Brand Extensions: Good or Bad - Essay Example

Brand extension is about introducing a new product to the market under an existing brand name (Stephenson, 2008). Regarding the controversy of applying brand extension, there is a truth behind the fact that brand extension can either cause good or do more harm to the profitability of a company. Despite the possible loss of business opportunities, the use of strategic planning could lessen the degree to wherein brand extension will contribute harmful effects on the annual revenues of the business. 

For this study, several factors that will prove that brand extensions are good in terms of being used as a growth strategy will be thoroughly discussed. In the process of discussing the positive side of brand extension, several examples will be provided.

In most cases, brand extensions are considered a potential growth strategy because of use of the parent brand that has been successfully known by the public could reduce the high costs of advertising (Stephenson, 2008; Aaker 1996, p. 380). Since the parent brand has already won the trust of its target consumers, it will be so much easier on the part of the marketing managers to introduce and make the consumers accept a new product extension under the parent brand.

For example, McDonald’s has successfully established its brand in the global markets. Since the company is known to provide good service in terms of the cleanliness of the restaurants and prompt service, the recent introduction of its McCafe’ was easily accepted and recognized by the public consumers. To prove the success of McDonald’s brand extension, the company has already sold more than 500 million cups of coffee each year since the pre-launching of McCafe’ in the American market (Mabrey & Apton, 2008).

With regards to the services provided by McDonald’s and McCafe’, the experimental study was conducted by Lei et al. (2004) to test the customers’ perception of the low-quality service offered by the extension brand as compared with the high-quality service offered by the parent brand reveals that despite the differences in the quality service offered by the parent brand and brand extension, customers are more likely to perceive the service offered by the extension brand as similar to the ones offered by the parent brand.

Even though the application of brand extension could significantly increase the potential sales and market of a business organization, there is still a strong need for marketing managers to effectively position the new product in the market. Through proper product positioning, marketing managers could effectively avoid any possible negative publicity about the brand extension (Pullig, Netemeyer, & Biswas, 2006). Since McCafe’ was able to properly position itself in the market as a more affordable coffee option as compared to Starbucks coffee (Kiley, 2008; Burritt, 2007), the company can increase its overall sales and profitability.