In over two decades, the business strategy of introducing new products as extensions has become popular. Similarly, brand extension is considered as a key to developing a brand. In detail, it is widely used as eight out of ten new products are introduced as a brand extension in the market. Brand extension strategies are broadly applied in order to reduce marketing expense in launching new products, enhance the well-known and quality of core brands, and lessen the risk for companies.
Brand extension is defined as a product whose nature and function differ from those of products currently commercialized under the brand name. In other words, brand extension is defined as using an established brand name so-called parent brand or core brand to introduce a new product.
The Advantages of Brand Extension
As an efficient strategy, brand extension has become a usual occurrence over the last fifteen years. There is a lot of firm like Apple, which has succeeded with the extension of Apple iPod digital music player. It is concerned as a tool for the firm to improve a brand image when consumers’ inferences to the performance of new product based on what they really know about the brand itself. These inferences can improve the strength and uniqueness of the core brand. Sony is a great example of this point, when a new personal computer for multimedia application is introduced consumers may have been more likely to feel comfortable with its anticipated performance because of their experience of other Sony products than if the product had been branded by Sony as something totally new. This extension is one of the factors that are seen to create and enhance the competitive advantages of the company in order to develop its product line.
In a competitive economic environment, extending brand is often seen as a popular and beneficial strategy to introduce different products into the market in order to reduce costs, risks of failure, and to increase successful opportunity. In addition, a lot of firms are using this way expected to generate quicker positive reciprocal effects and heavier purchases by consumers. Moreover, another potential benefit is to facilitate the acceptance of an extended brand. Extending brands both within and beyond the original product category are deemed to be profitable. In over fifteen years, these extensions are usually motivated by the need to decrease a portfolio of brands due to the increase in advertising expenditure or price promotions. For example, McDonald’s has expanded broadly around the world especially in Asia, Europe, and Middle-Earth with extended brands. They were successful with McNuggets in England, Maharaja Mac in India even with new product categories such as McCafe, McTreat, or non-food brand extension Golden Arch Hotel in Switzerland.
The Risks of Brand Extension
As the cost of opportunity, the success of brand extensions is uncertain. As innovation can be very risky, a brand extension can create negative reciprocal consequences that enhance or diminish the equity of the parent brand. In some specific circumstances, it is an extreme risk for firms or would be doubted. As a result, these extensions may not be successful and it could lead to a tangible drop in sales and market share. Extending brands in the marketplace today seems to be more challenging and needs to select and manage very carefully. Besides, it requires companies to have knowledge and understanding of how customers evaluate brand extensions and how customers react to brand extensions in order to maximize profit.
In some cases, extended brands cause consumers to feel unappreciated, this confusion may lead consumers to question the integrity and competence of the brand. It is noted as one of the most popular reasons for the failure of brand extension. Besides, the worst possible consequence with an extension brand is that not only does it fail, but it also diminishes the parent brand. Audi is a classic example, its sales declined from USD $ 74,000 in 1985 to 21,000 in 1989 as the result of the failure of Audi 5000 had launched in 1986. Each of the brands created its own image and associations and introduced into the markets absolutely different from those that currently placed in the market by the Company. Introduction a new brand as brand extension always have significant and potentially hidden costs, it requires a new brand should be introduced and updated in the most competitively advantageous way possible. Similarly, brand name extended is extremely risky for firms because consumers may no longer recognize it on the shelf or doubt its quality. As the result, this could lead to a drop in sales and market share of the core brand. Moreover, understanding unsuccessful brand extensions may harm the parent brands is very important. Therefore, before extending a brand image, the company must find out and measure the potential impact on brand evaluation and purchase intention.
Parent Brand and Brand Extension Evaluation
- Core Brand Equity – The parent brand characteristics have influenced brand extension evaluation and play an important role in successful brand extension. Especially, the relationship between core and extended brand is linked to the dominant and nature of the core brand. As most new products are extended brands from the core brand, there is a positive effect of parent brands on brand extension evaluation. One of these reveals that extended brands from the high equity core brands will be shaped more favorable attitudes. On the other hand, the core brand image is not affected negatively by brand extension failure and has a low-risk relation with brand extension. The stronger parent brand equity is, whether formed by the brand’s quality or its awareness the more brand extension is appreciated and to be successful. The core brand equity has not disappeared, and it remains engraved in customers’ minds even though it is replaced by the extended brand. This is demonstrated by the fact that many companies continue to refer to a new product by its former name as the warranty of success.
- Quality of Parent Brand – Moreover, brand extensions are perceived by customer’s perceptions about the quality of the core brands. An existing brand name provides an assurance of quality, thereby reducing the risks involved in purchasing a new product. Extension brands from high-quality parent brands are perceived as substitutes tend to be less favorably received than those from lower quality brands. As the importance of quality, brand extensions that are from the strong quality brands are benefited more than those from the weak brands. Also, those effects should depend on the level of perceived quality of the core brand and a high level of both perceived core brand quality between the original and extension product categories was necessary for favorable extension evaluations.
- Customer-Brand Relationship – The customer-brand relationship quality interacts significantly and positively with brand extension evaluation. In the context of introducing new brand extensions, this strong relationship helps to obtain customers’ acceptance of the new extensions and the extended brand will be formed better in customers’ minds. Besides, the greater customers’ beliefs about the core brand, the better brand extension will be evaluated. In addition, customers with a greater perception of the core brand will accept the proposed extension more favorably.
Brand Extension Characteristics
There are some brand extension characteristics that are considered by the customer in evaluating brand extension.
- Brand Attachment – Due to the limitation of knowledge about new offerings, customers may evaluate extended brands by their experience with the core brand. As a definition above, firstly, brand extension has integrated the variable of attachment to the initial brand. Furthermore, brand attachment is defined as an emotional relationship of the consumer with the parent brand. It means a consumer who is emotionally attached to the core brand will be unhappy if it disappears, regardless of the qualities of the substitution brand. It was claimed that the stronger the consumer’s attachment of extended brand to the initial the more purchase intention will deteriorate. Indeed, the third condition for the extended brand to be a success is that consumers must not be too attached to the brand that will eventually disappear. On the other hand, the evaluation of brand extension seems to be difficult because consumers have an established relationship with the parent brand in the extension category.
- Perceived Fit – Another characteristic of brand extension, which is recognized as one of the key successes of brand extension is the perceived fit of the extended brand to the core brand. Perceived fit can impact brand extension evaluations in some ways. First, it affects the extension to which consumers transfer their core brand awareness to an extension. Second, consumers may fit as a cue to make their inferences about an extension. Besides, the perceived fit of brand extension is an important component of extension evaluations. In other words, the brand extension must fit with the core brand is considered as the first condition. It leads to evaluate brand extension more positively. Otherwise, lack of category fit can cause the failure of brand extension. If the perceived fit between a brand and an extension is high; consumers are more likely to base their evaluations of the new product on their attitudes toward the parent brand. Therefore, as one of the key success factors of brand extension, it is needed to manage and emphasize carefully the transfer of the brand in terms of customer perspective. The transfer has been examined as the greatest impact on extension evaluations among these dimensions, which are a complement, substitute, and transfer. Moreover, these types of features involved in fit judgments have suited. Perceived fit is not only the extension’s functional similarity to the brand category but also its relevance to abstract brand benefits. Furthermore, consumers may evaluate brand extension perceived fit on deep features or surface features. It might be the main reason leading to the mixed results above.
- Perceived Similarity – Furthermore, the perceived similarity is characterized as a factor that influences consumer’s acceptance of extensions. An important reason, also, is that similarity has been found to be a major determinant of brand extension evaluations. It is defined in terms of the features shared by the core product and extension product. Historically, the similarity is understood in terms of internal operating synergies that arise when a new product can leverage the existing market. The perceived similarity is found to be the most relevant variable that can influence the successful result of extensions. The similarity between parent and extended brand might influence on perceptions of the customer to brand extension and a similar extension of a brand is evaluated more favorably than a dissimilar one. Besides, customer perception of new brand extensions is related to similarity. In addition, the extension information must be deemed relevant in the parent category and the similarity between the extension and parent brand is necessary for the extension information to be considered relevant. Otherwise, when the extension is seen as unrelated to the core brand, the extension will not be evaluated favorably this association will not be seen as relevant to judging the extension. In contrast, a number of successful extensions that lack an overall perceived similarity with the parent brand have been launched into the market. For example, the Virgin brand has been extended to a huge range of products, such as magazines, a music retailing chain, music label, airlines, trains, holidays, personal computers, wine, cola, financial services, radio stations, bridal services, movie theatres, perfume, and cellular phones. The role of similarity is to influence both positive and negative reciprocal effects.
Customer Attitudes Towards Brand Extension
- Attitudes and Purchase Intention – Customer attitudes towards brand extension may be affected and varied in terms of age, mood, and culture. As the consumer is heterogeneous, they may evaluate differently brand extension. Similarly, the difference in culture can lead customers to uncommon responses to brand extensions. Customers from Eastern culture, characterized by holistic thinking, perceive higher brand extension fit and evaluate brand extension more favorably than those in Western culture, characterized by analytic attitudes. Customers purchase products to obtain benefits and products deliver benefits to customers. In terms of customer intent to purchase the extended brand, there are some opinions about the dependent on customer relationship and satisfaction in the core brand. An important factor that leads to customer purchase intention is a lower effective commitment to the parent brand. This means the parent brand experience has no impact on the repeat purchase of the brand extension. In the same way, the evolution of product purchase intention corresponds to the difference in the degree of purchase intention between the product with the substitution brand and the one with the initial brand. On the other hand, consumer’s willingness to buy is influenced by the perceived value of the core brand. Similarly, the purchase decision to buy an extended brand is depended on the consumer level of involvement in the core brand.
- Customer Knowledge – Besides, consumer knowledge is considered as the most important factor that might influence their attitudes towards brand extension. Three categories of consumer knowledge are subjective knowledge, objective knowledge, and prior experiences with the product category. Subject knowledge that is what consumers think they know is considered as the strongest motivation of purchase intention for the extended product. Also, when consumers encounter a new product in the marketplace, they are unlikely to engage in extension cognitive deliberation. This means they might base their evaluations of an extended brand on their subjective to the core brand without considering any specific or different features that the extended brand might have. Perceived subjective knowledge about the extension category was found that it has a negative effect on brand extension evaluation, which means the evaluation of brand extensions is more positive when perceived subjective knowledge of consumer is low than when it is high.