An Introduction to Brand Dilution, Extension, and Cannibalization

Written by Clifford Chi and reposted from Hubspot.com

You might know Cadbury for their high-end chocolate and candy, but did you know they sold instant mashed potatoes from the early 1960s to the mid 1980s?

Smash, their instant mashed potato brand, surprisingly reached mainstream success. But, unfortunately, it was at the expense of lowering their flagship product’s perceived quality.

Cadbury is a premium confectionery company, so when they started producing low-end food products, like instant mashed potatoes, it’s not shocking to learn that their association with the finest chocolates weakened. Eventually, in 1986, Cadbury sold Smash, only 20 years after they introduced their instant mashed potatoes to the world.

Cadbury’s expansion into instant mashed potatoes created a new revenue stream and even generated more sales for them, but it damaged their brand as a whole. This phenomena is called brand dilution, and, below, we’ll dive into it, as well as other related concepts called brand extensions and brand cannibalization.

Brand Dilution

Brand dilution is when a company’s brand equity diminishes due to an unsuccessful brand extension, which is a new product the company develops in an industry that they don’t have any market share in, like Reese’s Puff Cereal or Gerber’s baby clothes.

Brand Extension

Companies leverage their existing brand awareness and equity to develop brand extensions that create new revenue streams. However, an unsuccessful brand extension, like Zippo’s perfume for women or Samsonite’s outerwear, can attach undesirable associations to their brand, weaken its existing associations, and hurt its established products’ perceived quality, which can all lead to brand dilution.

When does brand dilution occur?

According to two marketing professors from Dartmouth College and UCLA, brand dilution usually occurs when a company’s failed brand extension is closely related to their flagship product -- consumers will start questioning the company’s expertise and dedication to quality within their main product category.

On the other hand, when a company develops a brand extension that’s unrelated to their flagship product, consumers will expect differences in the extension and distance it from the brand’s main product category, leading to significantly less brand dilution if the extension fails.

Amongst a company’s most loyal customers, however, an unrelated brand extension can lead to brand dilution because they have a deeper understanding of the company’s brand identity. So even if the unrelated brand extension is successful and attracts new customers, the company’s most loyal customers may feel like the unrelated extension is inauthentic, causing them to think less of the brand.

Brand Dilution Examples

Pillsbury's Frozen Microwave Popcorn (Closely Related Brand Extension)

Even though Pillsbury is known for producing foodstuffs, their frozen microwave popcorn couldn’t compete with Orville Redenbacher or General Mills’ Pop Secret because their product positioning of being “frozen for freshness” didn’t offer enough value. Sure, sticking your popcorn in the freezer is convenient (I guess), but that benefit pales in comparison to enjoying a better-tasting popcorn, and it diluted Pillsbury's brand equity. 

Levi’s Tailored Classics (Unrelated Brand Extension)

When Levi’s introduced their Tailored Classics in the early 1980s, they already owned a large share of their target market, so they wanted to enter some new markets to sustain their high growth rate.

One of these markets was men’s suits, but since their brand was heavily associated with a casual, rugged, and outdoorsy lifestyle, Levi’s new product line conflicted with their core identity and failed to catch on.

Consumers trusted Levi’s to produce durable clothing that could endure the wrath of mother nature, but, for that very reason, they didn't trust them to produce high-end tailored suits, leading to a loss of trust in their brand as a whole. 

Brand Cannibalization

Brand cannibalization is when a company develops a brand extension that competes with one of its established products and takes a portion of its market share. Even though brand cannibalization sounds like a counter-intuitive business strategy, companies do it because they think their new product’s sales will be greater than their older product’s loss in sales, leading to a boost in total revenue.

For instance, when Apple released the iPad, the original Macintosh’s sales decreased, but the iPad’s sales were greater than the Macintosh’s loss in sales, so Apple actually grew their total revenue. However, brand cannibalization can also backfire, prompting customers to purchase the new product instead of the older product, leading to a stagnation or decrease in the company’s total revenue.

Extending your brand can be a double-edged sword.

Every business wants to capture as much market share as possible. But before you start developing a brand extension, make sure you truly understand your brand’s core identity and, more importantly, make sure you stick to it. Because if you don’t, you could release a brand extension worse than Eva Longoria’s Steakhouse for Women and wreak havoc on your brand as a whole and diminish your total revenue.