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. It is crucial to maintain and protect the core brand during these extensions to avoid confusion and brand dilution.
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. Aligning new products with the company’s core brand values is essential to avoid brand dilution and maintain a clear brand identity.
Brand Dilution Examples:
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. This is a classic example of an unsuccessful brand extension, as it diverged significantly from Zippo’s core product.
According to most faithful fans, after this brand extension move, brand perception changed for the worse.
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. Despite some unsuccessful brand extensions, McDonald’s has also seen some of the most successful brand extensions in the fast-food industry.
As soon as they realized those were cursed products, they removed them from menus.
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.
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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.
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.
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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.
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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. Redbull’s successful brand extensions have allowed it to leverage its existing brand equity to enter new markets and generate additional revenue streams.
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:
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5 professional football teams across three continents
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Two Formula 1 team
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3 Teams in Moto GP/ Moto2/ Moto 3
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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. Redbull’s strategies have made it a brand successful in creating emotional connections with its target audience.
Brand Extention Strategy
How to avoid Brand Cannibalization
As you will learn by reading this paragraph, brand extension can lead to brand cannibalization. Understanding your target audience is crucial to avoid this pitfall.
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 Starbucks as an Example
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.