Brand dilution is the weakening of a brand though its overuse. This frequently happens as a result of ill-judged brand extension. Price cutting that increases volumes but moves a brand down-market can be similarly damage a brand.
Brand dilution is an ever present risk for companies that rely on a strong brand for high margins. A company that owns a strong brand obviously wants to leverage it to sell as much as possible, but the very strategies used to purse this end often also bring the danger of brand dilution.
Investors need to look at strategies designed to exploit brands by extension (or through otherwise increasing the market served by a brand) in order to be warned of dangers of brand dilution.