• by Alyson Schonholz , April 11, 2011

While executives rightly proceed with caution when considering brand extensions, the rewards of success are substantial. Although Apple's iPod and iTunes are shining examples, Apple is certainly not unique. Other powerful brands that have created enormous equity by extending into unlikely categories include IBM and Virgin. Contrary to popular belief, customers give some brands a great deal of permission to extend into unlikely places.

There are key factors that brands can use to assess the likelihood of a successful brand extension into incongruous categories.

1. The brand is admired

Brand extensions are a lot like popularity contests. The more customers like the brand, the more likely they are to be loyal. To determine whether to extend a brand, brand managers turn to tangible equity metrics such as awareness, familiarity and current market share. However, these metrics often do little to determine the viability of a brand extension.

Instead, less tangible measures can provide excellent guidance. Take Apple, for instance. Ten years ago, it was not the market leader in computers, but its "cool" factor and trustworthy products created a cult-like customer following that gave it permission to stretch into -- and revolutionize -- the music and smart device categories.

2. The brand delivers a powerful promise

Brand promise serves as the foundation for everything that the brand does, and why customers believe in it. When extending to a new category, a powerful brand promise is paramount.

To evaluate brand promise, the focus should be on the "why" more than the "what." Brands that have promises built around "what they do" will have a harder time extending their brand than those that focus on "why they do it."

Dell is a very successful computer manufacturer, but its promise was too limiting to extend the brand beyond its current category. Its promise was rooted in a simplified and personalized computer purchase. That promise did not apply to other purchases like electronics.

IBM, on the other hand, focused on "why" it built computers. The company promises to deliver smart solutions. This promise is both broad and powerful enough to be meaningful in other categories. The brand has successfully extended beyond computers into a world-class consulting brand.

3. The brand fulfills an unmet need in the market

Customers have high expectations for beloved brands. "Me too" extensions not only can fail, but can damage brand equity. Think about the Microsoft Kin. With the Kin, Microsoft failed to enter mobile product development because the prevailing view was that its customers needed a phone optimized for a social networking experience. This need was already being met by just about every smartphone on the market, and the experience that Microsoft offered did not exceed customer expectations.

When considering a brand extension, ask whether it exceeds customer and market expectations. Don't focus on what exists today, but what doesn't exist. Where are their unmet needs in the category and how have you innovated to deliver on those needs? By entering categories from the airline industry to telecommunication services, Virgin successfully extended its brand beyond its original focus. Virgin's extensions have been powerful because they have exceeded customer expectations.

4. Finally, brand extensions require not just skill, but the will to be successful

Brand extensions are risky. Customers may reject an extension in a new category because the brand stretches too far, which weakens existing equity. A brand extension requires a tremendous amount of courage and conviction within an organization to make it happen. Assess your internal culture. Do you have the stomach to take a risk and commit to a change? If not, an extension will fail before it ever hits the market.