Master's Thesis, 2006
98 Pages, Grade: 1,7
1.1 Problem Definition and Objective
1.2 Structure of the Paper
2 Brand Extensions:Tackling the Challenge of Growth in International Markets
2.1 Basic Issued Related to Brands
2.1.1 The Notion of a (Global) Brand
2.1.2 The Concept of Brand Equity
2.1.3 Brand Core Values, Competence and Positioning
2.1.4 Specific Issues of Brand Globalisation
2.2 Brand Extension as a Strategic Growth Option
2.2.1 Integration into the Context of Brand Management and Growth Strategies
2.2.2 The Preconditions and Main Drivers of Brand Extensions
2.2.3 Benefits and Risks of a Brand Extension Strategy
2.3 A Conceptual Model of Extension Success
2.4 Prior Research on Brand Extension and Its Limits
3 Keys to Successful Brand Extensions
3.1 Internal Success Factors
3.1.1 Characteristics of the Parent Brand
3.1.2 Characteristics of the Extension Product
3.1.3 Relationship Between Parent Brand and Extension Product
3.1.4 Characteristics of the Company
3.2 External Success Factors
3.2.1 Characteristics of the Extension Market
3.2.2 Characteristics of the Consumers
3.3 Relationships between the Success Factors
3.4 Further indings
4 Implications for the Preparation of a Brand Extension Strategy
5 Brand Extensions in Practice
5.1 Brand Extensions in the Fashion Industry: Hugo Boss
5.2 An Extension-Based Business Model: The Virgin Group
Appendix 1: Brand Equity
Appendix 2: Strategic Options for Brand-Product Combinations
Appendix 3: System of Objectives of a Brand Extension Strategy
Appendix 4: Studies on Internal Success Factors
Appendix 4.1: Characteristics of the Parent Brand & SWOT-Analysis
Appendix 4.2: Characteristics of the Extension Product &SWOT-Analysis
Appendix 4.3: Relationship Between Parent Brand and ExtensionProduct & SWOT-Analysis
Appendix 4.4: Characteristics of the Company & SWOT-Analysis
Appendix 5: Studies on External Success Factors
Appendix 5.1: Characteristics of the Extension Market & SWOT- Analysis
Appendix 5.2: Characteristics of the Consumers & SWOT-Analysis
Over the last decades, an increasing number of companies have begun to recognize that their brands are the most real and marketable assets they have developed and thus are a source of competitive advantage (e.g. Aaker 1990, p. 47; Kapferer 2004, p. 233). Through the establishment of brands and brand images, the positioning and diversification of own products towards competitors’ products is supported and an additional value which goes beyond the mere technical-physical characteristics is created (e.g. Keller 1993, p. 2).
The capitalization of this brand value through a brand extension strategy defined as “the use of established brand names to enter new product categories or classes” (Keller & Aaker 1992, p. 35) has become the preferred alternative for growth and a guiding strategy for product planners (e.g. Tauber 1988). Thereby, a company uses the equity built up in the names of existing brands, for example to improve the likelihood of new product success or to enhance marketing productivity (Rangaswamy & Burke & Oliva 1993, p. 61). The latter has especially gained importance due to a dramatic rise in costs for introducing new products. Especially advertising expenses have exploded due to the information overflow of consumers and the increasing number of products struggling for their attention.
In practice, brand extensions have therefore been the core of strategic growth for a variety of companies. Especially in the last two decades, a strong tendency towards the brand extension strategy has shown compared to the new brand strategy. Whereas in the USA until 1984, the share of extension products in total new product introductions in the fast-moving consumers goods segment was only 40% (Aaker & Keller 1990, p. 27), the share amounted to 90% in 1991 (Rangaswamy & Burke & Oliva 1993). Some brand-owners like Procter & Gamble even launched their new products exclusively under established brand names in a period of time (from 1992-1994) (Zatloukal 2002, p. 3).
While there have been several successful examples such as the extension of Boss (clothing) to Boss perfumes or Camel (cigarettes) to outdoor clothing, there have also been significant marketplace failures such as Harley Davidson wine coolers (Aaker 1990; Keller 1998) or Levis tailored suits. According to a study by Ernst & Young and Nielsen (1999), there has been an astounding 84% failure rate among brand extensions in some categories. This reveals that the practice of introducing brand extensions is no guarantee for success, and, on the contrary, implies high risks as Aaker (1990, p. 47) indicates: “an ill-conceived brand extension can seriously damage the original product and preclude the establishment of another brand with its unique associations and growth potential”. Indeed, the mentioned study (Ernst&Young/Nielsen 1999) also exposed that two years after introduction, the market share of extension products was substantially lower than the share of products introduced with a new brand strategy. Therefore, understanding and managing success factors of brand extensions is of considerable importance.
Over the last 15 years, more than 50 empirical studies have investigated such factors determining the potential success of brand extensions. Although there are several drawbacks to this research (see 2.4) which limit the generalisability of findings, some useful guidelines for planning, implementing and managing brand extension can be derived.
The objective of this paper is to give an overview of the topic of brand extensions in international marketing. On the basis of some fundamental information on brands, brand equity and brand extensions, potential success factors of brand extensions are elaborated on in greater detail derived from current findings of empirical research. The explanation of these determinants of success serves to give an impression of the aspects which have to be put attention on when planning and implementing an extension strategy. Based on this summary of findings and a number of examples from the real marketplace, marketers can find out early whether their brand is extendible or not and decision making regarding the favourability of a brand extension strategy is supported.
Subsequent to the introduction, chapter 2 gives some relevant background information on the notion of a brand (2.1.1), the concept of brand equity (2.1.2), brand core values, competence and positioning (2.1.3) and brand globalisation (2.1.4). Thereby, connections to the subject of brand extensions are drawn. Furthermore, chapter 2 deals with fundamental issues concerning brand extensions as a strategy for growth (2.2.1). In this context, the preconditions and main drivers of brand extensions are presented (2.2.2). Additionally, the chances with can result from properly accounting for the success factors are described as well as the risks which can threaten the parent brand when ignoring the determinants of success. Both, benefits and risks are summarized in a table grouped according to their relevance for the different market participants: brand owner, the consumers and trade (2.2.3). Thereby, they already hint at the success factors which are described in more detail in the next chapter. It follows a definition and operationalisation of “extension success” as it is understood in most studies and thus in the frame of this paper (2.3). Finally, the basic tenor of prior research and its limits are described which gives rise to some points of criticism (2.4).
Chapter 3, the main part of this paper, delivers an extensive depiction of the success factors of brand extensions divided into internal and external determinants of success. A further division takes into account the different reference aspects this paper looks at: characteristics of the parent brand and the extension product, the relationship between these two and the characteristics of the brand-owning company (internal: 3.1) as well as characteristics of the extension market and the consumers (external: 3.2). Whereas these factors exert direct effect on extension success, there are also indirect interaction effects among the success factors. However, due to the limit scope of this paper, these effects can only be marginally discussed (3.3). All factors included are based on the findings of all relevant studies concerning brand extension. In appendix 4, the respective success factors are investigated with regard to their significance in a SWOT-analysis. Accordingly, the internal success determinants are interpreted as strengths and weakness respectively, and the external factors are viewed as opportunities and threats. This way, concrete guidelines for the decision making of brand managers are given in form of a checking list. Eventually, this chapter is rounded off with a summary of findings (3.4).
Chapter 4 then delivers practical conclusions and implications for the preparation of a brand extension strategy based on the findings depicted above.
Before this paper finishes off with a conclusion, in chapter 5, two examples from the real marketplace were picked to point up how a brand extension-oriented business model can be implemented in practice. Hugo Boss (5.1) as a fashion company which has in the last years consequently and successfully followed a brand extension strategy based on the competencies of its three generic brands in fashion-related product categories and the Virgin group (5.2) which is known for its extensive extension-based business model which has lately sparked debates about its future prospects due to Virgin’s recent financial troubles.
Throughout the paper, complementary examples – mostly relating to fast moving consumers goods - from experience and marketplace serve to illustrate certain issue which may be hard to grasp with just theoretical explanations.
In the context of brand extensions and their success factors, it is vital to first clarify the core concept of a “brand” upon which this paper is based. In fact, there prevails a multitude of different definitions and approaches of a more academic or rather practical value and nature. They all claim to depict the principle of a brand and to enable the derivation of constant factors for the design and management of the brand (Linxweiler 2004, p. 75).
Branding has already been an issue for centuries as a means to distinguish the goods of one manufacturer from those of another. According to Aaker (1991, p. 7) a brand is a “distinguishing name and/or symbol (such as logo, trademark or package design) intended to identify the goods or services of one seller or a group of sellers, and to differentiate those goods and services from those of the competitions”. Thus, the key to creating a brand is to be able to choose these different components which identify and differentiate it – the brand elements. In creating a brand, marketers have the choice over the number and nature of the brand elements they use to identity their products and to create unique brand associations (Keller 2003, p. 3).
It is interesting to realise that over the last decades, the notion of a brand has changed from a rather traditional view to a more comprehensive and complete approach as described below (the holistic view). This was due to far-reaching changes in the market and environmental conditions which finally resulted in an immense increase in significance of brands for businesses all over the world.
There are two generic approaches for defining a brand. According to Styles and Ambler (1995), there is on the one hand the traditional product plus definition which interprets branding as an addition to the product itself. Thereby, a product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a need or want (Keller 2003, pp. 3-4). It may be a physical good (e.g. automobile), service (e.g. bank), retail store (e.g. supermarket), person (e.g. celebrity), organization (e.g. nonprofit organization), place (e.g. city), or idea (e.g. social cause). The brand is viewed primarily as an identifier.
As mentioned above, this approach has been widely superseded by the second approach: the holistic view.
Here, the focus lies on the brand itself encircling much more than just the product. The brand is considered as the sum of all elements of the marketing mix beside price, promotion and distribution. Ambler (1992, p. 12) defines it as “the promise of bundles of attributes that someone buys and that provides satisfaction. […] The attributes that make up a brand may be real or illusory, rational or emotional, tangible or visible” and stem from all elements of the marketing mix and all the brand´s product lines. Quelsh supports this view with understanding brands as “meaningful aggregates of associations, meaning, perceptions, and all other intangibles” (Quelsh & Deshpande, 2004, p. 167). Thereby, the brand is also seen as a product, but one “that adds other dimensions that differentiate it in some way from other products designed to satisfy the same need” (Keller 2003, p. 4). Together, brand and product build a branded product which is viewed as “an array of so-called persuasive elements that together make up the value proposition to the consumer” (Quelsh & Deshpande 2004, p. 168).
Some brands create competitive advantages with product performance. For example Sony and 3M have been leaders in their product categories due to continual innovation and sophisticated mass marketing measures. Other brands create competitive advantages through non-product-related means. Coca-Cola, Boss and Marlboro have been market leaders by understanding consumers’ motivations and creating relevant and appealing images and lifestyle worlds around their products in order to distinguish their brand with these intangible associations. Most of the strong brands enumerated in figure 1 have such a great number of different types of associations which account for the different aspects of the brand image (Keller 2003, p. 7).
Due to the fact that the holistic approach takes into consideration not only all the different product lines under a single brand umbrella and thus all brand and line extensions but also the marketing activities that surround them, in addition to the original product line, it has more relevance to the current environment dominated by brand and line extensions.
Similar to a national brand, a global brand is a symbol about which consumers have beliefs or perceptions. Global brands are created by marketers - a global brand can be used as an umbrella brand for introducing new products or services. Although a company like Sony markets a number of local products, it has a stellar track record both as a global brand and a manufacturer of global products. A global brand has a similar image, similar positioning, and is guided by the same strategic principles. However, the marketing mix for a global brand may vary from country to country (Keegan, pp. 375-376). Mercedes, for example, is exclusively a luxury car in the United States while being also a strong competitor in the taxi market in Europe (for more issues on globalization see 2.1.4). Figure 1 shows the world’s top 20 brands ranked according to their estimated financial values.
Generally, a global brand strategy correlates with a geocentric orientation of the company which has the aim to improve international competitiveness through integration of business activities (Sander 2001, p. 190). The functions of global brands are various, for example global quality and cost leadership and also advantages in new product introduction. If the global brand functions as an umbrella brand, new (extension) products are marked with this globally known and established brand so that goodwill is transferred from the umbrella brand to the new product. Quicker acceptance and a better image are immediate results of this extension process.
A key element of this paper is to illustrate the role of brand equity in context with success factors of brand extensions. Brand equity is defined as “a set of brand assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm and/or that firm’s customer (Aaker 1991, p. 15). This definition follows the just described holistic approach to branding. The assets and liabilities on which brand equity is based are illustrated in appendix 1 and described in more detail under 188.8.131.52.
Although the concept of brand equity has often been summed up by its value-adding function, the value of a brand name cannot only be measured in terms of the advantages it provides in its present competitive environment but also the potential advantages it offers in yet untapped markets (Broniarczyk & Alba 1994, p. 214). Here, the importance of brand equity in brand extension becomes evident: as it will be revealed later in this paper (see 3.1 ff.), brand-specific associations have strong effects on the success of brand extensions. This insight on the part of managers has prompted increased use of brand extension as a strategy for growth.
Thus, one stream of brand equity research has focused on brand extensions. Part of these studies have explored the impact of a brand’s equity on its extendibility, with the conclusion that a company can leverage a brand’s existing equity in new categories (Ambler & Styles 1997, p. 15). Rangaswamy & Burke & Oliva (1993) have found that highly valued brands – those with higher brand equity – have higher chances for extension success. Other research investigated the reverse relationship: the effect of brand extensions on brand equity. As expected, the findings prove that successful brand extensions can have a positive effect on the parent brand by building brand equity (Dacin & Smith 1994; Keller & Aaker 1992). Conversely, poor brand extensions can dilute a brand and its equity. Therefore, there appears to be a reciprocal relationship between brand equity and brand extension. This relationship will be depicted in more detail when discussing the success factors of brand extensions (see 3 ff.).
Additional to the traditional brand equity concept, a particular view – the concept customer-based brand equity - has recently been developed. This concept approaches brand equity from the perspective of the consumers and thus accounts for their specific needs and wants. According to Keller (2003, p. 67), it occurs when “the consumer has a high level of awareness and familiarity with the brand and holds some strong, favourable and unique brand associations in memory”.
As mentioned above, Aaker (1991) defines brand equity as a set of five categories of brand assets and liabilities linked to a brand. These categories which cause brand equity to exist are brand loyalty, brand awareness, perceived quality, brand associations, and other proprietary assets. Furthermore, the concept of brand image plays a critical role with regard to customer-based brand equity. This model incorporates recent theoretical advances and managerial practices in understanding and influencing consumers behaviour and is thus a very up-to-date view. It is also relevant in the context of brand extensions as the creation of customer-based brand equity - which is a high level of awareness and strong brand associations on part of the customers - are a prerequisite for a positive evaluation of a brand extension. Therefore, the following explanations will be limited to the two most important sources of customer-based brand equity: brand awareness (184.108.40.206.1) and brand image (220.127.116.11.2).
Brand awareness is “the ability of a potential buyer to recognize or recall that a brand is a member of a certain product category” (Aaker 1991, p. 61). It involves a ranging from an uncertain feeling that the brand is recognized, to a conviction that it is the only one existing in the respective product category. Three very different levels of brand awareness can be identified upon which the role of brand awareness in brand equity depends.
The lowest level, brand recognition, relates to the consumers’ ability to realise prior exposure to the brand when given the brand as a cue. It is particularly important if product decisions are made at the point of purchase where the brand is physically present.
The next level is brand recall which refers to the consumers’ ability to retrieve the brand from memory when given the product category, a purchase situation or other cues. Thus, it is also called ”aided recall”. Recall of Kellogg’s Corn Flakes, for example, will depend on consumers’ ability to remember the brand when they think about which cereal product to eat for breakfast (Keller 2003, pp. 67- 68). Brand recall is substantially more difficult than recognition, and is associated with a stronger brand position. It is important that the consumer can recall the brand from memory in any situation where the brand is not present.
A high level of brand awareness has a number of advantages for the brand-owning company. It plays a vital role in consumer decision making for different reasons. First, brand awareness influences the formation and strength of brand associations that make up the brand image. A brand image can only be built up when the brand is already registered in the minds of consumer and further information can easily be added to the brand as brand associations (learning advantage). Brand awareness functions as an “anchor to which other associations can be attached” (Aaker 1991, p. 63). Second, brand awareness makes it possible that the brand will be thought of and considered whenever consumers make a purchase for which the product could potentially be adequate (consideration advantage). The third advantage of high brand awareness is that it can affect choices among brands considered by a consumer, even without associations to those brands (choice advantage). Consumers tend to form decision rules to buy for example only familiar, well established brands in some cases. Especially in low-involvement decisions, a minimum level of brand awareness provides a familiarity which can suffice for product choice, even without a well-formed attitude. (Keller 2003, p. 69; Aaker 1991, p. 213).
Concerning brand extensions, the development of brand name awareness and associating it with the product class is the first step in gaining acceptance of a new product. As just described, the use of a recognized name can translate directly into a competitive advantage. On a new product, it automatically provides name recognition and reduces marketing expenses to the task of associating the name with the new product class.
The consumers’ perception of a brand is called brand image. Based on available current and saved information, the consumers form an image of the brand in their heads and evaluate these impressions on the background of their experiences and tastes. These subjective evaluation schemes can result from extensive-rational to intuitive-emotional considerations dependant on the consumers’ involvement or the perceived importance of the brand under existing conditions. The establishment of a brand image presupposes brand awareness among external target groups (Aaker 1991, p. 61; Esch 2005b, pp. 53-56).
The image of a brand consists of three components: the brand attributes and, derived from these attributes, the functional and symbolic benefit for the respective consumer. As a rule, the relevance of these three image components for the purchase behaviour decreases from brand awareness to the symbolic benefit of a brand.
The brand attributes represent all characteristics of a brand perceived by the customer which include rational as well as emotional features. They can deal with the physical nature of the brand (colour, smell, form etc.) or be connected with intangible attributes such as country of origin, price or guarantee.
The consumers’ perception and evaluation of the totality of these brand attributes results in the functional and symbolic benefit of the brand.
The benefit is defined as the degree of a consumer’s satisfaction of needs which is delivered by the characteristics of an object (Meffert 2000, p. 333, Esch 2005b, p. 55). The functional benefit of a brand comprises all dimensions derived from the physical-functional characteristics, the information and confidence function. Like this, the consumer perceives the brand as a support for collecting information on the product which reduces the complexity of the market and the transaction costs. Another element of the functional benefit of a brand is its ability of risk reduction, especially with regard to technical or high-priced products in terms of product safety, financial risk etc.
If a brand gives the customer more than a functional advantage, a symbolic benefit arises which can be for example the conveying of prestige (prestige benefit), a feeling of belonging or the connection of the brand with individually important experiences and memories (e.g. first love, close friends) (Esch 2005b, pp. 55-56).
For the context of brand extensions, the strength, favourability and uniqueness of the parent brand attribute and benefit associations are of central importance –especially with regard to brand positioning (see 2.1.3). The source of information which creates the strongest associations is direct experience (especially concerning price and quality) followed by word of mouth as the most common reasons for buying a brand. Favourable brand associations are the result of convincing consumers that the brand possesses desirable attributes and benefits which satisfy their needs and wants so that they form positive overall brand judgement. Another indispensability for a brand’s success is the uniqueness of brand associations which differentiate the brand from its competitors and provide it with a sustainable competitive advantage/unique selling proposition (Keller 2003, p. 72).
Naturally, a positive brand image is substantially influenced by marketing measures that link strong, favourable and unique associations to the brand. As mentioned above, besides these company-controlled sources of information, brand associations can also be created in other ways, for example by direct experience, word of mouth, inferences about the brand itself (its name or logo) or from the identification of the brand with a company, country or some particular person or event (Keller 2003, p. 70). For marketers, it is crucial to also recognize the influence of these other sources and to take them into account when designing a communication strategy.
The counterpart to the brand image is the brand identity. It denotes the brand’s self-perception with reference to the characteristic features it stands for. The brand identity is actively constituted inside the company and thus represents an internal perception from the perspective of the internal target groups. According to Aaker (1991), it is a particularly important concept for building brand equity. However, the establishment of brand equity is beyond the scope of this paper.
Rankings of the - nationally or internationally - strongest brands are often based on the brands’ estimated financial values, their reputation and popularity. Figure 1 reveals Business Week’s ranking of the world’s 20 most valuable brands based on Interbrand’s brand valuation methodology.
illustration not visible in this excerpt
Figure 1: Top 10 Ranking of Global Brands 2005
Source: Interbrand: www.interbrand.com and Business Week (2005, p. 90)
Based on the explanations above, a strong brand is characterized by a high level of awareness and a positive brand image: high brand equity. A number of benefits can result from having a strong brand, both in terms of greater revenue and lower costs, for example (Keller 2003, pp. 104 ff.):
Greater brand loyalty: Favourable brand associations and familiarity with a brand increase consumer confidence and purchase intention.
Less vulnerability to competitive marketing actions and crises
Larger margins: Brands with high brand equity can command a price premium; consumers show inelastic responses to price increases.
Greater trade cooperation and support: Brands with a positive image receive more favourable treatment from the trade (see also 18.104.22.168).
Increased marketing communication effectiveness: A brand with high equity has already created brand knowledge in the consumers’ minds which lets consumers notice sales promotions etc. more easily, learn more about the brand and form favourable opinions.
Possible licensing opportunities: A strong brand often has association that are desirable in other product categories and makes consumers pay more for a product because of the recognition of the brand name/trademark
Additional brand extension opportunities: As will be shown later (3.1 ff.), a positive brand image facilitates new product acceptance. Reversely, brand extensions may enhance the parent brand image and strengthen favourable brand associations which make the brand more extendable.
Further advantages of positive brand equity include the attraction of better employees and solvent investors as well as the generation of more support from shareholders (positive relationship between brand equity and stock price: e.g Lane & Jacobson 1995).
Brand Core Values
As a brand may have multiple distinct positionings which span different product categories, it is often useful to define one set of core brand values to capture the most important dimensions of the brand meaning.
The brand core values represent the root and focal point of brand conception – they lie in the centre of the brand identity and thus form the basis for all further steps of brand management. The brand core values play a vital role for the authenticity of the brand: they are to be “lived” by the employees in order to emotionally charge the brand.
There are four different kinds of values as the following figure illustrates:
illustration not visible in this excerpt
Figure 2: The System of Brand Core Values
Source: Linxweiler, 2004, p. 99 (modified)
According to Theiler (1995, p. 7), the factual values of the brand core are the objective precondition for market success. However, on the background of information overflow and market saturation in the industrial countries, a change in values and a growing functional replaceability of products and services, aesthetic-cultural, emotional and ethical values have increasingly come to the fore. Taking the example of Hugo Boss: The clothes made by Boss could be produced by any manufacturer concerning its function of e.g. warming or protection. However, the aesthetic-cultural, emotional and ethical values which make up the brand obviously cannot be copied.
The core values of the brand have to be considered relevant and credible by the consumers. As mentioned, brand core values do not primarily relate to functional aspects of the product but represent value systems as the basis for formulating customer benefits. For Nivea, its history of originating from a hand cream is by far not as relevant as the values standing for the brand: care, safety, reliability, motherliness. They also provide a backdrop for the core competence of the brand. For Davidoff Café, these core competencies are expressed through “connoisseurship”, “prestige” and “ultimate quality”.
The competencies of a company can be of different nature: they can refer to technical, application or production know-how, market knowledge as well as to brand competencies. They represent the specific organisational abilities of the brand-owning company as well as its potential to combine its resources this way that a competitive brand is created.
The core competence of a brand is the basis for its positioning. However, the dominance over competitors can only be achieved if the brand delivers superior consumers benefits. A consistently superior utility of the brand linked with the consumers’ willingness to pay a price premium relies on distinct core competencies of the brand (Esch 2005b, p. 59).
Exactly these competencies can be well exploited by brand extensions. In order to minimize the risk of entering a new product category, the company can capitalize on its former brand investments and use the positive leverage of the brand. Thus, the company builds on a brand value which has been established long-term. Thereby, the competencies form the basis for potential brand extensions and determine the extendibility of the brand: broad competencies enable extension into more different product categories than narrow competencies which are strongly associated with one product class (see 22.214.171.124).
The Brand Positioning
On the basis of the competence of a brand and its identity concept, brand managers need to define the brand-typical image the brand should evoke in the consumer’s mind in comparison to its competitors. Thus the positioning of the brand is the connecting link between the brand itself, the competitive environment and the imagination of the customers. (Linxweiler 2004, p. 105). Thereby it pursues the objective of creating preferences for the brand and obtaining a clear, unique selling proposition in the market and thus in the minds of the external target groups.
The positioning items of the brand can be derived from the brand core competence or brand core values such as “luxurious”, “effective” etc. and form a brand profile. This positioning profile consists of three elements (example Davidoff Café):
illustration not visible in this excerpt
In order to position the brand in relation to its customers, the target market and the nature of competition need to be defined. Furthermore, the positioning dimensions have to be identified which can be derived from the central purchase decisions of the target group (Homburg, Krohmer 2003, pp. 410 ff.). Like this the positionings of the market players can be visualized in a coordinate system. By looking at the ideal position of the product or service and the competitors’ positionings, promising positioning strategies for the own brand can be found. According to Keller (2003, pp. 131 ff.), there are two generic options of brand positonings: The “Points-of-Difference Strategy“ with a positioning as distant from the competitors’ as possible (with unique associations) and the “Points-of-Parity Strategy” which suggests the imitation of the competitors. Both strategies can be combined regarding the different benefit components: some components are imitated, some differentiated.
Summarized, deciding on a positioning requires determining a frame of reference (target market, nature of competition) and the ideal points-of-parity and points-of-difference brand associations. By determining the brand’s positioning associations, the possibilities of successfully extending a brand is generally limited to product categories for which these associations are relevant (see also 126.96.36.199.1).
In today’s environment, geographic extension has become an indispensable step in the development of a brand as it paves the way for its future growth, its ability to innovate and to sustain its competitive advantage regarding economies of scale and productivity (Kapferer 1992, p. 231).
Problems often arise when dealing with local diversity: economic heterogeneity, differences in legislation and norms, category differences, differences of segment, differences in meaning (naming etc.) - all these factors have to taken into account when conceptualizing and implementing a brand extension strategy. Considering the particularities of national cultures has become ever more important as brand competition has intensified.
In contrast, the opposite is true for the world’s leading corporate brands which populate the one hundred most valuable brands listed on the Interbrand’s Global Brand Scorecard (for excerpt, see Figure 1). Such companies operate in most countries, using the same corporate brand marks, and hold dominant market shares in many categories. For these brands, a different problem arises: how to manage the global brand (Quelch & Deshpande 2004, pp. 180 ff.).
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