Brand Extension for Reducing Risks Essay Example | Topics and Well Written Essays - 2500 words

Brand Extension for Reducing Risks - Essay ExampleThis dilemma has long stared the fare industry in the face, this sector being made up mostly of small and medium-sized companies each with 20 or so employees. (The likes of McDonalds, Kentucky Fried Chicken and Kenny Rogers are the few notable exceptions.) Even so, the food sector is perhaps the most profitable and widely distributed industry in the world with, it is said, one food establishment to be found in every street corner. Economists have come to think of this industry as uniquely recession-proof, catering as it does to the most primal urge of man - the appeasement of hunger. During an sparing crisis, people may forego acquisition of cars, appliances and cut back on their expenses for clothes and the like but food establishments will al representations draw them in. As a gold mine rich in business opportunities, it is said that all the food companies have accomplished at present is scratch the uprise of this bottomless ind ustry.Because of the food companies size, the food sector has been described as a low-tech industry, with the lowest research-and-development to sales ratio. The industrys R&D to sales ratio is pegged at an average of only 1 per cent as against 12 per cent for the drug industry, 8 per cent for electronics and 4 per cent for motor vehicles (MAPP Working story 38, EU Concerted Action). This leaves much to be desired since R&D is crucial to achieving success in innovation, which in turn is necessary for making either company competitive. The said European Union study noted that a modern supermarket carries about 10,000 to 15,000 crossroads at any given time with a one-year turnover of 10 per cent. One United Kingdom food retailer alone successfully introduced 1,500 saucy own-label products in 1993 to place the company ahead of its competitors. The remainder is that introduction of new products is an essential element of competition between food companies and that innovation defin itely gives them a competitive edge. Still and all, food companies operating on the economy-of-scale basis simply cannot afford the risks involved in diversification and innovation in the traditional sense. The advent of the brand extension concept gave these companies a way out of their problem by enabling them to develop new products without the attendant risks and extra costs. With brand extension, food companies found an effective strategy to reduce the risks of new product development. Brand extension is the use of an established brand name for a new product that is intended for another product category or class (Keller & Aaker 1992). Simply put, a brand extension is a product that carries the name of a known brand even as the new product fills a market need different from that of the parent brand. The idea is to ride piggyback on the name established by the parent brand so that the new product avoids the extra costs and risks inherent in coming up with a totally new consumer p roduct. An entirely new product without the symbolic meaning of brands (i.e., company prestige, status and personality) to prop it up would be difficult to sell otherwise (Czellar 2003). The use of brand extension to good