Final answer:
Brand extensions can facilitate brand growth through strategic advertising, exploiting a brand's existing reputation. However, they also involve high promotional costs and risks such as brand dilution or damage to credibility if not aligned with the brand's core values.
Step-by-step explanation:
Brand Extensions: Growth Strategy or Risk to Brands?
Brand extensions can be a double-edged sword for companies seeking growth. On one side, they can offer a way to leverage a brand's reputation and goodwill to launch new products, which can lead to significant growth for the brand. Such strategies often rely on synergistic advertising, where a unified message is spread across various platforms to reinforce the brand identity in consumers' minds. An example is seeing advertisements for a specific beer brand in multiple formats and locations, thereby encouraging consumer familiarity and preference for that brand.
However, brand extensions also pose risks. A brand's established image could be diluted or harmed if the new product fails to meet consumer expectations or doesn't align with the brand's core values. This scenario could potentially damage the original brand's credibility. Additionally, the high cost of advertising to support a new brand extension can act as a barrier to entry, often requiring budgets as large as those of industry leaders like Coca-Cola or Pepsi-Cola. This implies that without significant investment in promotional budgets, few companies will be inclined to compete directly with these well-established brands.
In summary, while brand extensions can be an essential strategy for brand growth, they must be executed with care to protect the brand's integrity and ensure that the investment leads to a profitable return without overwhelming competition.