When Dunkin’ Donuts launched its line of espresso-based and flavored coffee drinks, it was a brilliant way to reenergize the 1950s brand. McDonald’s taking on breakfast served as a great wake-me-up for the fast-food giant. As the recession has taken its toll on sales, franchisors have increasingly turned to the introduction of new products for salvation. Burger King introduced mini burgers last year. Jack in the Box just added two new panini-style sandwiches to its menu. But is a brand extension always a strategic way to boost sales and strengthen a brand, or can it actually spread a brand too thin? And what is more crucial: the product or the execution? We posed these questions to our franchising experts.
“New product introductions or improvements on existing menu items are essential,” says Lorne Fisher, CEO of Fish Consulting, a national PR and marketing agency that specializes in franchises. “Consumers’ needs are always changing; therefore, so should a company’s offering.” However, in order for a new product to be embraced, Fisher stresses that it needs to complement the overall brand promise.
Andrew A. Caffey, a franchise legal expert, believes that it’s only natural for marketers that build a strong brand to leverage that brand by expanding into another product line or service. However, he warns that a brand extension that’s applied to an entire franchise system is much more complex than one that’s applied to an independent business. “Franchising is institutionally conservative,” says Caffey. “Unlike an integrated single business owner, franchisors have to think really hard about a brand extension and how it’s going to be perceived and supported by franchisees.”
Even if the intention is good, the plan might fail. “Many franchisors attempt to introduce a new service or product but they fail at the execution stage because, frankly, they’re often too cheap to invest in their new development,” says John P. Hayes, a franchise consultant and author of several books on franchising. “Those who do it right certainly increase sales and strengthen the brand.”
And a new product or service isn’t always the answer to a drop in sales. “Companies that are desperate often see changes in the product line as the answer to flagging sales when in fact it may be operational issues or bad locations or other [factors] that are lowering their sales,” says Jeff Elgin, CEO of FranChoice Inc., a network of franchise referral consultants.
How can a potential investor determine whether a brand extension is a strategic move that will drives sales or an unfocused effort to cover additional markets?
- Ask franchisees how they feel about the change. “If there’s controversy in the system and a lot of franchisees are resisting it, potential investors can be forewarned that this is a direction that may not be successful for this franchisor,” says Caffey.
- Do your homework to find out if the franchisor has done his or her homework. “Is there a solid marketing study and have they established to a reasonable satisfaction that the product is going to be accepted and that the marketplace is going to receive this new idea?” says Caffey. Furthermore, examine whether the franchisor conducted consumer testing to evaluate its target audiences’ opinions related to the new product or service and whether the concept was tested or piloted in select cites before being rolled out to customers, says Fisher.
- Ask the franchisor if there’s a focused and careful advertising program that will be used to promote the product or service, advises Caffey.
- Pay attention to how franchisors introduce a new product or service to franchisees. “The number-one rule for franchisors is to listen to their franchise owners,” says Caffey. In addition, Fisher says, take note of whether franchisees were provided with ample education on the new product or service.
Done right, brand extension has the power to keep a brand relevant. There’s a reason the golden arches of McDonald’s can be found worldwide. “[They have] tests of products going on all the time,” says Elgin. Likewise, Dunkin’ Donuts is still top of mind for consumers thanks, in part, to a very careful and deliberate brand extension strategy executed in early 2000 that put it on a par with Starbucks. But, in order for a brand extension to be a success, the product needs to be in line with the overall brand promise and the strategy needs to be carefully thought out and well-executed.
Sara Wilson is a freelance writer who specializes in issues related to small businesses. Contact her at email@example.com