I have just come across an old (October 2000) paper by Millward Brown, the research firm, about the determinants of a brand’s elasticity. It may be nearly 10 years old, but its analysis is evergreen.
As expected, the analysis shows that it is easiest for brands to extend into categories that are functionally similar. It also shows that the other determinant of successful brand extension is the degree to which the brand’s value proposition transcends purely functional considerations, and the extent to which this augmented “meaning” is relevant in the new category. Hence the title of their paper “Does your brand mean enough to diversify?”
As noted extensively in this blog, customer value in an Earthling world is driven by more than purely functional considerations. Customer want answers both to the question “what can you do for me?” and to the question “what can you mean to me?” – being a strong brand means having a compelling answer to both questions. A Vulcan will select you on the basis of the first alone, but an Earthling will require a compelling answer to both.
The Millward Brown paper illustrates how the answer to the second question also determines the extent to which your “augmented” value proposition could support an extension of your brand into additional areas.
