Are You Ready For A Brand Spinoff?

Are you ready to take your company to the next level? Take a note from Dylan's Candy Bar and Chobani: Brand extension, or spinoff, has distinct advantages if done correctly.
November 25, 2013

When the first Apple Store opened in 2001, many experts forecast the technology brand’s extension into retailing would end in expensive disaster. The experts, of course, were wrong. And that may be why business owners today are energetically implementing equally unexpected spinoffs of their brands.

Creating A Brand Extension

Dylan Lauren, founder of New York City destination confectioner Dylan’s Candy Bar, is following her fashion magnate father’s brand-building template and applying the sweet shop’s name to a new line of LeSportsac handbags. “I am always trying to expand the Dylan’s Candy Bar brand to new levels that change the way consumers see candy in the marketplace,” Lauren says. “The Dylan’s Candy Bar for LeSportsac collection was a collaboration that allowed us to stretch the perception of candy to making it fashionable.”

Lauren isn't alone. Yogurt maker Chobani took a cue from Apple, opening a Chobani SoHo retail store in the trendy Manhattan neighborhood. And apparel icon Brooks Brothers announced it would partner with a restaurateur on a steakhouse to be called “Makers and Merchants,” echoing its longstanding tagline. The first in what could be a national chain opens in 2014 in New York.

There is definitely a method to these brand builders’ madness. Brand extensions offer several advantages. An extension can be a cheaper way to enter a new product category than starting fresh. One of the major expenses of launching a new product is building name awareness. Starting with a well-known brand can trim that line item significantly.

A company may get specific strategic benefits from brand spinoffs as well. For instance, LeSportsac has great distribution in Asian markets where Dylan’s Candy Bar doesn’t. And Brooks Brothers may have noticed that other retailers have significantly increased sales by adding restaurants to their stores.

Brand extensions aren’t foolproof. Despite lower startup costs, most lose money in the beginning, warns David Johnson, CEO of Suwanee, Georgia, marketing firm Strategic Vision.

Brands may also confuse customers if extensions venture too far afield. Certainly, a company like Brooks Brothers, which has been in apparel for nearly two centuries, risks puzzling those who encounter its name on a restaurant. Even highly logical extensions may eventually dilute a brand if a company does too many of them. “People wonder what you really stand for and represent,” Johnson says.

A brand spinner also risks killing the goose that laid the golden egg if spinoff offerings are not the equals of the original. “When you go away from what you specialize in, if it’s not the same quality, it affects your primary brand,” Johnson warns.

Is Your Brand Ready?

A successful spinoff comes from entering the right market, at the right time and in the right way. That's no small feat, but if you're thinking about a spinoff, consider these five questions carefully.

1. Is your brand truly widely recognized? Business owners may overestimate the extent to which their brands are known outside core markets. Ted Selame, president of Newton, Massachusetts, marketing firm BrandEquity, which worked with Levi’s on its retail brand spinoff, said spinoff retailers work when large numbers of customers already know and like the products. “Apple’s good because they have that brand,” Selame says.

2. Is your revenue strong and stable? Brand extenders need to spin from a position of financial strength and have stable revenues from existing businesses stream to support the enterprise until the extension reaches profitability, which may take years. “A lot of smaller and medium-sized companies think they can branch out overnight and increase their brand with a retail presence,” Johnson says. “What happens is they overextend themselves.”

3. Is your extension strategic? Apple’s stores allow the company to control the environment in which its products are presented. In particular, there are no lower-priced Windows-based PCs to tempt customers repelled by premium prices for Macs. Similarly, Lauren’s choice of Le Sportsac, which is a popular international brand, helps her build her brand internationally and makes strategic sense.

4. Is your extension plan too grand? Candy and handbags share little in common to the uninformed eye, but the pairing fits Dylan’s Candy Bar’s strategic vision. Johnson suggests thinking about it like a geographic expansion. “For a smaller medium-sized company, you want to stay in the same regional area, within 250 miles of your headquarters,” he says. “Then branch out.” It’s worth noting that Brooks Brothers has so far announced a single Makers and Merchants restaurant, despite describing plans for a large chain, and that even Apple, which has 300 Apple stores worldwide now, opened just 25 the first year.

5. Is your extension plan too conservative? Coming out with a diet version of a successful soft drink is product extension, not brand extension. To fully exploit the leverage of a well-known brand, be ready to consider brand-new categories. Apple now gets 20 percent of profits from stores, while also separating itself from store-less technology rivals. Such bold benefits don’t come from timid refinements.

Risks And Rewards

You may even consider changing your brand to better fit new markets. That’s what Tony Mennuto did when his radio advertising company, Radio Face, ventured into video and digital. The New York company had good brand awareness in radio markets, but the name seemed a liability for video. Mennuto’s solution was a hybrid brand recognizably incorporating the familiar while leaving out the limiter.

Now known as Mister Face, Mennuto's company is winning introductions to video prospects from radio customers. The initiative is too new to know whether it will work long term. But Mennuto is comfortable that he isn’t taking an undue risk. “You need to be flexible, but above all you need to be open and creative when you’re looking at your own brand,” he says. Unless you take risks, you’re never going to come up with new ideas.”

At Dylan’s Candy Bar, the LeSportsac spinoff is just one of several efforts to build the sweet shop into a lifestyle brand. The company recently opened a first airport store in Detroit, and a second is planned for New York’s JFK in 2014. It also revamped the online store, adding international shipping to prepare for a hoped-for influx of overseas orders, perhaps inspired by shoppers hungering for something to match a new handbag.

And there will be more brand spinoffs to come from Lauren; her vision for Dylan's Candy Bar is sweeping. “I have always felt the need to merge the worlds of art, fashion and pop culture with candy,” she says.

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