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.
In the context of brand extension research, brand reputation has been defined in terms of consumer perceptions of quality associated with a brand which is the first influencer. High perceived quality brands can be extended further and receive higher evaluations than low perceived quality brands. Reputation of a brand in such situation is considered as the outcome of product quality, the firm’s marketing activities and acceptance in the market place. Brands with higher perceived reputation should provide consumers with greater risk relief and so encourage more positive evaluations than brands of lower reputation.
This notion should be true for FMCG, durable goods, and particularly for services. When a new brand is launched in the services sector, consumers have neither experience, nor concrete attributes, to judge its quality. Consequently, consumers rely heavily on cues such as brand reputation. On the other hand, with goods, consumers can obtain useful information about quality through visual inspection and thus the importance of inferences based on brand reputation may be reduced.
Second influencer is, perceived risk. Perceived risk is a multi-dimensional construct which implies that consumers experience pre-purchase uncertainty regarding the type and degree of expected loss resulting from the purchase and use of a product. Perceived risk is usually conceptualized as a two-dimensional construct such as: 1) uncertainty about the consequences of making a mistake, 2) uncertainty about the outcome.
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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