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Brand breakage
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There are limits to how far a brand can be pro tably stretched, even with sub-branding Take McCain s brand ego trip from french fries into iced tea, with the McCain Colorado sub-brand It had delusions of being an American lifestyle brand that offered all the foods that went with this In reality, McCain sold frozen convenience food in supermarkets and lacked the emotional credibility to compete effectively in the soft drinks market In addition, there was a functional question about the taste of an iced tea made by a frozen spud seller
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STEP FOUR: FOCUS
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McCain has now wisely dropped the iced tea in most markets to refocus on its core range of potato-based products In addition, it has stretched into the adjacent markets of frozen and microwaveable pizzas Where the stretch is very far, developing a new brand may produce a better return on investment The Prudential took this route when launching an online bank in 1998 It was concerned that the fresh, vibrant and funky personality needed to compete in this new market was a million miles away from the reliable but dusty image of the Pru This led to the creation of the egg brand, which has gone on to be one of the very few dot-com brands that has not become a dot-bomb It has now moved into pro t and counts over two million customers on its books
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Bringing home some new bacon (Complementary)
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The extension should ideally complement the existing product range in order to maximize the incremental pro t generated The two issues to consider are how much of the volume is incremental and the pro tability of the extension itself, issues that were discussed earlier in 2
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Source of business
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Incremental volume and pro t growth for the business as a whole are ultimately what matters with an extension Therefore, assessing the degree of cannibalization of existing products is key This risk is highest with core range extensions, especially those that are not suf ciently new and different
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Extension pro tability
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Brand extensions should be an opportunity to improve pro tability by launching addedvalue products and services that support a price premium A trap to avoid is offering a plus that increases the cost of goods but not pricing up in line with this Inability to support a price premium should force you to consider whether the additional bene ts are adding value for the consumer or merely complexity
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Can we make it (Company competence)
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A lack of company competence and expertise may make it hard to deliver against the promises made in the concept without signi cant capital investment Even if the brand can stretch conceptually, the company may nd it hard to deliver a suf cient return on capital For example, the stretch of Mars from confectionery into ice cream is a textbook classic
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BRAND STRETCH
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Talk to insiders, however, and they say that the company is yet to make much money out of this venture, even after a decade of heavy investment This brave move involved major capital costs to build new factories and for many years capacity utilization was too low to generate a good return on capital Stretching product brands into the service sector is one area where the lack of competence has tripped companies up The theory is that these ventures are brilliant image builders, creating a universe where the brand concept comes to life The harsh reality is that they are businesses just like any other Unless plenty of punters are pulled in, the To let sign will be up before you know it, as was the case with Lynx barbershops and the Capital Radio Caf e Consumer goods companies have learnt the hard way that service businesses need a different skills set and also big investment to attain scale if they are to be pro table The easyGroup is an example of a brand that has discovered the risks of not understanding and leveraging its core competences
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