Question

Brand extensions are one way in which strong brands may take advantage of the brand's equity. They are an important part of a brand's growth strategy. In NO MORE THAN 300 words, identify and explain at least ONE major advantage and ONE major disadvantage (danger) of brand extension.

Answer 1

Answer :

An advantage of brand extension is that it makes acceptance of new products a lot easier. The brand image is broadened and hence the perceived risks to consumers get reduced. Cost of developing a new brand is saved and this can be utilized for the betterment of quality of a product. The expense of introductory and follow up marketing programs is reduced. There are economies of scale since advertising, selling, promotional costs are reduced. The core brand supports the extended brand.

Brand extension advantages

Less expensive and cheaper while compared to the creation of a new brand.: Take an example from the company Danone. They have started many dairy products and confectionaries on their line through brand differentiation Consumer knowledge and consumer trust is already inbuilt, thus it is easy to expand the brand differentiation.It helps in enhancement of brand visibility.: more differentiation in brand creates more reach among customer It provides defensive strategy: It prevents competition through introducing more product in the same line or group eg: Microsoft tools and packages

The disadvantage of brand extension is that if the brand is extended to a huge extent then there may be the loss of reliability. Unrelated markets pose a threat to the core brand also. Reseach of product categories must be conducted to keep up the existing brand name. The new brand may damage the image of the core brand. The already existing brands in the market producing the same category of product may provide stiff competition to the newly extended brand. In such cases, the cost of advertising may rise.

Disadvantages of Brand extension:

Dilution may happen for the existing brand: It majorly results in reciprocity action and customer buying behavior. Old brands will get diluted in the new extension. Many companies like Nestle, Parle India etc have faced the same issue, especially in FMCG areas.

Cannibalisation: This extension will cause degrowth of their supporting brand. Total disaster: Some brand extensions may impact negatively for the entire product groups.