Branding: Grounded in reality.(brand extensions)

Brand extensions that succeed begin in the same place: by asking what customers want, writes Robert Gray.

If you own a strong brand, there is the perpetual temptation to stretch it into new product areas or even across categories. Look at the runaway success of Apple's iPod, which married innovation with the design-conscious funkiness of the parent brand to immense commercial success, or Caterpillar's move beyond heavy machinery into popular chunky footwear.

Yet, while rewards are potentially immense, it can be a risky undertaking.

Research last year from Ernst & Young suggested that brand extensions are more likely to fail than new brands. And data from Millward Brown found that awareness of extensions' advertising is considerably lower than that of new brands, with many consumers confusing the extension with the parent.

This raises many intriguing questions. Do some brands or categories of brand stretch better than others? If so, why? How do you decide when to extend and in what direction? And what should you do to give yourself the greatest chance of success?

'The problem in my view is that while the best brand extensions profit from the reputation of the parent brand, this can breed complacency within the company - an attitude that the normal rules of marketing don't apply because the brand name will carry them through,' says MCBD planning director Andy Nairn. 'Thus the main mistakes are shockingly basic ones. Very often, there is no real consumer need for the brand extension; the product is developed on the basis of what the company can make, and how it can squeeze more value out of its existing assets, rather than what consumers actually want.'

If …