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Your brand is one of your company's most powerful assets. It encapsulates everything you want people to know about the business—what you value, what you stand for, and what you're trying to do.

Related: 6 important branding tips to keep in mind when going global

Which is why brand extension can be such a stressful process. Using the strength of your brand to enter a new market gives you a headstart that new companies can't match.

Understanding how to extend your brand is crucial for engaging markets. Before you launch a new product or adopt a new strategy, you'll need to think about a few things.

Before we get into those things, though, let's agree on a brand extension definition.

What is brand extension?

Brand extension is the use of an existing brand name and logo on a new product. The original brand is called the parent brand, and the new products are called spin-offs. Companies use this strategy to capitalize on the brand equity of their existing brand to launch new products and enter new markets.

Let's look at Apple. For 25 years, the company built personal computers. And they were good at it. That's what they were known for—powerful, attractive computers that were easy to use.

And then they entered an entirely new industry: personal music devices. The iPod was an immediate and immense success. We'll talk about how Apple pulled this off in a bit. First, let's talk about why it was a good idea.

Why brand extension is so powerful

Apple had built a very strong brand over 25 years of making personal computers. Why would they risk diluting that brand by entering a new industry? The stakes are high, and the chance of failure keeps many business owners from even considering a big move like this one.

But Apple knew that building on their brand would be immeasurably valuable if they did it right.

Companies spend years and millions of dollars solidifying their brand. Marketing campaigns, social media interactions, advertising, public relations, and product development all contribute to a brand's strength.

Why? Because consumers recognize and value brands. People are more likely to buy products from brands they know, whether they feel explicit brand loyalty or not.

This type of brand recognition means that the presence of a strong parent brand—like Apple—can significantly boost the sales of new products. Introducing a completely new product is hard. It's much easier when that product is backed by a recognizable brand.

But sometimes his type of thinking can get companies into trouble.

Where brand extension goes wrong

Not every brand extension builds on a strong brand to create huge sales. Let's look at an entertaining brand extension failure: Zippo Fragrances.

Zippo is a very strong brand in the world of cigarette lighters. Their name, design, and even the sound of the product is very distinctive. If you see a Zippo, you know it. Can you name another brand of non-disposable lighter? Probably not.

This is a strong brand. Zippo wanted to use their brand equity to enter a new field.

Why they picked perfumery is anyone's guess.

The company actually used some good brand extension tactics. They kept the brand name and even used their distinctive lighter design for the perfume and cologne bottles.

But absolutely no one thinks of Zippo when they think of perfumery. Instead of seeing the brand and thinking, "I trust Zippo," people think "Why would Zippo make a cologne?" That's a failed brand extension.

Zippo missed a crucial ingredient of the brand extension recipe.

How to get it right

If you're thinking about extending your brand, it's worth looking at some recent successes. Look at Tesla's expansion into trucking, for example. O, Oprah Winfrey's magazine. Tootsie Pops. Virgin Airlines (and dozens of other Virgin-branded forays).

What do these brand extensions have in common? Above all, they play to the parent brand's strengths. Tesla already knows how to build great vehicles. Oprah knows how to tell stories that capture the hearts and minds of her audience. Tootsie Roll knows how to make a candy that people love. Virgin knows customer service better than almost anyone.

Successful brand extension strategies place the new product as a logical extension of previous ones. That's why Zippo perfume isn't a household name. Everyone knows Zippo for their lighters. Their brand equity didn't transfer to their beauty products.

Apple knew their brand equity would transfer to the iPod because their brand was already adjacent to the music device industry.

Be careful with brand extensions to reap their rewards

Brand extensions can be hugely valuable. But when used without enough forethought, they can also be disastrous.

It's crucial to give any potential brand extension a great deal of thought. If you do decide to extend your brand, make sure to apply your branding consistently to take advantage of the loyalty that you've been building for years.

Don't be like Zippo. Be like Apple.

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Author Bio

Dann Albright is a freelance content marketer, content strategist, B2B blogger, copywriter and journalist. You can follow Dann on LinkedIn