Brand Extensions Versus New Brand Launches, and The Online Consumer
June 3, 2013 by Brand Algorithms
Is the profile of consumer behaviour online, pushing brand-owners towards brand extensions instead of launching new brands? This question popped up during the course of my perusal of a couple of recent studies on product innovation and on brand extensions. The fact of the matter is that brands are going through avatars and extensions at a faster frequency than previously, as more and more niche consumer needs are identified and targeted. Does the digital marketplace favour one product management approach over the other?
Over two-thirds of the companies depend strongly on innovation for their long-term strategy success. That view is reflected in the fact that 51% have increased their investment in resources and organisational capacity to drive innovation.
93% of the executives believe that their company's long-term success depends on its ability to innovate, but just 18% are of the view that the company's innovation strategy is delivering a competitive advantage.
64% of the respondents say that their organisation tends to pursue product line extensions rather than developing totally new products or services.
From 2009 to 2012, the percentage of respondents who regarded the introduction of a new product category as a primary goal for innovation, fell from 42% to 27%.
The report closes with the recommendation that organisations adopt a holistic, formal system for innovation, if they wish to achieve better outcomes and higher levels of satisfaction from their investment.
However, is transformative innovation (brand launches) an objective any more for organisations, as opposed to incremental innovation (brand extensions)? A study from Nielsen, covering more than 29,000 Internet respondents in 58 countries, reveals that a majority of the consumers (60%) would be more willing to purchase an extension to an existing brand than a new brand. Given the fact that two out of three new brands will not live to complete three years, there is a strong incentive for brand-owners to adopt an incrementally innovative approach, notwithstanding the potential for a windfall in profits from any new brand that is successful.
In the Indian market, the same agency, in an empirical study carried out in November, 2012, found that brand extensions are five times more likely to be successful than launching new brands. The study covered leading firms in 46 categories across industry.
Are the choices indicated in the first Nielsen study, a function of changes in consumer behaviour now that online shopping has reached critical mass, or are they just an effect of the depressed economic situation in the markets that the study covered. If the reason is the former, brand-owners will need to evolve a long-term strategy to address this seeming distaste for novelty; while if it is the latter, all a brand-owner has to do is to see out the economic trough, through short-term promotional activities.
If the findings of the study turn out to have long-term effects, a brand-owner will have to figure out when to invest in brand extensions and whether to indulge in new brand launches at all, whilst ensuring that the brand is not outmanoeuvred by competition. For a brand-owner in a product category where online purchasing is significant, a new brand launch strategy should include the following components:
Online consumers have either experienced or have had exposure to an existing brand, and that is the primary reason for the preference for brand extensions over new brands. One way a brand-owner can address this lack of familiarity is by taking an experiential marketing approach when building up buzz for the new brand in the market, after the launch. One important activity should be to enable potential consumers to gain exposure to the brand either virtually or in a brick-and-mortar retail outlet.
Novel Digital Marketing
A novel online marketing campaign will go a long way towards establishing a cachet for a new brand. The novelty doesn't have to be path-breaking or revolutionary; it just has to be different from the online campaigns of its competitors and its predecessor (if any). Given the variety of online brand promotion activities, such a campaign shouldn't be too hard to execute. This novel digital marketing campaign should tie in with the experiential marketing approach recommended above.
Real-time Consumer Pulse
The brand-owner should leverage the availability of real-time consumer buzz on the Internet to inform its product moves. To start with, use a sentiment analysis tool to track what consumers are saying about competition and about the brand-owner's existing brand. Apply this feedback to vet features and attributes of the proposed new brand. Selectively leak features of the upcoming brand to gauge consumer reaction to firm up brand messaging.
Brand extensions are a low-risk innovation strategy, but one that leaves a brand-owner vulnerable to a competitor willing to take a higher risk, or to a new entrant with a breakthrough idea well-executed. There is no dearth of examples, of established brands, taking an incremental approach to addressing consumer needs, being rendered irrelevant. Brand success is a unique mixture of caution and aggression, regardless of the nature of the marketplace (offline or online), and brand-owners will have to learn to take advantage of the peculiarities of the respective marketplaces to ensure that this mix of caution and aggression is not adulterated.
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