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Brand Extensions Versus New Brand Launches, and The Online ConsumerJune 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?
In a survey across 519 companies across 12 industries in France, the UK, and the USA, for its report Why Low Risk Innovation Is Costly, Accenture found that:
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:
Authored by: Sam Oommen Thomas
Brand Algorithms - Brand Extensions Versus New Brand Launches, and The Online Consumer
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