Multinational study analyses why brand extensions succeed – or fail

Management typically expects that introducing a new product under an existing brand name can reduce introduction costs, lower the risk of failure and increase profit. However, only 30% of all brand extensions in the US consumer packaged goods market survive the first two years, a success rate similar to new brands. Given this unexpectedly high failure rate of brand extensions, it is vital for marketers to understand what drives the success of brand extensions.

According to the research team, the study provides three key findings that will benefit chief marketing officers:

Leverage both parent brand equity and extension fit

There is a 60.6% probability of a more positive response to a brand extension if parent brand equity improves. Similarly, there is a 61.4% probability of a positive response to a brand extension if extension fit improves.

Co-author Chenming Peng says: “Managers should leverage both parent brand equity and extension fit to enhance brand extension success. However, pay more attention to extension fit because it is slightly more influential than parent brand equity.”

Consider parent brand equity and extension fit simultaneously

Managers should pay attention to the differential effects of various dimensions of parent brand equity and extension fit. For example, when introducing an extension product, creating and highlighting similarities in product features and images of the parent brand and the extension is beneficial.

“We find that parent brand equity can strengthen the positive impact of extension fit on brand extension success, and vice versa. Therefore, managers should consider parent brand equity and extension fit simultaneously,” explains co-author Tammo H.A. Bijmolt. 

Parent brand equity has a positive (though small) effect on brand extension success even if the extension has a poor fit. Similarly, extension fit exerts a positive (though small) effect on brand extension success even if the extension has a low parent brand equity.

“If the parent brand does not have high equity, brand extensions can still be a viable strategy for launching new products, as long as the extension fits well with the parent brand. Likewise, an extension that does not have a good fit can still be successful, as long as the parent brand is strong,” co-author Franziska Völckner adds.

Take a broader perspective on brand extension strategies

Managers should take a broader perspective on brand extension strategies by considering contextual factors related to the parent brand, the extension product, communication, and consumers. For example, managers of brands whose existing core products are services should particularly emphasise the equity of the parent brand (and its dimensions) when introducing an extension product.

You can find out more about the study ‘A Meta-Analysis of Brand Extension Success: The Effects of Parent Brand Equity and Extension Fit’ here.