Should you take your brand to where the action is?

Abstract

When markets turn hostile, it's no surprise that managers are tempted to extend their brands vertically--that is, to take their brands into a seemingly attractive market above or below their current positions. And for companies chasing growth, the urge to move into booming premium or value segments also can be hard to resist. The draw is indeed strong; and in some instances, a vertical move is not merely justified but actually essential to survival--even for top brands, which have the advantages of economies of scale, brand equity, and retail clout. But beware: leveraging a brand to access upscale or downscale markets is more dangerous than it first appears. Before making a move, then, managers should ascertain whether the rewards will be worth the risks. In general, David Aaker recommends that managers avoid vertical extensions whenever possible. There is an inherent contradiction in the very concept because brand equity is built in large part on image and perceived worth, and a vertical move can easily distort those qualities. Still, certain situations demand vertical extensions, and Aaker examines both the winners and the losers in the game. Managers may find themselves facing a situation that presents both an emerging opportunity and a strategic threat, and alternatives to vertical extensions may have even higher risks and costs. Furthermore, a number of brands have been extended vertically with complete success. If after assessing the risks and rewards you conclude that a vertical extension is on the horizon, proceed with caution. And keep in mind that your challenge will be to leverage and protect the original brand while taking advantage of the new opportunity.

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