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

Brand reference point for Reducing Risks - Essay ExampleThis dilemma has long stared the aliment industry in the face, this sector being made up or soly of small and medium-sized companies each with 20 or so employees. (The likes of McDonalds, Kentucky Fried bellyacher and Kenny Rogers are the few notable exceptions.) Even so, the food sector is perhaps the most profitable and astray distributed industry in the world with, it is said, one food establishment to be found in all(prenominal) street corner. Economists mother 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 economic crisis, people may forego acquisition of cars, appliances and press back on their expenses for clothes and the like but food establishments will al fashions 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 sur face of this bottomless industry.Because of the food companies size, the food sector has been describe 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 centime as against 12 per cent for the drug industry, 8 per cent for electronics and 4 per cent for motor vehicles (MAPP Working Paper 38, EU Concerted Action). This leaves much to be want since R&D is crucial to achieving success in innovation, which in turn is necessary for making whatsoever company competitive. The said European Union study noted that a modern supermarket carries about 10,000 to 15,000 products at any given time with a yearly turnover of 10 per cent. One United demesne food retailer alone successfully introduced 1,500 new own-label products in 1993 to place the company ahead of its competitors. The cultivation is that introduction of new products is an essential element of competition between food companies and that innovation definitely 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 open up 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 cognise brand even as the new product fills a market need different from that of the elevate 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 wi th a in all new consumer product. 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