70% meaning the brands new brands that survived were just about 30% so this is a very convincing research of the finding that of the brands which are introduced as brand extensions in about a period of five years of their introduction 50% of the brands survived whereas in case of the new brands just about 30% of the brands introduced survive within five years of their introduction going by these two figures I think in every manager would like to hesitate to get into newer brand names and rather would like to stick to the existing brand names and also knowing that the existing brands do make a lot of home into the hearts of the customers because of the familiarity because of the loyalty the customers already have to wear brands the companionship with the brands that you have been having for such a long time so the brands having the customers patronage along with the patronage of retailers which we talked about in great detail whether that be a line extension or that be a brand extension these two factors of patronage they really motivate the brand managers and marketing people to go for existing brands meaning to go for brand extensions because they know that the rate of trial is going to be higher in case of existing brands the rate of conversion after the customers or prospects to have tried your brand is going to be higher than new brands new brands are non-entities to begin with in the process they might become big hits but the fact remains in the beginning they are non-entities the third factor which really motivate the brand managers to go for the brand extensions is that the rate of conversion is also higher in relation to brand extensions I pointed out this thing earlier that the trial is one of the most important mechanics in the whole process of a brand with a gaining registration into the minds of the prospects even if it happens to be a new brand and write down to the final action of the purchase which takes place in the market if there is no trial you rest assured that there is going to be no sale because without going for a trial nobody is going to convert to the brand in which you are hoping to sell not only hoping to sell hoping to sell in big numbers so knowing these factors of a higher probability of the trial conversion and loyalty managers could do feel actuated to go for brand extensions this again can be substantiated these three factors which I talked about in terms of new people having motivation to go for the brand extensions can be illustrated by the help of this graphics which explains the concept very well the rate of trial for the brand extensions is 123 against an index of 100 meaning 100 for existing for new brands and 123 for extensions meaning existing brands naturally the people know who you are the rate of trial is like 17% as compared with 13 in case of new standalone brands and if the factor of loyalty is 100 in case of new brands and standalone brands it is the 161 in relation to brand extensions so knowing this kind of findings it becomes very natural for all the marketing people or all business managers to extend their brands and not be adventurous in terms of brand names because you have to go through all the variables of the marketing mix and you know the variables of marketing mix starting with the product and product where it is made that's all production operations and for that you have to go back into purchasing and inventories and logistics and so on and so forth so whenever you talk about the variables of the marketing mix it is not something that happens only in the area of marketing it is something which is very all encompassing and it takes into its fold all the factors and all the functions of the management process production finance, purchasing, inventories of the marketing itself information technology, human resource and you know why I am talking about all those because the implications of moving from one strategy to another or having to move or having to shift from one pedestal to another means different strategic moves and that can cause frustrations and the lost situations so it is very obvious why marketing people like to go for brand extensions another factor which really plays a very favorable role while you consider the brand extension versus introducing new brands is the cost of advertising you will recall the discussion on concept of mono product versus diversified products while we relate those to the factor of costing a mono product costs less and diversified products cost high which means that scale economies that we have the opportunity to achieve while dealing with mono product or in one category in one category it is not there if we are having so many brands or a family of brands into so many different categories with the result if we have different brands and a complete family of brands with different characters with different frameworks and with different names you can well imagine the kind of increased and incremental costs relating all the areas again you see the marketing mix relating all those categories the cost really goes sky high and also knowing that the modern practice of brand management is basically driven by the factor of competition in the marketplace the name of the game for the companies is not to go for very high cost the name of the company the name of the business in present days the management is to control your costs and not only control your costs but also the offering good quality rather very high quality at control costs those of you who already have done operations management or a similar course what total quality management is all about it's not only that you offer your customers very high quality internally you've got to control costs and if you being company A the produce the one level of quality which is very high at a certain cost which is X and another company which produces similar kind of a product with the same level of quality with cost with a cost factor which is X minus one meaning having a low cost would be a better company in terms of quality management than yours because they're offering with a similar quality level with a cost factor which is lower meaning they are making more contribution meaning their brand is offering the company high value than yours the consumer factor is one factor and the consumers or the customers of both the brands are going to be in their own rights in their own perceptions going to be equally satisfied but internally it takes on an added significance and a dimension to be very sensitive to the cost factor and you have to control costs now one of the areas in which you really have an opportunity of controlling costs is advertising and promotions also advertising in particular more so in advertising and less so in promotions then I will explain that why because if you have the one brand all across the categories you do not really have to make so much noise about the brand name in terms of having one brand name in relation to a family of brands it is very obvious if you have different brand names you have to go for advertising and communication campaigns tailored for each different brand not only each different brand but each different sub-family within the overall family why I say sub-family because of the one brand name if you have apart from X if you have Y and Z under those the Y and Z you would like to go for line extensions meaning line stretches and the brand name which is different for the overall categories going to have implications not only for that particular brand but for the whole company in terms of for the costing and all that I am quite confident I am very confident you are clear about this concept now so advertising is one area which offers a great opportunity to companies to control costs and be competitive in the present days of the business modern business management therefore you are inclined to go for brand extensions and not for new brands and again this is not to say that you never should go for new brands we should talk about the significance of new brands also at a later stage and the advertising factor you know to rub in the conclusion is the factor which offers you cost efficiencies to summarize this cost efficiencies and yet mileage in terms of in terms of promotions and in terms of the image capital that is something really important the image capital what is image capital and how that comes into play we are going to talk about that as well but let us talk about another factor before that which really actuates the managers to go for brand extensions just like in the case of line extensions line extensions to help sustain a a sick brand brand extension helps you of fighting a sick brand or a sick category how that helps how that happens that brand extension plays that kind of a role to enable you to stay afloat and not only stay afloat but comfortably on the surface is because at times the competition is very stiff and your brand which happens to be a very good brand a valuable brand that has to do things into the footsteps of your competitors and one of the situations could be of which I gave you an example in the form of marketing people arguing that it is not that that we choose these situations it is because we are driven into the situations of cannibalization into the situation of the price cuts into the situations of perpetual discounts in a matter of everyday low price items and therefore compromising your financial contributions so one of the why factors the why and how factor why and how brand extension that helps you fight and ailing the brand in the base category or a base product that you have been dealing with for the last few decades not only years because it helps you attain a comfortable position into other areas so coming back to the why and how why it is because of the stiff competition it is because of the shrinking category as a whole at times it happens that the category you are a part of it is shrinking time may come and other safety matches may go out of fashion 100% I am not sure whether that time will come but thinking about it hypothetically what is going to be the implication then if the manufacturers within that category are sensitive and sense that kind of eventuality they would obviously move into those areas which are going to replace that technology which are going to replace that kind of usage mode and that usage mode is going to be addressed by a newer technology meaning a newer product and the different kind of positioning and hence different kinds of variables of the marketing mix but getting back to the why factor this is one of the reasons that you are driven into the area of the brand extension do you feel very comfortable that we should be moving into another category because this category is now shrinking another reason that could be you may feel yourself in a situation in which you really have to catch up with new technologies the category may not be shrinking but new technologies may make it imperative and make it incumbent upon you to go for newer categories and when I say new categories because naturally when you are bringing in a newer technology that may define the boundaries that are different and this is another factor which we are going to talk about in a short file but this remains the third very important and significant factor that actuate managers in favor of brand extension and I would summarize those once again staff competition shrinking category and catching up the need to catch up with newer technologies so the best course of action for managers to develop something new on the basis of brand awareness on the basis of brand equity that the brand already enjoys in the marketplace and not by being adventurous and once again I would give you an example of the area of matches I talked about a hypothetical situation relating matches getting extinct this may not other situation could be they will never get extinct but at the same time they are letting newer technologies to make inroads into that category and the category I mean the overall category is known as the category of lights you may not call it the category of matches you may call it the category of lights because you have to define your market by parameters which are not narrow enough to keep you focused on something very narrow in terms of positioning the area or the parameters should be broad enough for you to have flexible positionings by being able to address needs which either are the same or are very similar so this newer example is disposable lighters making inroads into the market of safety matches what's going to happen some of the consumers who are stuck to the matches or who are focused on matches may like to switch over to disposable lighters and that is what is happening as a matter of fact if that happened or whenever that happens that is an example of trying to catch up with a newer technology and that is when we start discussing the implications of going across categories now stay focused on this very example which I gave you and with the help of this example I want to include that brand extensions define not only new markets but they also define new segments and they define new categories although the brand extension basically is going from one category to another but at times there are certain flexibilities and at times there are certain compromises and for the sake of better understanding what will be hooked on to the two very well differentiated concepts in terms of line extension and brand extension this is an example which is on the margin and which has its implications into the area of line extension and also into the area of brand extension in terms of defining the new categories and within the categories defining new boundaries of the segments staying focused on the same example of matches versus disposable lighters now the consumers who have switched over to lighters and are the consumers could form the same market of lights and within the same market of lights you have consumers who use safety matches purposes and there are consumers who use lights for the purposes of lighting their cigarettes or pipes or cigars for that matter now there are two very distinct segments within the lights of the market when you enter that particular market with new technology which is going to necessitate a newer plant with complete new mix of variables not only variables of the marketing mix but a complete bag of variables belonging to so many different functions within the overall business a new plant with new dynamics and new everything but what you're doing is you are redefining that one particular segment within the category in terms of production and operations you are definitely into a category into an area which is very different from manufacturing safety matches but in terms of the market segments or the boundaries of those segments it is defining those all over again this is how the brand extension helps you define different segments boundaries and of course when that happens the result is you are pushing sales and when you are pushing sales you are bringing more value to the brand the brand is energizing itself and energizing itself in a way that it really wants to pay back to you in the marketplace in one way or the other by having another set of characteristics another set of character and another set of value framework so these are some of the actuating factors which new people have while making decisions regarding the brand extensions versus new brands this is not all one more factor which you may consider while going for the brand extension it is a very important factor and a very interesting one that it provides you access to the image capital to see the pool of image or the collection of positive images that you have or consumers could have in their mind is what you may call image capital it is capital because it is that capital which is actuating customers to go back and back to your brand buying it over and over again and generating the value for your company so you have access to the image capital which is going to provide you with a beautiful platform full of value to go for something the chances of success which lie on a very high pedestal in comparison with something stand alone may I point out the discussion on companies spending so much or rather investing so much of money on strong brands why are they running after strong brands and acquire those because they want to have very strong brands that can add value to the businesses and one of the very prime reasons that they go run after strong brands because they know after they have invested is hefty amount of money that on buying this particular brand they can get into the brand extensions and they can get into so many different areas which specialize and in which areas the target of acquisition may not specialize so the acquiring company may have the intention of getting into brand extensions even before they have started talking with the target company which is the target of that acquisition so accompanying the targeting another company which is making razor blades for example there may be subject of that target because the acquiring company would like to get into a host of different items which may be very close in terms of character to what that razor blades company is doing but also those items or those things to which that company is not very closely related but the company that is intending to buy that knows that it can get into those areas and hence add value to that brand by getting into those new areas so that explains to a large extent that the wide companies are willing to offer hefty the prices for the strong brands the prices which are so many times over and above the existing the sheer value of that particular company they know that by getting into different other areas they are going to recover those costs and they are still come out as the winners and they are going to add value to the overall operations which is going to be a beefed up or a laddered up operation this is not all the awareness level regarding certain brands is so high meaning the loyalty of certain brands is also so high that customers in the marketplace perceive those brands operating even into those categories where they are not present the example of that is a jam manufacturer may have such a high level of awareness that the people or customers like you and I may think that they also are into the chutneys and those kinds of other things well if you think the categories are too closely related or the segments are too closely related well customers may also look upon them as a company that is also into canned foods for example and this does happen in the marketplace very frequently and well I shouldn't say very frequently say every now and then in that situation you think to yourself why shouldn't we get into those categories where we are perceived to be present but we are not because the recall value of the brand is so high and whenever you carry out market research or even when you are talking informally with anyone who could be a part of the target market you realize that people are talking about those products which you are not producing so you start thinking why shouldn't we get into those so you get into those categories when you get into those categories what you are doing is that you are not only having an access to the image capital you are also adding to the image capital which you already have this is a very very interesting phenomenon and you must try to understand that I have prepared for your the better understanding a graphical illustration which explains all this but let me rephrase it I mean a strong brand actuates you to have access to the image capital while you are thinking whether you should go for an extension or you should go for a new brand and inclination on your part is to go for the extension because of the image capital but then there are situations where you do not even sell one particular item or one particular product and people in the market think you also sell that because they breathe your brand all the time not all the time but most of the time and they think this brand is present there also so when you get into those categories not only that you are getting into those categories because there is an automatic pull toward the image capital but then at the same time because of the power that you have the loyalty that the brand has you are also adding to the image capital of the brand let us try to look at the illustration which I am trying to explain with the help of words the circle that you see the image capital this is what your brand has accumulated so far over the last couple of or maybe a few decades and you are going for a new brand I mean you are going for a new offering and the natural inclination is to go for brand extension and you get kind of pulled toward this accumulated image capital which is that big circle now under situations in which you think that you should get into other categories or other markets where you are being perceived as already present as already a player when you go there you add to that capital and look at the circle underneath and this part of the illustration on the right hand side is yet another brand which is into a different category and with the help of this brand I mean with actual presence and existence in that category what you are doing is you are adding to the accumulated capital that you had earlier and now with the outer circle if you take a look at these concentric circles the outer circle is the added or the reinforced image capital of the company the circle the overall circle is not bigger so not only brand extension enables you to have access to the image capital it also helps you to reinforce that further and that is one of the beauties of brand extension it is not only these factors that I have talked about so far I think I have talked about six factors which motivate you to get into extensions there is yet another one and that is again related to the one we discussed in relation to line extensions but I am very sure that you are trying to understand these subtleties of the differences between the dynamics of line extensions and the dynamics of brand extensions brand extension is essential for survival it is absolutely essential to break away from the mono product and the mono product is the one which has been there for a lot of time for a long time and it is subject to a certain life cycle like every product is this is a factor which was talked about during one of the previous lectures but I really now want to talk about this one and the absolute clarity in relation to brand extensions it is absolutely essential to break away from the mono product because it is a question of survival what is going to happen when the mono product is going to be at the end of the life cycle like all other living beings the brands also products and brands also are subject to a life cycle which you very well know so in order to make sure or in order to circumvent to avoid the negative side of the reality of the life cycle into another category for compensation because in that category in which you have just entered you are starting with a new product and the brand name happens to be the same so in a way you see it is a new brand or it is a new product with the same brand name and you are starting from the basic preliminary stage that brands life and you still have a lot many years to go before that also comes to the maturity stage and then the decline stage you know the curve where the product starts and then you see it reaches maturity and then it starts declining so you get into another category which really offers you an opportunity of life in the companies life of marketing in the companies life of production in the companies life of business and it is not that you are wanting to get into another category because it only is the factor of product life cycle it basically is the factor of your vision because you know that the growth gap is going to be filled by extending the brand somewhere down the line and you have reached that point on that line now and you are getting ready to start introducing the brand and it is the brand extension that enables you to get to that point very comfortably to get to that jump in board from which you can jump on to the other category and start doing something all over again with the help of your knowledge by trying to plug the growth gap and nothing could provide you with an opportunity to the better than brand extension so much for the brand extension the conclusion that we can draw from the learning that we have had so far I would like to talk about that in the form of a very brief recap in the next lecture I would look forward to seeing you then Allah Hafiz