Brand Extension

While understanding the perception of consumers regarding brand extension and alliances, studies
have investigated the factors affecting consumers’ brand extension evaluations, largely based on
brand effect (Aaker & Keller, 1990), fit to the core brand (Park et al., 1991) and fit of the product
(Simonin& Ruth, 1998). The outcome of brand extensions literature does not exactly match with
this idea as there are many examples of brand extensions and alliances with a lower product fit.

A firm’s growth opportunities can be categorised based on two concepts: brand name and product
category. The academic studies reveal that most definitions and terms are used interchangeably.
Launch of new flavours by premium ice-cream brand Haagan-Dazs was called as their ‘brand
extension’. Sometimes a brand name for one particular segment can be used for another in the same
market. This is called brand extension. This successful brand name can be extended to other
markets. That is called as brand stretching. Opposite to that, Kotler’s (1991)definition was more
put together. Efforts made at extending a successful brand name to launch new products is called
Brand Extension. Following Tauber’s (1981) logic, the following definitions can be derived: An
established brand name can be used to enter a new product category. This is called brand
extensions.

There are both risks ad benefits associated with the decision to launch a brand or line extension. A
study in one particular firm showed that products with brand extensions exist more in the market as
compared to new brands (Economist, 1990). Sullivan (1992) suggested that one of the determining
variables maybe the maturity of the market. As per her, there is a 93% per cent chance that a brand
extension would survive for more than six years. In younger markets, this position maybe reversed.
Aaker and Keller (1990) and Sunde and Brodie (1993) concludes that if the parent brand has a
higher perceived quality, it increases the acceptance of the brand. Secondly, between the new
product category and the brand, there is the perception of ‘fit’. Thirdly, for the products seen as
“difficult to make”,there is a need for some specialised assistance. Consumers consider the
perceived degree of fit between the extension and the brand for judging brand extension. A post-
rationalisation of success or failure is often used by managers as a measure of fit. As per some other
studies, fit is also considered being important to brand extension evaluation (Aaker and Keller,
1990; Boush and Loken, 1991) .Consumers consider the perceived degree of fit between the
extension and the brand in evaluating brand extensions. Those that have a high degree of fit on both
dimensions are given most positive evaluations of brand extensions. McWilliam (1993) studied that
hese key dimensions may not be discovered until after the launch and subsequent failure of the
extension inspite of large amounts of research. Similar extension categories do not limit to the
opportunities to exploit a brand’s value. What is more important than fit is its quality.

Companies have increasingly turned to brand extensions over the last few decades. It has turned out
to be an ideal way to launch new products (Aaker, 1990; Aaker andKeller, 1990; Shocker et
al.,1994). In reply to this researchers have tried to understand the steps to successfully extend.
Many studies have studied the after effects of ‘fit’ on fbrand extensions (see, e.g. Aaker and Keller,
1990; Bridgeset al., 2000; Park et al., 1991). There is no question that there is a positive relationship
between level of fit and an extension. Aaker and Keller (1990) proposed a fit construct comprised
of three factors: the limit to which the extension is a replacement for the brand’s primary product,
the ability of the company to transfer skills acquired in making existing products to the extension.
There has been more studies focussing on the relationship between primary products and extension
category (Chakravarti et al., 1990; Herr et al., 1996).. Meyers-Levy and Tybout (1989) studied the
impact of overall scheme of a product with its product category on evaluation of new products.
Bridges et al. (2000) studied that fit is not particularly attached to any single product but rather is a
function of category compactness arising from consumers’ ability to find explanatory links between
the parent brand and the extension. It is also concluded that an element missing from the
visualisation of fit is technical expertise, and propose that technology plays an important role in
both concrete, product based notions of fit such as similarity of feature and more abstract
philosophies of fit.

As per Ambler et. al. (1997), the common plan in the last few years that extension is preferred over
new product launch. This helps the company to save costs and reduce risk. Research on brand
extensions has been a subject of interest for many. (e.g., Aaker and Keller 1990; Bottomleyand
Holden 2001; Boush and Loken 1991; Broniarczykand Alba 1994; Dacin and Smith 1994; Keller
andAaker1992; Loken and Deborah Roedder 1993; Reddy, Holak,and Bhat 1994; Sunde and Brodie
1993).
Existing studies (e.g., Aaker and Keller 1990) therefore consumers’ overall brand attitude is
measured by a general construct. Feedback for brand extensions are important for judging the
effectiveness. Favourable evaluation of extension is extremely important in promoting equity of a
brand (Pitta &Katsani, 1995). Earlier studies have proven that equity of a brand depends on the
favourable evaluation of extension. If perceived quality of the extension does not succeed in
meeting the superior quality level of the parent brand, it could lead to negative feedback (Volckner,
Sattler, & Kaufmann, 2008). In another study, it was deducted that extension did not reduce the
parent brand image. It only improved or was left unaffected. Once extension is applied, information
stored in modules is applied to extensions.
Existing studies (e.g., Aaker and Keller 1990) therefore consumers’ overall brand attitude is
measured by a general construct. Feedback for brand extensions are important for judging the
effectiveness. Favourable evaluation of extension is extremely important in promoting equity of a
brand (Pitta &Katsani, 1995). Earlier studies have proven that equity of a brand depends on the
favourable evaluation of extension. If perceived quality of the extension does not succeed in
meeting the superior quality level of the parent brand, it could lead to negative feedback (Volckner,
Sattler, & Kaufmann, 2008). In another study, it was deducted that extension did not reduce the
parent brand image. It only improved or was left unaffected. Once extension is applied, information
stored in modules is applied to extensions.

Brand extension brings down expenditures surrounding marketing to a great extent. This will reduce
failure rate of the product too (Ramanathan, 2013). There are horizontal and vertical extensions of a
brand extension strategy. If there is use of existing brand name in related category, its called
horizontal extension. If the extension is in the same category, but the products differ in price and
quality (Chen & Liu, 2004),its called vertical brand extension. Marketers are concerned with the
consumer evaluation of brand extension. Firms use the parent brand’s fame and popularity to bring
down advertisement costs. Here, we are trying to study the view points of variables that are
essential in brand extension evaluation.

Marketers often say that the introduction of innovative products can enforce brand equity. It
furthers brand satisfaction and equity. Articulation of features of the brand makes up the brand
equity. Competitive advantage is enhanced by innovation. It also increases the attractiveness of the
product and increases loyalty of existing customers. The parent brand develops a difference from
the competitors by introducing innovative extensions.

Perceived Risk

As per Hem,Chernatony, & Iversen (2001), “perceived risk is a multi-dimensional construct

whichimplies that consumers experience pre-purchase uncertaintyregarding the type and degree of
expected loss resultingfrom the purchase and use of a product”. Apart from that, perceived risk can
explain consumer behaviour process because sometimes consumers try to avoid mistakes
comparison to maximize the use of the product being purchased (Mitchell,1999). Generally use of a
popular brand is a believer of risk because the popular brand will launch new brands. This influence
will lead to the new products being accepted (Hem, Chernatony, & Iversen, 2001).
It means that the consumer experiences uncertainty before purchase about the degree of loss from
the product. It can be explained in terms of perception of the consumer uncertainty and
unfavourable consequences of purchasing an item. A brand which flourishes into a new category
gives a new option to the consumer. It might also impact the consumer’s perceptions of risk. Other
literary citations suggest that a well-known brand can increase the probability od product trial
(Chernatony et al., 2003). Dowling and Staelin (1994) made a differentiation amongst product-
specific risk and product-category risk.
Bauer (1960) proposed that consumer behaviour is seen as taking calculated risks. Risk is affected
by different factors. The kind of risk taken by a consumer reflects their perception regarding a
product and its category. Another type of risk is related to the choice of product, called perceived
risk. some products are considered safe while others are seen as risky. Its called product specific
risk (PSR).
It is a new trend to connect innovation diffusion and adoption through a link of perceived risk.
There is a need to differentiate between risk of the firm as an indication of the probability and
proportion of unwilling outcomes. The psychological side of marketing relates to consumer’s
perceived risk. Srivastava and Sharma (2011) is an important study in this regard. They formed a
relation between perceived risk and consumer involvement. Both these factors are sought to have
effects on purchase intention and extension evaluation. Even if the risk-related inconveniences are
small or big, brand evaluation and purchase intention are not influenced. Perceived risk and
consumer involvement and also act hand in hand on the evaluation of product innovations issued
under brand extensions.
In accordance with Srivastava and Sharma (2011), high involvement context with reference to
perceived risk is studied in high involvement with innovation in adoption. It is learnt that perceived
risk appears in every stage of the decision making process. Cognitive dissonance appears in post-
adoption phase on one hand and on the other hand the possibility that this justification generates
regret or disappointment.
An important factor, which attracts guidance for customer intentions to buy retailer’s label or
national product is perceived risk (Batra and Sinha, 2000). Consumers perceive the risk associated
with buying a milk bottle is very low whereas buying a camera is perceived to be of high risk.
Earlier studies highlight that retailer’s label brands associate with higher perceived risk. That leads
to low willingness to purchase. Studies have focussed on different forms of risk: social (showing
lower status for retailer’s brand),financial (wasting money) and functional (that a product will not
work). Customers generally focus on the brands at the national level due to the signals, that are sent
to consumers by the national brand manufacturers through the marketing tools: sense of the group
belonging, status, decision-making ability, being fashionable or stylish. Batra and Sinha (2000)
have examined some other reasons: larger after effects of making a wrong purchase.
Hoch and Banerji (1993) checked that the label products offered by retailers is more successful than
national brands. If quality variance within a product category is high, national brands are preferred.
If the consumers are price sensitive, the retailer’s label products perform better. Batra and Sinha
(2000) concluded that where the product packaging information is not an enough source to assess
accurately product quality, customers prefer national brands.

Studies conducted in large scale concentrate on the dual dimensions of risk that have an impact on
each other. They are financial and performance risk (Sweeney et al. 1999). If the product does not
work properly, there is a financial loss encountered. It is called financial risk.If there is a failure to
perform intended function or repair or additional expenditure required, performance risk comes into
play. Both types of risks are reduced by by offering warranties. As per Conchar et al. (2004),a
decision maker’s importance-weighted subjective assessment of the expected value of inherent risk
in each of the possible choice alternatives for a given decision goal refers to perceived risk. In
literary citations, there are two major factors to risk (1) theres always a chance of loss (2) the value
of expected loss. The probability that a loss will happen during a purchase, will differ from
customer to customer based upon their range of criteria.Risk is seen as a subject with varied
concepts that involves losses of the following kinds:financial, time (or convenience), performance,
physical, psychological, and social risks. Each category of loss consists of a risk that is specific to a
consumer.