MINISTRY OF EDUCATION

HOA SEN UNIVERSITY

FALCUTY OF MARKETING

CHAPTER SUMMARY
CHAPTER 12
Class name MK 401DE02 - 0300

Group name Group 10

Lecturer Mr. Nguyễn Đức Trụ

No. Full name Student ID

1 Nguyễn Quỳnh Thủy Tiên 2182111

2 Hoàng Thị Kim Yến 2183545

3 Lê Minh Quốc Tuấn 2182365

4 Nguyễn Thị Liên Anh 2183696

Ho Chi Minh City, June 11, 2021.

HOA SEN UNIVERSITY

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CHAPTER 12: INTRODUCING & NAMING NEW PRODUCTS
AND BRAND EXTENSIONS

1. New products and brand extension

A. Ansoff’s Matrix

Market Penetration:

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 In a market penetration strategy, the firm uses its products in the existing market. In
other words, a firm is aiming to increase its market share with a market penetration
strategy.

The market penetration strategy can be executed in a number of ways:

- Decreasing prices to attract new customers
- Increasing promotion and distribution efforts
- Acquiring a competitor in the same marketplace
For example, telecommunication companies all cater to the same market and employ a
market penetration strategy by offering introductory prices and increasing their promotion
and distribution efforts.
Product Development
In a product development strategy, the firm develops a new product to cater to the existing
market. The move typically involves extensive research and development and expansion of
the company’s product range. The product development strategy is employed when firms
have a strong understanding of their current market and are able to provide innovative
solutions to meet the needs of the existing market.
This strategy, too, may be implemented in a number of ways:
- Investing in R&D to develop new products to cater to the existing market
- Acquiring a competitor’s product and merging resources to create a new product that
better meets the need of the existing market
- Forming strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand
For example, automotive companies are creating electric cars to meet the changing needs of
their existing market. Current market consumers in the automobile market are becoming
more environmentally conscious.
Market Development
In a market development strategy, the firm enters a new market with its existing
product(s). In this context, expanding into new markets may mean expanding into new
geographic regions, customer segments, etc. The market development strategy is most
successful if (1) the firm owns proprietary technology that it can leverage into new
markets, (2) potential consumers in the new market are profitable (i.e., they possess
disposable income), and (3) consumer behavior in the new markets does not deviate too
far from that of consumers in the existing markets.

The market development strategy may involve one of the following approaches:
- Catering to a different customer segment
- Entering into a new domestic market (expanding regionally)
- Entering into a foreign market (expanding internationally)

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 For example, sporting goods companies such as Nike and Adidas recently entered the
Chinese market for expansion. The two firms are offering roughly the same products to a
new demographic.
Diversification
In a diversification strategy, the firm enters a new market with a new product.
Although such a strategy is the riskiest, as both market and product development are
required, the risk can be mitigated somewhat through related diversification. Also, the
diversification strategy may offer the greatest potential for increased revenues, as it
opens up an entirely new revenue stream for the company – accesses consumer
spending dollars in a market that the company did not previously have any access to.
There are two types of diversification a firm can employ:
- Related diversification: There are potential synergies to be realized between the
existing business and the new product/market.For example, a leather shoe producer
that starts a line of leather wallets or accessories is pursuing a related diversification
strategy.
- Unrelated diversification: There are no potential synergies to be realized between the
existing business and the new product/market. For example, a leather shoe producer
that starts manufacturing phones is pursuing an unrelated diversification strategy.

Sub-brand: New brand combined with an existing brand.

Parent brand: An existing brand that gives birth to a brand extension
Family brand: Parent brand associated with multiple product through brand extensions.

1. Categories of brand extensions

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- Line extension: Marketers apply the parent brand to a new product that targets a
new market segment within a product category the parent brand currently serves.

- Category extension: Marketers apply the parent brand to enter a different product
category from the one it currently serves

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2. Advantages of brand extensions
Make it easier for customers to accept the new product
- Improve brand image: Customers form expectation of a well-known and well-liked
brand performance over time. They would possibly form the same expectation and
prediction about the brand extension performance based on what they had already
know about the brand. These expectation and prediction may improve the brand
image.
- Reduce risk perceived by customers: The most important factor that predict the first
trial of a product was the connection between the family brand and the brand
extension. Launching a new product as a brand extension gives the new brand instant
recognition and credibility.
- Increase the possibility of gaining distribution and trial: Since the company has
established the brand name as trustworthy and popular, they can also increase the
interest of consumers and make them consider a new product. That also leads to
better distribution.
- Increase efficiency of promotional budget: Successful brand extensions spent less on
as advertising than a completely new entry. Instead of creating awareness for both
the brand and the product, the introductory campaign can focus on only the product
itself.
- Reduce costs of introductory and follow-up marketing programs: By promoting the
core brand, companies are also promoting the extension. This goes both ways, if they
are promoting the extension, the core brand will gain recognition as well.
- Avoid cost of developing a new brand: Developing a new brand can be quite
expensive. If a brand introduce a new product as a brand extension, it would be less
resource-consuming.
- Allow for packaging and labeling efficiency: Similar packages and labels for extension
can reduce production costs as it does not require the company to design and print
new packages and labels. This could make it easier for customers to notice the
extension when they are placed at the store.
- Permit customer variety-seeking: If the brand portfolio is various, customers who
need a change can switch without leaving the family brand. If a brand does not
introduce its extension, customer might switch to competitor that offers the same
type of extension.
Provide feedback benefits to the parent brand and the company
- Clarify brand meaning: extensions can help the parents brands clearly define the
brand meaning to target audience, and they also identify the market they want to
develop and compete. Moreover, the firm can also find more expansion opportunities
by expanding the meaning of the products and changing the way customers perceive
their brand.
- Enhance the parent brand image: A successful brand extension may enhance the
parent brand image by strengthening an existing brand association, improving the
favorability of an existing brand association, adding a new brand association, or a
combination of these. In addition, Extensions can increase brand love and brand
awareness for parent brand.

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- Bring new customer into the brand franchise and increase market coverage: When
the company create new product lines that remove the factors that prevent customers
choosing products, they can gain more new customers, increase market share,
coverage and maximize sales.
- Revitalize brand: A successful extension can even save a brand that is in danger of
bankrupt. Therefore, companies always have to change, improve to ensure that their
brand always keeping up the time.
- Permit subsequent extensions: A successful extension will be a good premise for the
company to continue to expand its brand, as a result, the company will grow stronger
and serve more customer segments.
3. Disadvantages of brand extension
- Can fail and hurt parent brand image
A product launched, if it doesn’t good or faulty, it will become a failed product. In
addition, it will adversely affect the parent brand.
- Can confuse or frustrate consumers
Different varieties of line extensions may confuse and perhaps even frustrate
consumers about which version of the product is the “right one” for them.
- Can encounter retailer resistance
A line extension has a lot of difference types, it will make retailers dilemma, because
they cannot import multiple products. This will make consumers have a bad view of
the brand as well as the retailer.
- Can succeed but cannibalize sales of parent brand
If a brand extension is launched and has many good uses, better than the parent brand
this will affect the parent brand sales.
- Can succeed but diminish identification with any one category
A brand with a lot of products line will make customer confused and they cannot
recognize your brand in a good way. They do not know which one is your best
product your company.
- Can succeed but hurt the image of the parent brand
When you produce a product that you accidentally include with reasons why
consumers don't need to buy products of the parent brand anymore, it will damage
the image of the parent brand.
- Can dilute brand meaning
Dilution happened when a sub-brand that is unrelated to the parent brand.
- Can cause the company to forgo the chance to develop a new brand
If this product had launched a new brand, it would have been successful,
unfortunately it merged with the parent brand.

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Reference:

https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/

https://bom.to/J7crE8pE7dpwL