Many people think about brand extension—leveraging an established brand name to enter a new product category—as a market research project. In reality, it’s a major strategic business decision that requires careful analysis and planning to launch into a new business segment. One critical thing you’ll need to do early on: Choose the right new category for extending your brand. Here are three key things to consider:

1) Is the market size big enough to bother?

This is one case where bigger is definitely better. Look for a category that’s large enough to create a sizable business even if you only achieve a modest share of the total business. Any brand extension enters an existing category, where you’ll be competing for market share owned by long established competitors. The category’s customers probably already have a favorite brand, and it isn’t yours.

It’s unlikely your brand extension, or new product entry, will achieve a major market share in the early period after launch. In fact, order-entry models show that late entry products typically capture limited market share unless they offer a significant improvement over existing products. Launching in a small category dooms you to a small future. But launching in large categories gives even late entrants a chance to survive and thrive.

2.) Is the category dominated by a handful of major players?

That’s probably bad news for your brand extension prospects. Just imagine trying to compete in the soda category against Coke and Pepsi. Attempting to find significant success when you’re up against these established giants is next to impossible. Fragmented categories, on the other hand, are a brand extension’s best friend. Many brands own a small market share, so no brand is dominant and few are well known. These categories, such as shampoo and deodorant, leave room for a new player to claim share.

3.) Is there room in the category to launch more than one product?

When selecting a new category, it’s important to examine the potential for eventually developing a line of products. Launching one product into a category leaves that product as an orphan without the advantages of scale and advertising clout. If you get a foothold in a category with room for line extensions, you’ll be able to support the whole line of new products more heavily.

Developing a Brand Plan

Companies need to develop a brand plan at the outset of launching a brand extension. That means deciding what product to launch first and identifying a string of follow-up products that could be launched after the first product is established and consumer perceptions about the brand have been changed. The subsequent products would not only be line extensions but additional brand extensions, too. Dove, for example, moved from soap into shampoo, deodorant and lotion. Don’t consider entering a new category without this type of forward plan.

Brand extensions can be a big boost to your company’s bottom line, but only if you choose the right category and leverage a proven brand extension strategy.

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