BRAND EXTENSION AS A MARKETING STRATEGY

Many companies adopt brand extension as strategy with the aim of benefiting from the brand

knowledge achieved in the current markets. When a company launch a new product and

market under the umbrella a well-known brand name, failure rates and marketing costs are

reduced (Keller, 1993). Keller (1993) states that more than 80 per cent of firms resort to brand

extensions as a way of marketing goods and services. Competition forces firms to adopt

strategies that create a competitive advantage for the firm. Creating a brand name with well

established associations is one way of achieving this aim. Firms invest heavily in developing

a brand. It is a very costly process but has many returns once success is achieved (Keller,

2008). Brand extension as a marketing strategy has become even more attractive in today’s

environment where developing a new product costs a lot of money and can be time

consuming. Literature on extensions dominantly addresses the question of how the parent or

core brand helps the new product during its launching stage. Although literature touches on

the possible reciprocal effects of the new product launching on the equity of the core brand,

their number is limited. This article presents a research study of brand extension with

developing an innovative product in a new product fast moving consumer goods category.

2.1. Brand extension as an important element in the process of brand management

Launching of a new product is usually done through brand extensions. The newly introduced

brand extension capitalizes on the equity of the already established (core) brand name

(DeGraba & Sullivan, 1995, Pitta & Katsanis, 1995) or even the company or corporate name

(e.g. Coca-Cola). Consumer familiarity with the existing core brand name aids new product

entry into the marketplace and helps the brand extension to capture new market segments

quickly (Dawar & Anderson, 1994, Milewicz & Herbig, 1994). This strategy is often seen as

beneficial because of the reduced new product introduction marketing research and

advertising costs and the increased chance of success due to higher preference derived from

the core brand equity. In addition, a brand extension can also produce possible reciprocal

effects that enhance the equity of the parent brand (Chen & Liu, 2004).

Market is a place of competition and cost associated with introduction of new brand always

soars, many firms are trying to decrease the risks involved in new product introduction and

market the new product using the name of already well known existing brand as brand

extension. Many firms use brand extension strategies to enter new categories. According to

Ambler et. al. (1997), it is common strategy of last decade that companies prefer brand

extension rather than introducing a new product under new product name. Companies save

their cost as well as minimize the risk by launching a new product as brand extension under

the brand name of already well-known brand. Marketers believe that brand extensions are

evaluated favourably by consumers because consumers transfer positive attitudes or affect

toward the parent brand to its extension.

The whole policy of the brand must be included for the brand extension strategy. Brand

extension strategy determines how far we can extend our brand. Before going into brand

extension strategy we have to answer the following questions (Davis, 2002, p. 508):

− Does the brand extension strategy consistent with the vision strategy?

− Does the brand extension strategy improve the brand image?

− Does the brand extension strategy consistent with the brand positioning strategy?

− What will be the impact on the brand in the case of unsuccessful brand extension?

Possible directions of brand extension

Taylor’s model (2004 in Kline, 2006) (see picture 1) of consumer brand extension attitude

formation has triggered additional brand extension research in various countries. Their

exploratory research provided valuable insight into which extension constructs influence the

attitude of consumers toward the extended brand. The launching of new brands is much more

costly than expanding existing strong brands, but each extension is not necessarily successful.

DIRECT EXTENSION

TOTAL EXTENSION

BASIC EXTENSION

INDIRECT EXTENSION

Brand extension strategy comes in two primary forms (figure 1): horizontal and vertical.

In a horizontal brand extension situation, an existing brand name is applied to a new

product introduction in either a related product class (basic extension) or in a product

category completely new to the firm (total extension). A vertical brand extension, on the

Brand values,

characteristics,

personality

Middle markets

with a clear link

with the basic line.

The new shape or flavor to complement

the basic line.

Extremely wide range of products, without a functional link with the basic

More distant markets with less obvious connection to the basic line.

other hand, involves introducing a brand extension in the same product category as the

core brand, but at a different price point and quality level (direct extension) or in a

product category with less connection to the basic product line (indirect extension). There

are two possible options in vertical extension. The brand extension is introduced at a

lower price and lower quality level than the core brand (step-down) or at a higher price

and quality level than the core brand (step-up). In a vertical brand extension situation, a

second brand name or descriptor is usually introduced alongside the core brand name in

order to demonstrate the link between the brand extension and the core brand name.

Although a brand extension aids in generating consumer acceptance for a new product by

linking the new product with a known brand or company name, it also risks diluting the

core brand image by depleting or harming the equity which has been built up within the

core brand name (Aaker, 1990, Chen & Liu, 2004). Brands value can exploit for its

expansion, which is subject to various factors: the core brand values, the characteristics

and personality and the attitude of consumers to the brand. Successful expansion of the

brand is created by: increased the likelihood that consumers will accept the message of a

new line of products when this message includes a known element, update existing

product line with new brand offerings and more efficient use of the marketing costs.

The greatest risk in the expansion of the brand, however, that there may be fading

original personality of the brand. This causes that consumers do not perceive the

connection between the original brand and created extension. When deciding the brand

extension is to consider the following:

− Where should expand the brand: reach new groups of consumers, new markets,

occasional shoppers, with the same or new products?

− What should we extend the brand: offering related or unrelated products / services

under the same brand, in existing or new customers?

− How to expand the brand: independently conduct or collaborate with business partners

(eg through licensing or placing the franchise).

In many cases, the brand extension proved to be very successful strategy. This strategy is often

seen as beneficial because of the reduced new product introduction marketing research and

advertising costs and the increased chance of success due to higher preference derived from the

core brand equity.

FORMULATING THE BRAND VISION AND THE BRAND EXTENSION

STRATEGY

The focus at the start of a brand extension project is on the client and the clarity of his

thinking. There are three questions which require careful consideration from the outset:

1. What is the motivation for the brand extension initiative?

2. What is the overall brand vision within which the brand extension sits?

3. What strategy or strategies are being considered to bring the extension to

fruition?

At the start of a brand extension initiative it may be that the answers to questions 2 and

3 are as yet unknown. In other words that thinking is still to be done; those decisions are still to

be made. If this is the case then full account of this fact should be taken.Launching into a

consumer investigation of brand extension opportunities without having established the brand

vision and extension strategy is unlikely to be genuinely useful. Indeed the feedback could be

seriously misleading. What should be clear, however, is the motivation for extending.

THE MOTIVATION FOR THE BRAND EXTENSION

Client motivations can be broadly divided into two categories:

Growth motivation

Survival motivation

Growth motivation

The growth motivation can take two forms, one potentially more risky than theother.

The first motivation can be attributed to a businessman’s brain. For example a category

has been identified which is enjoying dramatic growth (or is extremely profitable or is

just plain big) and the manager of ‘Brand X ‘ wants a slice of the action. In this

instance little thought has as yet has been given to issues such as brand credibility and

fit with category or more importantly the potential impact on brand equity.

An alternative way in which a growth motivation can manifest itself is through the filter

of the marketer’s brain. A manager of ‘Brand X’ can see how his brand could compete

successfully in another category. This is a much more comforting state of affairs. The

initiative is brand led rather than volume led and there is a sense of working with the

brand’s equity rather than relying solely on current size and level of awareness.

Survival motivation

When the motivation for brand extension is survival the challenge takes a quite

different shape. The focus is not protecting the current business but shifting focus into

a new category or arena. This survival motivation might arise when the brand’s

business is concentrated in a declining and increasingly peripheral category. In the past

we have worked on the brand TDK. A leader in the cassette tape market, a format

largely superceded, it was imperative that it successfully established its heartland

elsewhere. This also required a redefining of its brand personality and values to ensure

that it was resonating with the new generation of music lovers.

Alternatively the need to extend in order to survive may be because the home category

is simply too niche and, in order to achieve critical mass, the brand must extend into

new fields. No doubt there are many other permutations. It is certainly the case that in the field of

technology boundaries between categories are blurring. Thus arguably a game console

brand like PlayStation can no longer restrict its attention to other console brands but

must compete against other gateways into a virtual world. In such a fast changing

environment you can’t count on your product heartland remaining the same for a

prolonged period of time. Extending your brand remit is an on-going part of managing

the brand.

UNDERSTANDING EXTENSION MOTIVATIONS: WHAT DOES IT BRING?So what real benefit does this understanding of motivation bring? It is, we believe,

crucial in understanding which extension strategy or strategies should be taken forward

into research as well as understanding the extent to which there is a pre-existing vision

of the total brand world within which the extension will sit. In other words it directly

influences the answers to the second and third questions defined above. The motivation

will influence the priority given to different aspects of the strategy going forward. For

example, for a brand like Levi’s, with enormous strength and equity in one category,

safeguarding its status in denim is of paramount importance. If, on the other hand you

are TDK, the focus is on where you are going more than where you have come from.

BRAND VISION AND EXTENSION STRATEGIES

Brand extension ideas should never be explored, certainlyin consumer or even expert

research, without a thorough understanding of the direction in which the brand as a

whole is heading and of how the extension is intended to interact and contribute to the

brand core. Without this vision and context, the brand management team is shirking its

responsibility. It is asking the consumer to tell them what the brand should stand for. It

is asking the consumer to be visionary. It is, as indicated earlier, asking the consumer

to give the brand permission to move forward whereas what should be happening is

that we proactively help clients to develop their vision and their extension strategies.

In order to develop this brand vision there is a need to understand fully the brand in

question and in particular the nature and extent of its elasticity. Armed with this

understanding the brand team will be well placed to move forward to the brand

extension exploration itself. As David Howard put it in an article for Admap in March

1997:

“It is only by gaining a better understanding of the brand’s potential to stretch that

those of us responsible for brand development and management will be able to

distinguish genuine opportunity from genuine opportunism”

BRAND ELASTICITYBrand elasticity describes the extent to which a brand is able to operate credibly in new

categories or is able to accommodate new product offerings whilst retaining a coherent

brand identity. We have identified three salient themes pertinent to this issue, themeswhich

should be investigated fully in order to come to a view on the nature and extent

of a brand’s elasticity. The three themes are:

Brand history

Product world

Brand world

Brand history

A contributory factor to elasticity is a brand’s historical development. Of particular

importance is the length of time that a brand has been associated with one product or

category prior to diversification. The term ‘associated with’ is highly significant here.

This is not just about the reality of a brand’s portfolio, it is about perception of the

brand’s portfolio, likely to be heavily influenced by the nature of a brand’s

communication strategy over the years. The focus of a brand’s communication and

product offering informs consumer understanding of the ‘philosophy’ and expertise of

the brand. It influences the extent to which a brand’s credibility is affected by visible

extension initiatives.

An excellent example of a brand where history has played an important role in limiting

elasticity is Levi’s, a brand we have been involved with on both sides of the Atlantic for

many years. In Europe, until the launch of Levi’s Engineered Jeans (LEJ) last year, Levi’s have

focused the majority of their communication efforts on extolling the virtues of the 5501,

the definitive and original jean. The reality is, of course, that an extensive range of

jeans styles and cuts were available. However the 501 advertising was the brand voice.

Levi’s cared about one product. It held originality and history close to its heart. It

behaved like a mono product brand. The result of this single-mindedness was of course

an incredibly successful iconic brand. But iconic brands with iconic products do not

lend themselves readily to future brand extension. Andy Farr and Graham Page, in a

recent paper based on a large scale quantitative study entitled ‘Do you have an elastic

brand?’, cite Coca Cola as one of the most inelastic brands they investigated – another

example of the effect of a mono-product history. Interestingly this learning confounds the view

that a brand’s strength in one category is permission enough to extend. Again Farr and Page:

“Brand strength does have a role to play in setting expectations about new offerings.

However, it is clear that brands which dominate, or which are closely associated withtheir home

category will find it more difficult to stretch to new territory.”

Returning to our Levi’s example and crossing the Atlantic we can illustrate further how

brand history impacts on elasticity. For although we would by no means describe the

brand in the States as elastic, we would suggest that it is more elastic than in Europe.

Its communication history and to some extent the reality of its portfolio (although we would

argue that here it is the communication which is the crucial factor) have embraced a broader

product base. The focus has been less on one product over a prolonged period of time. For

example there has been advertising for Silver Tab (baggier, more specifically youth oriented

styles) and a campaign directed at women with a ‘Levi’s for Women’ range. The result is a brand

less wedded to one product and which, at least within denim, has credentials in a level of

diversity. Incidentally Japan lies somewhere between Europe and the States on the elasticity

scale. There, consumers have perceived a focus on heritage and an aesthetic of the past

– limiting but less so than the one product focus of Europe.

BRAND ELASTICITY AND BRAND EXTENSION STRATEGY

It is clear from the above that a structured and disciplined analysis process should take

place in order to develop a brand extension strategy. On evaluating the brand’s elasticity,

understanding the relative strength of product versus brand values, it should be possible to draw

up the brand vision and the extension strategy which is coherent with and able to make a positive

contribution to that vision. Clearly consumer understanding plays an important role in this

process. With this approach, however, that understanding is clearly situated within a strategic

framework.

EXPLORING THE BRAND EXTENSION OPPORTUNITYA guiding principle for exploring brand extensions is to begin with the category into

which the brand is entering and not the brand from which the offering is stretching. The

reason for this is simple. An extension may be credible and logical for a brand, building on its

current values, but unless it is genuinely differentiating in the new category the extension will

fail. So for example in 1986 Timotei, the haircare brand, launched a skincare range embodying

the values of naturalness, simplicity and frequent use. It was not a success not because those

values were not relevant in the sector but because they were already offered by brands such as

Simple, Nivea and Body Shop. A second danger is that the values embodied by the range

extension offering are differentiating but simply not relevant. Dove, on entering the deodorant

category, was at pains to establish efficacy credentials rather than leading on a gentle

moisturizing platform. Without efficacy the other values are irrelevant.

So in our structured approach to brand extension research and planning we must next

explore fully the dynamics of the category of entry, gaining a clear understanding of the

product pre-requisites and consumer needs; the brand map and the territories occupied;

the levels of marketing activity and quality of communication support. This understanding of the

status quo may well involve a variety of disciplines such as semiotic analysis, quantitative

evaluation of media budgets set against volume sales and levels of profitability, expert

workshops and of course consumer research. The objective of all this analysis is to ensure that

the extension is evaluated in the right environment against meaningful benchmarks. For the

questions at this point are: How competitive and differentiated is the brand extension proposed?

How will it compete in the marketplace? What is it about this offering that will make people

want to buy it? These are obvious questions but impossible to answer if the offering has only

ever been looked at through the lens of the parent brand and out of the context of the harsh

reality of the destination category.

So what is called for here is a process of analysis and thinking which brings together category

understanding, consumer understanding and an interrogation of the brand extension offering

itself. Note what we are avoiding is a directionless questioning of the consumer along the lines of

‘what if Brand X were to enter this category, what would you think…’ Instead we would be

exploring a defined product offering or offerings (depending on whether the previous stage 1 of

the process had identified only one or a number of alternative extension strategies). Moreover at

this stage we would not be asking consumers to reflect on the implications for the parent brand

but rather to focus on the product’s desirability in its own right within the new category.

If Positive If Negative

THE BRAND EQUITY BALANCE

Consumer research clearly does have a role to play at this point but ultimately the picture is once

again completed by analysis, judgement and intuition rather than consumer answers to a series of

direct questions. The inputs may be many and varied but the aim is to draw up what we have

termed the ‘Brand Equity Profit and Loss’. The concept is very simple indeed although arriving

at the information is rather more complex. We seek to understand what values from the Brand

Core the extension draws on and whether that is likely to result in any sense of dilution or

weakening of the brand equity (Loss). We also come to an understanding of what the extension

will potentially invest in the Brand Core (Profit). Finally we arrive at a view of the resulting

Brand Equity Balance. Only if there is a positive balance would it be our recommendation to

proceed. Weakening brand equity for the sake of sort term volume is not a wise path to tread.

Factors Influencing Brand Extension

(1) Similarity

DestinationCategoryEvaluation

Evaluationof strengthof proposal

JUDGEMENTON SUSTAINABILITY

Brand Equity Balance

STOP

Referent product-extension product similarity (hereafter referred as similarity) is the

degree to which consumers perceive the extensions as similar to other products affiliated

with the brand . It is evident that the most frequently considered antecedent of brand

extensions is the level of perceived similarity between the original and extended brand.

Several studies reported that the greater the similarity between the original and extended

category, the greater the transfer of positive (or negative) affect to the extended brand

This finding is based on the assumption that consumers will develop more favourable

attitudes towards extensions if they perceive high congruence between the extension and

the original brand (see Boush, et al. 1987 for theoretical discussion)..

(2) Reputation

A basic premise underlying the use of brand extensions is that stronger brands provide

greater leverage for extensions than weaker brands (e.g., Aaker and Keller 1992; Smith

and Park 1992). As can be seen in the widely noted definition of brand equity, brand

strength has been articulated implicitly in terms of consumers’ predispositions towards

the brand . In the context of brand extension research, brand reputation has been defined

in terms of consumer perceptions of quality associated with a brand . It has been reported

that high perceived quality brands can be extended further and receive higher evaluations

than low perceived quality brands and . Reputation of a brand in these studies is

considered as the outcome of product quality, the firm’s marketing activities and

acceptance in the market place, i.e. more akin to the views of .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 .

Conversely, 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.

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 (Bauer 1960; Cox 1967).

Perceived risk is usually conceptualised as a two-dimensional construct.

(a) uncertainty about the consequences of making a mistake;

(b) uncertainty about the outcome

The literature shows that a recognised brand is often relied upon by consumers as a mean

of coping with perceived risk. A brand which is extended into a new product category

offers a new alternative to consumers, but also impacts on consumers’ perceptions of

risk. We believe, based on the literature, that a well known brand is a risk reliever and

enhances the likelihood of product trial. Berlyne (1970) argued that novel stimuli (cf

brand) tend to be highly arousing and trigger aversive reactions. . As a person gains

familiarity with a brand through repeated exposure, perceived risk tends to decline and

positive affect tends to increase (Baker, et al. 1986; Obermiller 1985).

Dowling and Staelin (1994) draw a distinction between product category risk and product

risk. They define the first type of risk as “the person’s perception of the riskiness

buying an average product in the product class” (p. 119), while the second type of risk

reflects the perceived risk of the specific alternatives being considered. When consumers

evaluate a brand extension both types of risk are relevant. We focused on the perceived

risk of the product category into which the brand was extended. 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.

It could also be argued that there is a distinction between goods and services when it

comes to perceived risk. Services are associated with greater degrees of intangibility,

simultaneity of production and consumption, provider consumer contact and, non

standardisation (Zeithaml, Parasuraman, and Berry 1985). In view of these

characteristics, the amount and quality of comprehensible information for consumers is

diminished, and thus the level of perceived risk is anticipated to be elevated. Reliance on

a recognised brand is a popular way of reducing risk. Thus in services brand extensions,

we would anticipate that as perceived risk increases when buying a newly extended

services brand, so there should be greater reliance on the parent brand.

While there is necessarily some degree of risk which accompanies all purchases, it is

predicted that more risk is associated with services than with goods.

4. Innovativeness.

Innovativeness is a personality trait related to an individual’s receptivity to new ideas and

willingness to try new practices and brands. The importance of innovativeness has been

examined extensively in the literature on diffusion of innovation (Rogers 1983) and

consumer behaviour (Engel, et al. 1990). However, there has been limited research into

the effects of consumer innovativeness on brand extension evaluations. Some work was

undertaken by Keller and Aaker (1997), albeit briefly, and more recently by Klink and

Smith (2001). A common observation is that individuals high in innovativeness are more

venturesome and more willing to try new brands (e.g., Stenkamp and Baumgartner 1992).

The response differences between highly innovative and less innovative consumers (cf

early and later adopters) reflects, to some extent, differences in risk-taking propensity.

Innovators tend to be less risk averse than other consumers. According to Rogers (1983),

one of the most salient traits of consumer innovators is the comfort they gain from taking

risk.

CHANGING EXTENSION EVALUATION BY CHANGING THE DECISION

CONTEXT.

Consumers evaluate brand extension in a variety of decision contexts. We propose that

the visual and comparative nature of the decision context can change how consumers

mentally represent the extension . According to construal level theory , people can

represent object at different levels of abstraction, ranging from lower level, concrete

representations that are contextualized and include incidental object features to higher

level., abstract representation which are decontextualized and include only the core

features of the object. We assume that the presence of visual cues and comparison

brands leads the consumer to adopt a more lower level , concrete representation of the

brand extension.

First consider the effect of visual cues. Visual information is readily imaginable and

distinctive , whereas verbal information is more pallid and decontextualized. For example

when when consumers contemplate the mere concept of a “Nike deodorant,” their

representation is not bounded by a particular context. However, adding visual product

cues (however basic) will activate incidental features beyond the core features implied

by the category (e.g., “odor protection”), thus facilitating the formation of a more vivid

and specific image of the product. This suggests that the presence of visual information

can activate a lower level more concrete representation. This view is consistent with

recent findings that people tend to categorize objects into more categories when these

objects are represented by pictures as opposed to words (Amit et al. 2008) and that people

process pictures more quickly when they represent psychologically close objects but

process words more quickly when they represent psychologically distant objects. Similar

to visual cues, the presence of comparison brands in the extension category can also

influence how consumers mentally represent the brand extension. Comparisons with

other brands in the same product category will highlight the lower-level, incidental

differences between the branded products while de emphasizing . The core features of

the product category, which are shared across brands and thus irrelevant to preference

(Tversky 1977). This contextualization and the accompanying emphasis on

(distinguishing) lower level rather than (shared) higher-level features should result in a

more concrete representation when consumers consider brand extensions in the context of

other brands in the product category rather than in isolation. In summary, we propose that

both visual cues and brand comparisons can shift consumers’ representation of brand

extensions from a schematic, abstract representation to a more detailed and concrete

representation thus moving these extensions psychologically closer to consumer. If the

decision context changes how consumers represent the brand extension, how does it

affect their extension evaluations? Building on prior findings in the brand extension and

psychological distance research streams, we expect that more concrete representations

will increase the importance of parent brand quality relative to brand extension fit . Kim

and John’s (2008) recent work demonstrates that concrete mindsets are associated with

reduced sensitivity to differences in fit. Specifically, they show that people who tend to

think abstractly evaluate a high fit extension of brand more favorably than low fir

extrension of brand whereas people who tend to think concretely do not show any such

difference. This is consistent with findings in the literature on psychological distance

indicating that more abstract mindsets tend to increase reliance on normative ideals and

general principles (Kivetz and Tyler 2007; Liberman, Trope, and Stephan 2007). Thus,

consumers in a more abstract mindset should place greater weight on the normative

appropriateness of the extension —that is, whether the extension fits with the image and

skills of the parent brand. Conversely, consumers in a more concrete mindset should

place greater weight on parent brand quality. People in a concrete mindset tend to have an

immediate temporal focus, as well as a focus on lower level features rather than higher-

level principles (Liberman, Trope, and Stephan 2007). It follows that consumers in a

concrete mindset should be primarily concerned about the immediate benefits that the

brand extension can provide them with —benefits that can be inferred from the quality of

the parent brand. In summary, we propose that the presence of visual cues or comparison

brands will activate more detailed, lower level

Benefits for brand extension

Brand extension is always seen as a way for companies to seek growth while introducing

a new product (Carolin, 2007). As it is a phenomenon in strong competitive market,

previous studies report that failure rates are 80 percent of the extension (Völkner and

Sattler, 2006). With such a high rate of failure, brand extension is still one of the most

popular ways for companies to develop. There are reasons why it is so attractive and

profitable. Economic benefit should be the first dynamic of brand extension. In the world

of cash, one of the greatest profits everybody wants to seek is economic benefit.

According to Tauber (1988), the economic as well as the business world, is now a cost

controlled and cost based world. Brand extension can be considered as a costly effective

outcome for new categories, the sales of parent brand will increase when employing

brand extension. On the other hand, brand extension can also reduce the cost of

launching a new product (Jean-noel, 1993).

It is well known that much more investments are required while introducing a new

brand to the market, such as advertisement, and this factor motivates managers to use the

way of brand extension. It is because brand extension can help in gaining financial scale

in the field of advertising (Roberts and McDonald, 1989). One of the most 6 popular and

effective but costly ways of branding is advertising. Good advertising makes great

contribution to the development of brand products. But advertising needs a big amount of

investments into the market to compete with competitors. Brand extension can achieve

the efficiency of advertising (Smith and Park, 1992). In addition, brand extension can

also become an advisable way to introduce a new product without advertising (Hasting,

1990). This can also lower the cost and provide easier chances for the new product when

entering into the market.

Secondly, brand extension reduces the risk of the new brand while entering the market

(Jean-noel, 1993; Lain, 2002). It is considered that the parent brand is famous if brand

extension is applied, because the new product can earn market share and customers more

easily with the help of the reputation of parent brand. Customers will be attracted as they

share the loyalty and trust the brand image of parent product (Aaker and Keller, 1990). In

this case, the risk and chance fail for the new product can be reduced (David Taylor,

2004), since the name of the parent brand can attract a group of customers based on their

loyalty. Also, this is an easier way to compete with the competitors. Moreover, brand

extension expands parent brands’ consumer base and eventually assists in developing

parent brand franchise.

Risks of brand extension

Even though there are thousands of reasons and benefits of brand extension, no matter

how attractive it is, brand extension is full of risks. The probability of success is uncertain

and unpredictable. 80% of the failure examples tell that brand extension is a two-side

sword.

Many managers are motivated by brand extension, since the new product can be

introduced with the image and the popularity of the parent brand. It is acquiesce that the

parent brand is a famous brand when implementing brand extension. Consequently, once

the brand extension is failed, the image of the parent brand will surely suffer from

negative influence. A wide selection of extensions confuses consumers (Quelch and

Kenny, 1994) and then will reduce the parent brand’s original image, consumers’ loyalty

and brand equity at the same time. Much worse, it will bring down consumers’ trust and

belief in the brand name (Ian, 2010; Loken and John 1993; Milberg, Park and McCarthy

1997; Sullivan 1990). Take the example of Coca-Cola, in order to compete with the

biggest competitor Pepsi, in 1980s Coca-Cola Company introduced new flavor coke, but

customers didn’t like the new coke which resulted in the decrease of the sales of original

taste coke.

Brand extension might cause psychopathy conflict of customers, weakening of exiting

associations, and the sharp image of the parent brand can be fuzzed (Aaker, 1990).

Besides, it might also reduce the market share and number of customers. Take the

example of Scott Company, Kleenex was the strongest brand of toilet paper in American

during that time. But the Scott introduced Kleenex facial tissue to the market what made

customers feel strange when using the tissue. Famous American advertisement science

expert, Al Ries, even commented on the product as: Kleenex toilet paper and Kleenex

tissue, which one is for nose? Later on, Procter & Gamble’s product, Charmin toilet

paper took place of Scott in the toilet paper.

Another risk is changing the position of the brand. For a new product, there will be a

strong restriction regarding the positioning. The positioning of the new product should be

close to the parent brand to realize synergy effects, otherwise, risks might appear

(Carolin, 2007). GOLDLION is a famous Chinese clothing brand for men, which was

popular for a time. Its slogan is “Goldlion, men’s world”. With the development of

Chinese clothing market especially for women’s clothes, Goldlion started to promote its

own brand for women’s clothes, but somehow ended up with a fuzzy image to the

original brand. Indeed, Goldlion’s women collection is not as popular as men’s. The

positioning of Goldlion is men’s clothing and has been well known among customers for

years. Once the new collection for women came out, customers changed the image of the

brand and in return they got confused about the product (MBA library).

From all the literatures listed above, it is expected that a company might confront both

challenges and opportunities when implementing brand extension strategy. However,

category extension has not been discussed independently as a type of brand extension.

Neither have specific cases and examples been further implied to related theory.

Brand equity

Branding is all about creating differences (Keller, 2003). Consequently, the brand equity

concept is about the importance of the role of the brand in marketing strategies. Brand

equity provides a common concept for interpreting marketing strategies. Brand equity is

defined as the incremental contribution per year obtainedby the brand in comparison to

the underlying product (or service) with no brand-building efforts.The incremental

contribution is driven by the individual customer’s incremental choice probability for the

brand in comparison to his or her choice probability for the underlying product with

nobrand-building efforts. The approach takes into account three sources of brand equity –

brand awareness, attribute perception biases, and non-attribute preference - and reveals

how much each of the three sources contributes to brand equity. This is done by taking

into account not only the direct effects of these three sources on choice probabilities, but

also the indirect effects through enhancing the brand’s availability. The method provides

what-if analysis capabilities to predict the likely impacts of alternative strategies to

enhance a brand’s equity. Brand equity can be defined differently by different

approaches: consumer based view and company based view. Consumer based brand

equity is the most widespread nowadays due to the importance markets given to the brand

evaluation from the consumer’s point of view (Ilias & Anastassios, 2010).

Aaker (1991) defines brand equity as a set of brand assets and liabilities linked to a

brand, its name and symbol, which add to or subtract from the value provided by a 8

product or service to a firm and/or that firm’s customer. By the other words, the

differential effect that brand has on the customer’s response to the marketing of that

brand. Therefore, the brand equity that a company enjoys is the essential piece that

reflects the performance of the company and is the guide towards future strategies and

decisions.

Keller (1993) refers brand equity as the differential effect of brand knowledge on

customers’ response to the marketing of a brand. Keller (2003) stresses that in order to

understand the brand equity, it should be realized that the power of a brand lies in

what resides in the minds of customers. In Keller’s consumer-based brand equity

theory, brand awareness and brand image are used as two components.

Many more scholars have explained and developed the definition of brand equity:

Based on Aaker's (1991) and Keller's (1993) conceptualizations of brand equity, Yoo

BRAND EQUITYDIMENSIONS OF BRAND EQUITY

Consumer Perception Developed by direct Marketing efforts

Consumer Perception developed by Indirect Marketing effort

Value to Firm

Value Perceived by Consumers

and Donthu (2001) developed and validated the multi-dimensional consumer based

brand equity (MBE) model. In their study, there is a comparatively high positive

relationship between brand equity and purchase intention as well as between brand

equity and brand attitude across all consumer groups. Solomon and Stuart (2002) put

brand equity as the value that a brand has for a particular organization or company.

They explain that brand equity provides a competitive advantage because it gives the

brand the power to capture and hold onto a larger share of the market and to sell at

prices with higher profit margins. Moreover, Brady, Cronin, Gavin and Roehm (2008)

state that brand equity implies a way of superiority. It is a perception of belief that

extends beyond mere familiarity to an extent of superiority that is not necessarily tied

to specific action. Nam, Ekinci and Whyatt (2011) study a sample of 378 customers in

hotel and restaurant industry by testing a model of five dimensions which as a result

further develops Aaker’s brand equity theory

Modified Aaker’s brand equity model

The theoretical framework of this paper explains the challenges and opportunities of

brand extension based on modified Aaker's brand equity model. There are five

categories in Aaker’s brand equity model: brand loyalty, brand awareness, brand

associations, perceived quality and other proprietary brand assets. Four categories of

Aaker's brand equity model are further discussed. Later on authors use the modified

model to analyze two cases of category brand extensions from the collected data in

empirical part.

Researches show that a brand’s equity has an impact on the success of extensions:

Carolin (2007) argues that higher brand equity has higher chance for extension

success. Pitta and Katsanis (1995) state that there seems to be a relationship between

brand equity and brand extensions. Herr, Farquhar and etc. (1996) study the

relationship between brand awareness and the evaluation of brand extensions, and

they find the relationship between the parent category and the target category of the

proposed extension. Moreover, Glynn and Brodie (1994) find that the brand-specific

associations are important to evaluate brand extensions. Hem and Iversen (2003)

explore the effects of brand loyalty towards the original brand on the evaluation of

brand extensions. In their study, a high affective relationship towards the parent brand

may reduce the evaluation of brand extensions while high loyalty towards the parent

brand is important for reaching a positive evaluation of extensions.

The conceptualization and structure of Aaker’s brand equity contain five categories

(Aaker, 1991): brand loyalty, brand awareness, brand associations, perceived quality

and other proprietary brand assets. The last category represents elements like patents,

trademarks and channel relationship. Brand equity can generally add value for

customers by helping them process and store a lot of information about the products

and brands. Brand equity can also potentially add value for the company. It can

provide a platform for growth via brand extension.

As showed in figure 2.1, the network indicates the glue that ties each piece together

and enhances solidity to the brand.

Figure 2.1: Modified brand equity model (Original model is from Aaker, 1991, pp.17)

Brand awareness

Brand awareness is defined as the ability of a buyer to recognize that a brand is a

member of a certain product category. Brand awareness reflects the presence of the

brand in the mind of customers. It should occur regardless of environmental

conditions such as time and locations. Consumers may link the related brand

knowledge to the brand name, which finally constitutes brand equity (Aaker, 1991).

Brand Equity

Aaker argues that consumers in general turn their attention towards a recognized

brand rather than an unfamiliar brand.

Brand awareness can be characterized according to depth and breadth. The depth of

brand awareness concerns the likelihood that a brand element will come to mind and

the ease with which it does so. The breath of brand awareness concerns the range of

purchase and usage situations where the brand element comes to mind. The breadth of

brand awareness depends, to a large extent, on the organization of brand and product

knowledge in memory (Keller, 1998).

Moreover, for some low involvement products, brand awareness is sufficient to create

sales (Dennis and Lea, 1995). Since consumers spend little time or effort on the

consumption decision of low involvement products, familiarity with the brand name

may be enough to determine purchase.

Apéria (2001, cited in Kollander and Lejon, 2007.) claims that brand awareness is

essential for a company because of the following three different reasons. Firstly, brand

awareness is crucial for a company to communicate the attributes that follow with the

brand. Secondly, brand awareness establishes a relationship between the company and

the customer. Finally, brand awareness symbolizes to the customer that the product is

of high quality.

Brand loyalty

Loyalty is a core dimension of brand equity which is a measurement of the attachment

that a customer has to a brand (Aaker, 1991). Keller (1998) also explains that brand

loyalty is often measured in a behavioral sense through the number of repeat

purchases. If a customer prefers to go to McDonald’s instead of Max, it is because the

customer has brand loyalty towards McDonald’s.

Repeat purchase of the brand, however, may not represent commitment, it may merely

represent acceptance of the brand (Assael, 1998). Loyalty reflects how likely a

customer will change to another brand, especially when that brand makes a change,

probably in price. Aaker (1991) convinces that loyalty demands a long term strategy

from the company perspective to position and presents the brand as a necessary ally in

the mind set of consumers. But once loyalty is gained, it can bring value: The

marketing costs will be heavily reduced when the majority of the customers become

loyal to the brand; As an effect of brand loyalty, the trade leverage of the brand will be

facilitated in terms of an increase in distribution hubs; The company will be able to

acquire more time to respond to competitive threats. Brand loyalty also gives a

company some protection from competition and greater control in planning their

marketing programs (Kotler, 1994).

Aaker (1991) uses a brand loyalty pyramid to differentiate the different levels of

brand loyalty. In this pyramid, the bottom loyalty level is the non-loyal buyer who is

completely indifferent to the brand, whereas the top level is committed customers

who are very likely to recommend the brand to others. The main goal for a company

is to execute actions that can influence consumers in the lower levels to become more

loyal towards the brand.

Brand associations

Brand association is defined by Aaker (1991) as anything linked in memory to a brand.

It also refers to any brand knowledge relating to the brand in the customer's mind. 12

Keller (1998) noted that brand association can affect consumers' purchasing decisions

based on the recall of brand information. Brand associations are very essential for a

brand to be different from others and to acquire unique values.

Three types of brand associations are: attributes, benefits, and attitudes. Brand

attitudes are the other types which are defined as consumers’ overall evaluations of a

brand. This might be abstract criteria but it is of importance as well (Tuominen, 1999),

because they often form the basis for actions and behavior that consumers take with

the brand. In addition, Keller (1998) has explained that brand attitudes can be formed

on the basis of benefits about product-related attributes and functional benefits and/or

beliefs about non-product-related attributes and symbolic and experiential benefits.

Brand association can provide the basis for an extension (Aaker, 1991). Since brand

association involves product attribute or consumer benefits that provide a reason to

buy and use the brand, it will result in purchasing the extended brand because of the

fit between the brand name and a new product.

Perceived quality

According to Aaker (1991)’s definition, perceived quality refers to the customer's

awareness of products' superior quality in relation to other products. To what extent a

customer is aware of product quality of a particular brand might depends on past

experiences from practical use or possible feedbacks/comments from others. In this

case, a product considered of high quality can be perceived by the consumer as poor

quality depending upon the consumer’s expectations of the product and vice versa.

Aaker (1991) also argues that a strong brand with respect to perceived quality will be

able to extend further, and will find a higher success probability than a weaker brand