Brand Dilution vs Brand Extension: Consequences and examples
Effective Brand Extension Strategies: Maximizing Your Brand Growth without Dilution
Have you ever thought of how important your brand is?
A strong and recognizable brand identity is essential for the growth of any business.
It can generate a sense of trust, loyalty, and credibility with customers.
That’s why it is so important to understand how to effectively extend your brand in order to maximize growth without diluting your brand’s identity.
In this blog post, we will explore the concept of brand dilution and the strategies that can be used to avoid it while growing your brand's market share.
We will also introduce the Branded Agency and their free strategy session for website owners who want to learn more about effective brand extension strategies.
Exploring the Concept of Brand Dilution
Brand dilution occurs when an existing well-known brand name is used on products or services outside its core area.
This can lead to confusion among customers because the products may not deliver on expectations and lead to a decrease in customer loyalty and trust in the original product or service.
For example, if a company known for selling high-end apparel begins selling lower end items under their own label, customers may lose faith in the quality of their original product offering and begin looking elsewhere for higher-end apparel.
The consequence of this could be significant losses in sales revenue as fewer people purchase from that company's higher-end offerings.
Avoiding Brand Dilution through Effective Brand Extension Strategies
Fortunately, there are ways to minimize the risks of damaging your existing brand through effective brand extension strategies.
The most important component is researching potential markets before introducing new products or services into them; this helps ensure that they are compatible with current offerings and won't damage your existing customer base by introducing low-quality alternatives or confusing messaging.
Additionally, using careful branding techniques can help ensure that new products or services don't overshadow existing ones, thus keeping customer loyalty intact while still allowing for growth into new markets.
Lastly, making sure that all products or services are branded consistently across all platforms—including packaging, advertising campaigns, web design—will help establish a unified message across all channels and help keep customers engaged with your offerings instead of straying away due to confusion or lack of clarity in messaging/branding.
As you can see, understanding how to effectively extend your brand while avoiding dilution is essential for any business looking to grow their market share without damaging their existing customer base or losing credibility within any new markets they enter into.
If you’re interested in learning more about growing your business through successful branding techniques but aren’t sure where to start then we recommend signing up for a strategy session with Branded Agency.
With our expertise you can rest assured knowing that you have taken every step necessary towards maximizing both short-term profits as well as long-term success!
What is Brand Dilution?
Brand dilution occurs when the associations held by our customers and potential customers have been eroded or muddled.
This can be damaging to a business, as it can lead to a decrease in sales and customer loyalty.
To counter this trend, brands must employ successful elements of brand extension and dilution strategy.
Such strategies can help keep newly released products in line with an existing brand name and identity, while introducing new qualities that create value for the customer.
Therefore, effective execution of these strategies is essential in order to prevent damage from brand dilution.
What is Brand Extension?
Brand extension is an invaluable tool for businesses of all sizes, as it can leverage the loyalty and recognition of an existing brand to create a compelling entry into new markets.
Companies strategically associate the recognizable qualities of their existing brand with a new product – either within the same industry or in unrelated areas – to CREATE public interest and attention for their products and services.
Additionally, brands can also collaborate with other successful organizations to capitalize on the strength of both brands as a way of entering new markets.
Ultimately, brand extension strategies facilitate efficient diversification while minimizing risk and cost to companies, making it one of the most effective tools for business growth.
Brand extension can be a great way for companies to reach new customers, generate additional sales, and increase brand value.
While there is always the risk of diluting the original brand’s equity as prominent products are extended into more diverse markets, a carefully planned strategy can minimize that risk while still offering businesses the advantages of expanding their customer base.
Additionally, leveraging an existing brand name strengthens its reputation and identity.
By making sure that any extensions maintain the core values of the company or product, organizations can help preserve the hard-earned value of their primary business or product and create further opportunities for growth.
Brand Dilution Examples:
Zippo → Tapping Unrelated Markets
The Zippo Manufacturing Company is behind the Iconic Zippo lighter.
This lighter has maintained the same design since 1932, becoming synonymous with usability and trust.
The unique history has always been the real asset of the company.
So it was a surprise when, in 2010, the company started to release women's perfume lines.
According to most faithful fans, after this brand extension move, brand perception changed for the worse.
McDonald's → Wrong Products In The Same Market
We all know and love Mcdonald's signature products (almost everyone does).
Big Mc, Mc Chicken, and Chrispy McBacon are just a few.
You might not know that McDonald's counts dozens and dozens of products that didn't meet customers' expectations.
They tried to sell Pizza, Spaghetti, Hot dogs, vegetarian Pineapple burgers and many other unexpected products.
Some of these products could have led to brand dilution.
Luckily for McDonald's, the brand has always shown remarkable resilience.
As soon as they realized those were cursed products, they removed them from menus.
Blackberry → No Innovation
Correct, brand dilution can occur even when brands decide to stick to the past bringing no innovation.
This is the case with Blackberry.
In the mid-2000s, the Canadian technology company dominated 20% of the smartphone market. In 2016, the market share dropped to less than 0,05%.
In January 2022, the final blow happened.
All the devices labeled BlackBarry powered by Android stopped working forever.
How did that happen?
After the release of the iPhone in 2007, Blackberry's managers weren't wise enough to see that touch screens and Apps would be the future.
Customers’ needs changed, and even the most faithful fans decided to shift to Apple or Android.
Experts consider Blackberry's case the "best of the worst" regarding brand dilution.
⚠️ Differences Between Brand Dilution And Product Dilution
Brand dilution has many faces.
It is essential to state that brand dilution can also happen without releasing the wrong product (to be more precise, that is called product dilution).
Brand dilution happens even when a brand goes off the rails.
Take, for example, a vegan snack brand that starts using plastic packages damaging the environment…
Customers could feel that the original brand vision of a better world for animals is no longer the same.
Another example can be Personal brands.
A famous dramatic actor that stars play in cheap comedy movies is an example of brand dilution.
Michael Jordan's decision to leave NBA in 1993 to pursue a new career in baseball is brand dilution as well; actually, one of the most significant examples of brand dilution in sports history (only coming back to the NBA in 1995 stopped the fatal process).
How to Avoid Brand Dilution
Do you have a brand extension project on the go? Maybe a new line of products, new upsell bundles or a strategy to enter a new market…
Before doing so, have you thought about testing your audience first?
We mean creating simple surveys and polls in your social media stories or posts.
Or (better) create nice-looking forms to send to subscribers via your email list. You can try many tools, for example, Jotform or even Google Forms.
This is ideal for two reasons.
For you: because you will get an idea of how excited or how sceptical your customers are about your upcoming project. If 10% of your customers are not happy as you are about your decision, the remaining 90% may be of the same thought.
For your customers: If your customers receive an email from you with a form and a short message on how much you value their opinion… they'll be happy to have chosen your brand! You will make them feel an active part of the company, with decision-making power.
Looking at their answers, you could also find new trends you ignored until that moment.
If you haven't done it already, sooner or later, you'll feel the urge to tap new markets, get new clients, or surprise your existing customers with more value-added to your brand experience.
Your customers will be the final judges, so be sure to meet their expectations.
Brand Extension: Example + Strategy
Redbull Says, "Eureka!"
The famous energy drink brand is among the best examples of brand extension in modern marketing history.
The now billionaire founder Dietrich Mateschitz started the company in Austria in 1987.
He tried to sell energy drinks all around Europe when there was no market for them.
35 years later, the company owns:
5 professional football teams across three continents
Two Formula 1 team
3 Teams in Moto GP/ Moto2/ Moto 3
Professional teams in skateboarding, sailing, ice hockey, and many other sports
How did that happen?
Mateschitz soon realized that the company should have directed its efforts differently.
He decided to outsource the beverage production, which meant RedBull wasn't in charge of beverage production anymore.
They focused all efforts on finding new ways to sell the drink (which still represents 97% of Redbull's revenues).
They started to associate their brand with the young generation using student parties. Then, they extended their presence by attending live events, festivals, and discos.
A few years later, every bartender was plenty of cans of RedBull to mix with liquors.
But the real kicker was using extreme sports to market their businesses.
Redbull has invested hundreds of millions of dollars in Formula One, Soccer, Mountain bike, and crazy events like the Redbull Stratos.
Customers now associate Redbull with adrenaline, sport, energy, achievements, big goals, etc.
Brand Extention Strategy
How to avoid Brand Cannibalization
As you will learn by reading this paragraph, brand extension can lead to brand cannibalization.
Brand extension is a popular marketing strategy, particularly for big-name brands.
However, this tactic comes with some risks.
One of the main risks is brand cannibalization, or the negative effect that brand extension has on your existing product or service.
Brand cannibalization occurs when you create new products or services in a different category from your existing brand, and these new offerings negatively affect the sales of your existing products.
This happens because consumers may perceive that the new products are similar in quality, price, or other key factors to your existing offerings, which can cause them to switch to the new options.
There are a few strategies you can use to minimize the risk of brand cannibalization, such as carefully selecting which products to extend, developing the new brands separately from the existing ones, using different marketing channels for your new and existing offerings.
Essentially, when you have product "A", which is your flagship product, and you expand your business with product "B", you might find that product "B" is successful… but it's stealing customers from product A!
It is like a snake eating itself; this duality could confuse your customers and abandon your brand (brand dilution).
So is brand cannibalization always bad?
It depends on your business model 👇🏻
Let's take the famous example of Starbucks.
Starbucks' strategy is to sell using several different channels of distribution.
Customers can buy coffee blends and pods in grocery stores to have their Starbucks coffee at home.
As you can see, if people consume more coffee at home, they go to Starbucks less.
This is called cannibalization.
So why does Starbucks do this?
It is important to state that a bit of brand cannibalization is inevitable.
When you introduce a new product on the market or open a new distribution channel, you'll experience that.
Starbucks knows this as long as Apple knows the release of the iPhone 13 means fewer sales of their iPhone 12.
It becomes vital to your Strategy to calculate the "Cannibalization rate" while preparing your brand extension strategy.
Imagine you are a brand that sells workstation products (for example, laptop stands and desk shelves to improve your productivity at work).
The two questions are:
Are your customers willing to choose your brand over another?
How much are they willing to pay for your products instead of something found on Amazon?
The measure of "willingness" is what brand equity is all about.
The workstation brand wasn't a made-up example; it was our work with one of our clients, humancentric.
They have premium products for workstations which are sometimes double in price of what would you pay on Amazon.
Their brand equity allows them to be chosen (and paid more) by loyal customers.
Their authority, identity and all the guidelines we helped them with are the tangible assets that keep their brand equity positive.
Brand Equity Model
Brand equity is maybe one of the most misunderstood terms in the realm of branding. Brand Equity models help marketers and entrepreneurs outline this vital metric.
Many marketers, professors and economists have created their brand equity models.
We will take as a reference the one created by David Aaker, an American economist who presented this concept in the 1996 book "Building Strong Brands".
Aaker Model
Brand Loyalty
How loyal a customer is toward a brand
Brand Awareness
How famous is the brand on the market?
Perceived Quality
How much value is your product to a customer
Brand Associations
How recognizable a brand is in a specific category
What Is Brand Awareness and brand salience, And Why are they Important?
Understanding the difference between brand awareness and brand salience
There are two main concepts that are often used when discussing brands: brand awareness and brand salience.
Brand awareness refers to the extent to which consumers can recall or recognize a brand, while brand salience is the extent to which consumers select a particular brand as being relevant in their purchasing decision-making process.
While these two concepts are often discussed together, they are actually quite different.
Brand awareness is often considered a more "static" measure of a brand's success, while brand salience is typically seen as being more "dynamic"--that is, it can change over time or in response to specific events.
For example, a company might see an increase in brand awareness following a major marketing campaign, but brand salience would only increase if customers responded positively to the new campaign and showed a preference for that particular brand.
There are a number of factors that can influence both brand awareness and brand salience, including product quality, advertising and marketing strategies, competitive landscape, and customer loyalty.
Ultimately, a successful brand must balance these two concepts, creating a strong brand identity that is recognizable and relevant to consumers.
As you can see, when it comes to brand awareness, it is not about what your company does… more about how people perceive what your brand is all about.
An Example Of Brand Awareness
Brand Awareness reaches its peak when consumers can recognize a brand or a product even with simple associations or by looking at an image.
Here is an example 👇🏻
Even if the picture is blurred (there is nothing wrong with your internet connection or screen), you immediately recognize what is portrayed in the image.
This campaign by McDonald's was called "Say no more" and it says it all.
McDonald proved its strength in dominating the market by displaying blurry ads on purpose.
What is this, if not the highest level of brand awareness possible?
Factor 2: Brand Loyalty
Take a look at the picture below.
According to Statista, those are the most valuable brands worldwide in 2022.
That means that each of those brands has millions or even hundreds of millions of loyal customers worldwide.
Brand loyalty allows brands to charge more for their products than the competition and still win customers' favour.
That's why people are okay spending $1500 for a new iPhone or going on Amazon by default when they want something online.
An Example Of Brand Loyalty… With Your Brand!
Now, you don't need to be Apple to create brand loyalty, and that's the most amazing thing about it.
Let's say you sell services or you are an experienced freelancer.
You start growing your brand, creating a mailing list with a couple of hundreds of subscribers.
You nurture your leads every day, adding value on Social Media and solving problems in their lives.
Now you create an irresistible front-end offer of an ebook for 10$.
A dozen people buy from you.
Now those are no longer leads. Those are clients.
The more they stick with you, the more they see you (your brand) as a point of reference.
They now become loyal customers.
Their journey down the funnel continues, and they reach the back-end/upsell offers.
In this case, we are talking about thousands of dollars eventually.
Brand Loyalty is essential in building brand equity because it allows even small businesses to build a robust and reliable audience.
There is a famous misconception in marketing and branding that what you need is at least 1,000 happy customers to succeed.
The reality is that it takes much and much less.
You might need customers that you can count on the fingers of your hand, depending on your back-end offer.
The realm of branding can be a bit overwhelming sometimes. You might have the right offer ready to deliver without knowing how.
That's why you can need the help of an agency with years of experience in helping brands deliver their offer to the right audience.
As it happens… exactly the agency that has written this post!
Feel free to reach out to us if you have any questions about branding and marketing strategies for your specific case.
Here are some very specific step by step branding guides for: Real Estate, Lawyers, Accounting, Doctors, Dentists, Optometrists, Jewellery, Makeup & Beauty, Skincare, Pet Food, Fashion and Construction.
Other Resources
Branding in a Box for Small Businesses
Digital Marketing Report for 2023
The Ultimate Guide to Creating a Brand Identity