Brand Elasticity and Extension

MCAworks Approach

In working with companies on brand extension projects, we start off by understanding the imagery and equity associated with the brand. MCAworks views brand “imagery” as the sum of all customer associations with a brand. We view “equity” as a subset of imagery which shifts the demand curve for a given product or service. In other words, “equity” can directly influence product perceptions and propensity to purchase at a given price. In deciding whether to extend a brand, companies must ask: How can the brand’s equity be leveraged in new category or business areas?

After determining equity of a given brand, we conduct research with consumers and other stakeholders to determine whether the brand equity “fits” the extension category in question. We then test consumer reaction as to whether or not the new product or service will likely be superior to competitive brands. If the answer is affirmative in both cases, we then work with company management to determine the corporate capabilities in place (or needed) to execute against the proposed extension. We then collectively decide the optimal entry strategy—whether it be through acquisition, joint venture, ingredient branding, or other branding strategy.

Why do companies even consider brand equity extension opportunities? Simply put, there is a very high cost to establishing new brands. With a new brand, companies have to build consumer and trade awareness from scratch via advertising and other expensive marketing campaigns. That said, brand extension must be handled with care to avoid diluting precious brand equity. A brand must be thought of as an asset such as timber reserve: Short-term profits can be substantial if the reserve is depleted without regard for the future…but the asset can be destroyed in the process without the proper care.

Contact Dana Langham for more information.