Brand Extension in Pakistan Insights from Brand Manager Perspective Master Thesis within Business Administration Author: Mohibullah Durrani Syed Abid Hussain Tutor: Dr.Erik Hunter Jönköping December, 2009 Acknowledgement We would like to express our heartfelt gratitude to Dr. Erik Hunter, our supervisor for his critical comments and feedback throughout the writing process of this thesis. We would also like to say thanks and appreciate the contribution of interviewees of this study. We are also much obliged to our teacher Dr.Cecilia Bjursell for helping us further improve the final version of this study. Finally, we would like to extend special thank you to our parents in Pakistan who have kept supporting us during our entire duration of study in Sweden. Mohibullah Durrani Syed Abid Hussain Jonkoping International Business School December 14, 2009 Master’sThesis in Business Administration Title: Brand Management in Pakistan Author: Mohibullah Durrani Syed Abid Hussain Tutor: Dr.Erik Hunter Date: 2009-12-14 Subject terms: Brand Extension, Rationale for Brand Extension, Pros and Cons, Successful Brand Extension Abstract There have been few studies on brand extensions in a Pakistan context. In this thesis, we study brand extensions in Pakistan from viewpoint of Brand Managers as their analysis coupled with their personal preferences can provide interesting insights for forming a successful brand extension strategy. Since T. Gamble first published an article about brand extensions (1967) there has been a growing interest for the topic. With the passage of time the inbuilt benefits of brand extensions in terms of cost and higher success rates were captured by companies in developing countries like Pakistan. In this thesis, we make theoretical arguments for, and show empirically that growth may not be the ultimate objective for companies in Pakistan. Instead, companies are compelled to follow the bandwagon so as to match competitors. It has been indicated that small firms might be in a better position to take advantage of below-the-line promotions in comparison to larger firms. Cannibalization of sales due to brand extensions was described to be non-existent in Pakistan until a company embarks on e-commerce initiative. Successful brand extensions, as defined by the brand managers are measured in terms of independent sales and market share captured by a brand stretch. Based on how the brand managers in this study perceived brand extensions, it could be a feasible marketing strategy in Pakistan. Purpose The purpose of this thesis is to explore the use of brand extension strategies in the Pakistan context. We will try to achieve this purpose by answering the following questions. 1) Why do companies in general and specially in Pakistan use brand extension? 2) Do the general pros and cons of brand extension hold the same applicability in Pakistan? 3) How brand managers in Pakistan describe a successful brand extension? Method A qualitative method was incorporated in order to achieve our exploratory purpose of the study. In total, we performed five interviews. Three extensive telephone interviews were carried out with brand managers representing three seasoned companies from the domain of healthcare (Z-Jans), retailing (Chen One) and dairy foods industries (Haleeb) for finding out brand managers viewpoint on brand extensions in Pakistan. These interviews were conducted via telephone and recorded for our thesis purposes. In addition, one of the authors visited Pakistan and conducted two face-to-face interviews with Lakson Group of Industries (media, fast food and consumer goods) and Servis Group which is operating in (Shoes, Pharmacies, Tires & Tube) businesses . Conclusion It is suggested that the concept of brand manager is in the rudimentary stages of development in Pakistan. One reason for this is that domestic companies are carrying out brand extensions under the heading of marketing managers compared with Multinationals (MNEs) whose brand extensions strategies are mostly prepared at their headquarters. It has also been indicated that small companies could benefit the most from brand extension in terms of attaining greater consumer trials, increased market share, and growth by competing in international markets as they can easily use a mixture of Below-the-line and Above-the-line promotions for their extensions. A good distribution channel coupled with a strong brand portfolio can facilitate success for brand extension as the companies can then negotiate with dealers and retailers from a position of strength. Due to the huge population in Pakistan companies might neglect the fact that their brand extensions can fail. Since, the population is very large it might be hard for small and medium sized companies to cover the whole country and to find out in reality if their brand extension was a success on a country wide basis. It has also been concluded that majority of the consumers are photo-literate with no or very little formal education therefore they find difficult to assess brand extensions and to make educated brand buying decision in light of quality standards. The market as a whole is price sensitive (low prices) so brand extensions with good price and value for customer are more likely to perform well over Pakistan market. Table of Contents 1 INTRODUCTION .......................................................................................... 1 1.1 BACKGROUND ............................................................................................... 1 1.2 PROBLEM STATEMENT ................................................................................... 1 1.3 PURPOSE ....................................................................................................... 3 2 FRAME OF REFERENCE ............................................................................ 4 2.1 WHAT IS A BRAND ? ........................................................................................ 4 2.2 THE CONCEPT OF BRAND EXTENSIONS ........................................................... 4 2.3 RATIONALES FOR BRAND EXTENSIONS ........................................................... 5 2.3.1 Growth and Expansion .......................................................................... 5 2.3.2 Industry Trends ..................................................................................... 5 2.3.3 Economic Benefits ................................................................................. 5 2.3.4 Economies of Scale Concept .................................................................. 6 2.3.5 Consumer Trial ..................................................................................... 6 2.3.6 Environmental Change .......................................................................... 6 2.3.7 Lead from Competitors .......................................................................... 6 2.3.8 Transfer of Expertise and Knowledge .................................................... 6 2.4 PROS AND CONS OF A BRAND EXTENSION STRATEGY ..................................... 7 2.4.1 Pros of Brand Extension Strategy .......................................................... 7 2.4.2 Cons of Brand Extension Strategy ......................................................... 8 2.5 SUCCESSFUL EXTENSIONS .............................................................................. 9 2.5.1 Dimensions of the Concept of Fit......................................................... 10 2.5.2 Moderating Variables ......................................................................... 10 2.5.3 Quality of the Core Brand ................................................................... 11 2.5.4 Consumer Knowledge ......................................................................... 11 2.5.5 Strategy of Brand ................................................................................ 11 2.5.6 Portfolio characteristics ...................................................................... 11 2.5.7 Consumer Certainty ............................................................................ 11 3 METHODOLOGY ....................................................................................... 13 3.1 RESEARCH APPROACH ................................................................................. 13 3.2 PRIMARY DATA ........................................................................................... 14 3.2.1 Interviews ........................................................................................... 14 3.3 DATA ANALYSIS .......................................................................................... 14 3.4 CONVINCING THE READER ............................................................................ 17 3.5 VALIDITY AND RELIABILITY ........................................................................ 17 3.6 DELIMITATION ............................................................................................. 17 4 EMPIRICAL STUDY AND ANALYSIS ..................................................... 18 4.1 THE INTERVIEWEES ..................................................................................... 18 4.1.1 Mr. Farhad Khan (Z-Jans) .................................................................. 18 4.1.2 Mohammad Ismail (Chen One)............................................................ 19 4.1.3 Aziz Anwar (Haleeb Foods Limited) .................................................... 19 4.1.4 Mr. Ghaffar Khan (General Manager, Lakson Group) ........................ 20