Based On Customer Equity, Brand Extension Evaluation Studies

Companies are facing more risk when market new products due to the fierce competition, shortened product life circle and increased advertisement costs in the late part of 20th century. To obtain a higher accepting rate of new products, more and more companies adopt brand extension strategy. Brand extension has become a focus of marketing research, but the existing researches concentrate on two respects irrelatively, which are customer accepting rate of new products and the negative effects on parent brand or products of parent brand. The overall result of brand extension is barely researched.After analyzing tangible and intangible effects of brand extension to a company customer equity is proved to be a good criterion for brand extension evaluation. Customer equity can not only reflect customers' acceptance of new product, but also reflect customers' attitude to parent brand. Besides, customer equity can be used to measure short and long effect of company operation.Paper proposes to compare the customer equity of three strategies, original strategy, independent brand strategy and brand extension strategy, to determine whether brand extension is feasible. When measuring the customer equity of three strategies, the composed parameters are computed under the condition that customer equity should be maximized, in order to avoid irrational effects. While measuring the customer equity of independent brand strategy and brand extension strategy, it is possible that new product is not introduced to market; there is no history data to be used for customer equity calculation, reasonable methods, such as analytic hierarchy process, are proposed to compute the composed parameters.Practice methods are introduced in this paper to help companies to judge suitable strategy.