Innovations are driving growth in India. But should you launch a new brand, or extend an existing one? If you want to increase your chances of success five-fold, then “stretching” your brand is the way to go. Here’s why: brand extensions not only leverage the equity of the parent brand, but they also lead to faster adoption and deliver higher marketing efficiency.
Arun Chogle, client business partner, Nielsen India, spoke at Nielsen’s India Consumer 360 Conference in Mumbai, revealed findings from a comprehensive study amongst top brands that covered 46 fast-moving consumer goods (FMCG) categories and 82 brand extensions from both food and non-food categories. The study shows that brand extensions not only extend parent brand equity, but they also contribute as much as 30 percent to parent brand sales. And the contribution to growth is even higher—brand stretches can add 38 percent to incremental sales.
Five Reasons Brand Stretches are Successful in India
Stretches gain share and build distribution faster than new launches. A look at brands launched in the past two years in two selected categories show that, while eight new national body lotion brands reached a share of 0.3 percent, seven national brand extensions surpassed that figure almost four-fold, delivering a four percent market share. Similarly, the market share of three new, national oat brands was trumped +9.2 percent with the launch of only one national brand extension, delivering a 9.6 percent market share.
Stretches are two times more likely to succeed in a highly fragmented category. The findings showed that developing categories with fragmented shares, or developing categories with lower penetrations, were more successful than established category sizes of greater than Rs. 3000 Crores.
Sixty-five percent of successful stretches have a premium index lower than the parent brand. Keeping under the price premium index of parents is likely to increase the chance of success. Brand leaders that priced below the parent premium at the entry stage were more successful than those priced above the parent brand.
Strong parents beget strong children. Building the core is important, but advertising support is critical for both the parent and the child. When the parent brand was a leader in the category, 59 percent of brand extensions were also successful. When the parent brand was not among the top five players, only 35 percent of brand extensions were successful.
Successful stretches leverage four “ARRC” factors. Advantage—delivers new, or distinct, benefits to the category. Recognition—ensures strong parent-brand awareness levels in terms of functionality, imagery and personality. Relevance—makes certain parent attributes relevant in the new category. Credibility—delivers on brand promises.
To successfully unleash the power of your brand stretch potential, determine your brand’s leverage power by applying the ARRC analysis. Understand the market structure of the new chosen category to determine both its fragmentation and penetration among consumers. Most importantly, ascertain your company’s executional competence to create the right product offering, deliver distribution muscle to reach consumers and stay invested in ad spending and support levels.