Brand extension or brand stretching is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category. Organizations use this strategy to increase and leverage brand equity of their established brands for maximizing returns on their investments in these brands.
Marketers have long recognised that strong brand names that deliver higher sales and profits (i.e. those that have brand equity) have the potential to work their magic on other products categorises. In recent past, the role of brand extension as a strategic tool for introduction of new products has gained significant mileage among product planners. The main reason behind this recent trend has been the increasing risk associated with the failure of new product introduction and exponential increments in cost of building and establishing new brands. In a highly competitive market, where each player is fighting for fractions of market share and access to customer mind and heart, makes launch of a new product a high risk decision. Besides the risk of failure for a completely new product due to increasing competition, the other factor that concerns these product planners is escalating cost associated with building a new brand. These reasons have made brand extension as preferred option among product planners. Applying this strategy provides easier access to already existing loyal customer base and distribution network of brand and cost less to marketer in reaching to target customers. Although the strategy of brand extension has been very dominant recently in new product launches it is not without any risk associated with it. The biggest risk associated with this strategy is dilution of brand equity of core brand in case a new product fails to fulfill the expectation of customers (Nkwocha et al, 2005). Also some brands are so strongly