Introduction to new products can be an attractive for growth strategy
; however this is not without risks. Some estimate that 35% of all new products fail. Due to factors such as high advertising costs
and the increasing competition for shelf space, it has become more difficult to succeed with new products. A basic premise underlying the use of brand extensions is that stronger brands provide greater leverage for extensions than weaker brands.
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A brand which is extended into a new product category offers a new alternative to consumers, but also impacts on consumers’ perceptions of risk. However, a well-known brand is a risk reliever and enhances the likelihood of product trial
. As a person gains familiarity with a brand through repeated exposure
, perceived risk tends to decline and positive affect tends to increase. When extending a well-known brand into a product category perceived as risky, the brand can serve as a credible risk
reliever, signal an acceptable quality level, and thus increasing its likely acceptance. Reliance on a recognized brand is a popular way of reducing risk. Hence, anticipation is that as perceived risk
increases when buying a newly extended services brand, so there should be greater reliance on the parent brand.
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