Question:What are the benefits of a brand extension?

Answer:Brand extensions let a marketer take a brand with well-known quality perceptions and associations and put it on a brand in a new category. Not only can marketers capitalize on brand awareness, they can also leverage off of the associations consumers know about the parent brand. If consumers know that Arm and Hammer Baking Soda is deodorizing, they will immediately infer that Arm and Hammer kitty litter will be deodorizing too.

Second, consumers who favorably evaluate a parent brand are more willing to try and adopt the brand extension than an unfamiliar brand in the same category. They trust a known brand name. For these reasons, brand extensions make new product introduction less expensive.

Brand extensions can also help a firm’s stock prices. Some academic research has found that Wall Street attend to brand extension announcements and that whether they like them or not depends on how much they like the parent band.

Brand extensions can also help consumers understand the core meaning of the brand name. When Arm and Hammer extends its name from baking soda to deodorant, kitty litter, shoe inserts, its core "deodorizing" brand concept is enhanced. Arm and Hammer MEANS deodorizing—no matter what it is on. So, in this sense, brand extensions truly help to build equity in the brand name itself.

For more on brand extensions, read our tutorial.