Brand Extension Strategies

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Brand extension strategies: perceived fit, brand type, and cultureinfluencesBuil, Isabel ;de Chernatony, Leslie ;Hem, Leif E.European Journal ofMarketing43.11/12 (2009): 1300-1324. ()

The aim of this paper is to examine the impact of perceived fit, brand type and country's culture on

the consumers' attitude towards brand extensions and on the parent brand equity. Data were

collected in three European countries: Spain, UK, and Norway. A series of analyses of variance

(ANOVA) were conducted to test the hypotheses. Brand extensions with high fit receive more

favourable consumer evaluations and decrease the negative feedback effects ofextensions on

parent brand equity. Results also reveal that parent brandequity dilution is higher when

the brand used to launch the extension has high equity. Finally, findings indicate different consumers'responses to extensions and effects on parent brand equity across countries. Important directions for

future research would be to include other countries and carry out a more in-depth analysis to

understand the effect of culture. Managers should launch extensions with high perceived fit. In

addition, greater effort is needed to extend high equity brands, due to their greater dilution. Finally,

managers need to understand that consumer evaluations and feedback effects of the same brand

extensions can vary due to cultural differences between consumers. Therefore, standardised brand

extension strategies should be carefully considered. The study focuses, not only on consumer

evaluations ofextensions, but also on the effects ofextensions on the parent brand equity.Furthermore, this paper is one of the first to empirically examine and show that consumer evaluations

ofextensions and feedback effects on parent brand equity differ across countries.

Introduction

Owing to the high costs of launching new products, brand extensions have been the basis of national

and international strategic growth for many firms over the past few decades. Brand extension strategyconsists of using an established brand name to launch new products ([50] Keller, 2007). One of the

main advantages of using brand extensions is the reduction of communication costs ([94] Tauber,

1981; [1] Aaker, 1990; [6] Aaker and Keller, 1990) as a result of the synergies generated between

experience and communication of any products of the firm ([36] Erdem and Sun, 2002).

Furthermore, brand extensions reduce the costs ofbrandname introduction and enhance the

probability of success since consumers transfer their perceptions and attitudes from the

original brand to the extension ([94] Tauber, 1981; [6] Aaker and Keller, 1990). Brand extensions can

also have positive effects for the parent brand. They can strengthen the brand meaning, help tobuild brand equity ([52] Keller and Sood, 2003), and encourage purchasing of other products from the

firm, particularly amongst nonusers of the parent brand ([93] Swaminathan et al. , 2001).
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Despite these benefits, the use of an established brand name to introduce a new product can be risky.

Anextension may change prior beliefs of the parent brand ([58] Loken and John, 1993; [48] John et

al. , 1998) and reduce the sales of other products marketed under the same brand ([31] Desai and

Hoyer, 1993).Extension failures can also damage the parent brand, causing notable equity loss ([1]

Aaker, 1990; [40] Grhan-Canli and Maheswaran, 1998; [93] Swaminathan et al. , 2001; [52] Keller

and Sood, 2003).

Therefore, the decision to extend a brand, as well as its characteristics, should be subject to cautious

strategic planning with the aim of selecting the most likely extensions to succeed ([66] Mitchell and

Edelman, 2003). This is particularly critical when the new products are launched in an international

context.

Previous research on brand extensions provides insights into the main determinants that influence

theextension success and the feedback effects ofbrand extensions on parent brand (for reviews see[38] Grimeet al. , 2002; [24] Czellar, 2003; [102] Vlckner and Sattler, 2006). Amongst the multiple

factors that may condition the result of an extension, two are of a particular interest:

the perceived fit between the parent brand and the extension; and

the characteristics of the parent brand used for the extension.

Likewise, when the extension is launched in more than one country, cultural differences deserve

special attention.

Perceived fit is one of the most relevant variables that can influence the result of an extension ([102]

Vlckner and Sattler, 2006). In general, a higher perceived fit involves a better evaluation

ofextensions ([6] Aaker and Keller, 1990) since the new product gains credibility amongst consumers.

Similarly, an extension with good fit may reinforce parent brand equity dimensions such

as brand image ([108] Zimmer and Bhat, 2004).

The brand equity (e.g. high or medium) of the brand used for the extension, that is, use a brand with

highbrand equity or medium brand equity, is another factor that influences consumer evaluationsofbrand extensions, and has a feedback effect on the original brand. In this respect, it is important

for firms to have strong and well-known brands to leverage value through brand extensions ([84]

Rangaswamy et al. , 1993; [82] Pitta and Katsanis, 1995). Thus, a high equity brand enjoys positive

associations, high perceived quality, more recognition and more loyal consumers. This enables firms

launching products under the same brand to benefit from the transfer of these positive associations

and quality image. Furthermore, they are more likely to obtain the recognition of the brand name and

the loyalty of those consumers that are already loyal to the parent brand ([2] Aaker, 1991; [49]

Keller, 1993; [47] Hutton, 1997).


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countries: Spain, the UK and Norway, since they have a different cultural profile ([44] Hofstede,

1984).

The paper opens with a literature review on the three aspects that are the basis for the hypotheses. It

then describes the methodology used in the analysis and presents the results. Finally, the paper draws

conclusions and considers implications for managers.

Conceptual background and hypotheses

Effect of perceived fit

Perceived fit between the parent brand and the extension is one of the major determinants ofbrand

extension success ([102] Vlckner and Sattler, 2006). Despite the lack of consensus on the definition

of this concept ([18] Bridges et al. , 2000), the idea of fit always refers to the degree of proximity

between parentbrand and extension that consumers perceive. This dimension therefore reflects the

degree of congruence between the parent brand and the new product launched by the firm.

Perceived fit has a twofold importance: its weight in the evaluation ofextensions ([6] Aaker and

Keller, 1990; [16] Boush and Loken, 1991; [14] Bottomley and Doyle, 1996; [15] Bottomley and

Holden, 2001) and its feedback effect on the parent brand ([89] Smith and Park, 1992; [67] Morrin,

1999).

When the firm launches a new product consistent with the parent brand, consumers perceive higher fit

between the products associated to the brand and the extension. In this context, consumers regard

the new products as credible, which in turn make them more willingness to buy them. Thus, previous

studies indicate that perceived fit has a positive effect on the evaluation ofextensions ([6] Aaker and

Keller, 1990; [16] Boush and Loken, 1991; [29] de Ruyter and Wetzels, 2000; [102] Vlckner and

Sattler, 2006).

Such positive relationships appear in studies that analyse both tangible products ([17] Boush et al. ,

1987; [6] Aaker and Keller, 1990; [79] Park et al. , 1991) and services ([29] de Ruyter and Wetzels,

2000; [98] van Riel et al. , 2001; [43] Hem et al. , 2003; [55] Lei et al. , 2004). The positiveinfluence of fit also occurs both in studies considering fit globally ([41] Gutirrez and Rodrguez, 1994;

[61] Martnez and Pina, 2005) or focused on the dimensions of category and image fit ([17] Boush et

al. , 1987; [16] Boush and Loken, 1991; [79] Park et al. , 1991; [26] de Magalhaes and Varela, 1997;

[87] Seltene, 2004).

As well as leading to positive consumers' attitude towards brand extensions, perceived fit can

strengthen or dilute brand equity of the parent brand. Past research shows that

an extension perceived as congruent may lead to more favourable and positive evaluations of the

original brand ([51] Keller and Aaker, 1992; [38] Grimeet al. , 2002), which avoids dilution ([5]

Aaker, 2002). If the extension presents a high fit, consumers transfer their quality perceptions and


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other associations to the new product. This contributes to improving the level of perceived quality and

image of the parent brand ([60] Martnez and de Chernatony, 2004) since the pre-existing

associations will be reinforced ([1] Aaker, 1990). Likewise, high fit extensions may result in

consumers buying more products of the brand ([93] Swaminathan et al. , 2001), facilitate

parent brand categorisation ([67] Morrin, 1999), and strengthen the awareness of the

original brand through the brand extensionsincreasing the brand's visibility ([2] Aaker, 1991).

By contrast, an extension with poor fit may lead to the loss of differentiation and credibility of the

firm, weakening associations with the parent brand ([3] Aaker, 1992; [51] Keller and Aaker, 1992). In

addition, distant extensions are generally regarded as questionable by consumers ([25] Dawar, 1996),

which increase the risk of failure.

Therefore, consumers' attitude towards brand extensions and parent brand equity after

the extensiondepends on the level of similarity or congruence between the original brand andthe extension. Thus, we hypothesise that:

H1a: Consumers' attitude towards brand extensions will be more favourable when the perceived fit

between the parent brand and the extension is high than when the perceived fit is low.

H1b: The effect ofbrand extension strategies on parent brand equity will be more favourable when

the perceived fit between the parent brand and the extension is high than when the perceived fit is

low.

Effect of parent brand type

The evaluation ofextensions and the effect ofbrand extension strategies on parent brand equity are

likely to depend on the type of parent brand used (i.e. whether high or medium brand equity).

Previous research has verified that extensions of high equity brands enjoy a more positive attitude.

The main reason lies in the fact that these extensions have highly perceived quality, positive

associations derived from the original brand and more brand awareness and familiarity.

Research findings suggest that the perceived quality of the parent brand has a positive effect

on extensionevaluation ([64] Milewicz and Herbig, 1994; [15] Bottomley and Holden, 2001; [77] Park

and Kim, 2001; [98] van Riel et al. , 2001; [60] Martnez and de Chernatony, 2004; [102] Vlckner

and Sattler, 2006). Thus, if consumers perceive that a brand has a high quality level,

the extension should benefit. As regards brandassociations or brand image, [30] del Ro et al. (2001)

found that three of the four dimensions that formed their brand associations construct had a positive

effect on the acceptance ofbrand extensions. Likewise, studies focusing on corporate brands and

services provide evidence that a positive image contributes to the success of the extension ([29] de

Ruyter and Wetzels, 2000; [98] van Riel et al. , 2001; [43] Hem et al. , 2003). Consequently, if

a brand presents a set of positive associations, consumer evaluations ofbrand extensionswill be more


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favourable. Finally, brand awareness can also positively affect consumers' attitude towardsbrands ([4]

Aaker, 1996). Consumers' reaction towards extensions can be affected by the individual's knowledge

of the brand ([53] Klink and Smith, 2001). This variable also acts as a predominant choice tactic

amongst inexperienced consumers facing a new decision task ([46] Hoyer and Brown, 1990), and its

importance remains even when consumers face more familiar and repetitive choices ([59] Macdonald

and Sharp, 2000).

As a strong brand enhances the likelihood of a positive consumer attitude towards brand extensions,

highbrand equity increases the probability ofbrand extension success ([84] Rangaswamy et al. ,

1993). Generally, strong brands have a level of awareness and clearly defined associations, which are

transferred to theextension. In addition, under particular circumstances, extensions can strengthen

the parent brand's positioning, as well as associations like perceived quality ([82] Pitta and Katsanis,

1995; [10] Ambler and Styles, 1997).

Furthermore, consumers have stronger beliefs and associations regarding dominant rather than

weakerbrands. This makes dominant brands less vulnerable to extensions ([67] Morrin, 1999).

Therefore, the initial parent brand equity may help to provide a defence against failed brand

extensions, thus avoiding brandequity dilution or, at least, diminishing potential negative effects ([52]

Keller and Sood, 2003).

In this context, brands with higher equity are expected to generate a more positive consumer

response. Similarly, we also expect to observe more favourable feedback effects ofbrand

extension strategies on the parent brand equity when the original brand has a higher equity.

Consequently, the following hypotheses are postulated:

H2a: Consumers' attitude towards brand extensions will be more favourable when the

parent brand has highbrand equity than when brand equity is medium.

H2b: The effect ofbrand extension strategies on parent brand equity will be more favourable when

the parentbrand has high brand equity than when brand equity is medium.

Effect of the country's culture

Over the past few decades, globalisation of markets has become one of the most important trends.

Some researchers, following the [57] Levitt's (1983) proposition, have posited that globalisation would

lead to converging consumer needs and tastes.

However, other scholars suggest that although globalisation has lead to the convergence of income,

media and technology, consumer behaviour is diverging. For example, in a European context, [27] de

Mooij (2000) and [28] de Mooij and Hofstede (2002) state that large differences between value

systems and consumer behaviour still remain.


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Cultural differences affect consumer response to advertising ([105] Waller et al. , 2005; [74] Orth et

al. , 2007),brand positioning ([86] Roth, 1995), consumer decision-making processes ([56] Leo et al. ,

2005), consumption and usage of a large number of products and services ([27] de Mooij, 2000; [28]

de Mooij and Hofstede, 2002) and diffusion of innovations ([34] Dwyer et al. , 2005; [92] Sundqvist et

al. , 2005). Therefore, ignoring culture's influences may reduce company profitability.

As such, given the diverse contexts in which culture has been found to have an influence, one would

expect consumers to respond differentially to brand extension strategies across different countries.

Similarly, feedback effects on parent brand equity could be different according to the country where

the brand extension is commercialised.

The literature shows different theoretical frameworks to explain cross-cultural differences in consumer

behaviour. Hofstede's framework ([44] Hofstede, 1984) is one of the most commonly used. He

proposes five dimensions - masculinity/femininity, individualism/collectivism, power distance,uncertainty avoidance and long-term orientation. These are widely accepted both by scholars in

marketing and other disciplines ([69] Nakata and Sivakumar, 2001). Such dimensions explain

behavioural differences between customers from different countries ([44] Hofstede, 1984). Another

justification for studying cross-cultural differences is due to the way people think. [71] Nisbett et

al. (2001) suggest that due to social differences between cultures, certain cognitive processes are

more developed than others. Therefore, culture leads to different styles of thinking.

Few studies in the brand extension literature have adopted a cross-cultural approach to analyse the

influence that cultural differences can have on the consumer evaluations ofextensions and on the

feedback effects ofbrand extensions on parent brand equity. Only the replications of the work of [6]

Aaker and Keller (1990), from the USA to New Zealand ([91] Sunde and Brodie, 1993), as well as

Europe ([45] Holden and Barwise, 1995) and China ([39] Guoqun and Saunders, 2002), or the joint

analysis of these studies made by [15] Bottomley and Holden (2001) and more recently by [35]

Echambadi et al. (2006), reveal that brand extensionevaluation seems to differ across countries.

More specifically, [7] Aaker and Keller (1993) suggest that the differences found by [91] Sunde and

Brodie (1993) in their replication might be due to the cultural differences between the countries used

in their study. [15] Bottomley and Holden (2001) suggest that the relative importance of factors like

fit or perceived quality forextension evaluation varies according to the origin of consumers.

Similar conclusions are reached by [12] Basu and John (2007) in two studies conducted with

consumers from an Eastern culture (India) and a Western one (USA). They find that cultural

differences affect perceived fit between the extension and the original brand, and thus brand

extension evaluation. More specifically, and following the different styles of thinking proposed by [71]

Nisbett et al. (2001), these authors verified that individuals in Eastern societies (holistic thinkers)

perceive higher fit than those in more Western societies (characterised as analytic thinkers), which

results in a more favourable evaluation ofextensions.


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Considering previous evidence pointing towards the effect of cross-cultural differences, it is

hypothesised that culture will impact brand extension evaluation, as well as the effect ofbrand

extension strategies on parentbrand equity. Given the lack of studies reporting empirical evidence

about how different cultural dimensions affect consumers' attitude towards brand extensions and

feedback effects on parent brand equity, we propose a global effect of the country's culture. Thus, we

propose:

H3a: Consumers' attitude towards brand extensions will depend on the culture of the country where

theextension is launched.

H3b: The effect ofbrand extension strategies on parent brand equity will depend on the culture of the

country where the extension is launched.

Methodology

A factorial design consisting of three factors was used to test the hypotheses. The experiment used a

2 (perceived fit: high fit vs low fit)2 (brand type: high equity vs medium equity)3 (country's

culture: Spain vs UK vs Norway) design.

Given the international character of the study, high familiarity of consumers in the three countries

with the product category was considered an essential requirement. Thus, we focused on the

sportswear market for the following reasons. This market has global brands, available in the three

countries and with wide recognition and awareness amongst consumers. Furthermore, the sample,

composed of students, characterises the segment of young people, who are the main consumers for

sportswear brands.

Selection of countries

One of the aims of the study is to analyse whether consumer evaluations ofextensions and the effect

ofbrand extension strategies on parent brand equity are influenced by culture. In this study,

nationality was used as a proxy for culture, since there is empirical support for between-country

differences ([90] Steenkamp, 2001) where individual nations share a similar language, history andreligion ([44] Hofstede, 1984). Therefore, three European countries were selected based on having

differentiated cultural profiles derived from their different heritage:

Spain;

the UK; and

Norway.

Table I [Figure omitted. See Article Image.] displays the cultural differences between these countries

based on scores of Hofstede's dimensions ([44] Hofstede, 1984). Regarding the first dimension, power


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distance, Spain is at the top, followed by the UK and then Norway. The UK is more individualist than

Norway, while Spain is the most collectivist country. Norwegian society is more feminine than both

Spain and the UK. Spain has the highest uncertainty avoidance culture, whereas the UK has the least

risk aversion. Finally, the differences in long-term vs. short-term orientation are insignificant.

Stimuli

Two pre-tests were required to identify appropriate brands and hypothetical extensions.

The purpose of the first pre-test, carried out with 84 students from the University of Zaragoza (Spain),

58 students from the University of Birmingham (UK), and 60 students from the Norwegian School of

Economics and Business Administration (Norway), was to choose two well-known brands in the three

countries, which had different degrees of awareness.

We asked respondents to indicate, from a list ofbrands selected after visiting several sports retailers

in the three countries, their level of familiarity (F) on a seven-point Likert scale. Two brands were

chosen: Nike (N ) as a high familiarity brand in the three countries (Spain: FN =6.6; UK: FN =6.81;

Norway: FN =5.92), and Puma (P ), also with a high, but significantly lower, level of familiarity (Spain:

FP =4.74, Z=-6.63,p < 0.001; UK: FP =5.55, Z=-5.71,p < 0.001; Norway: FP =5.38, Z=-3.87,p 0.28; UK: SNJ =3.07, SPJ =3.04,p > 0.36; and Norway: SNJ =2.08,

SPJ =2.15,p > 0.55); and cameras (C ) as a low fit extension (Spain: SNC =2.14, SPC =1.98,p > 0.20;

UK: SNC =1.71, SPC =1.78,p > 0.79; and Norway: SNC =1.30, SPC =1.30,p =1). Significant

differences in the degree of similarity between these two extensions were found for the three

countries (Spain: SNJ =3.13, SNC =2.14, Z=-4.90,p < 0.001; SPJ=2.99, SPC =1.98, Z=-4.79,p

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Brand Extension Strategies