Perceived Variability and Inferences About Brand Extensions

Frank R. Kardes, University of Cincinnati
Chris T. Allen, University of Cincinnati
ABSTRACT - Recent research on consumer reactions to brand extensions has focused on the judgmental effects of the match between the attributes, benefits, and uses of established versus new products sharing the same brand name. The present experiment extends this research by investigating the effects of two types of perceived variability on consumers' inferences about brand extensions: (a) the perceived variability of a firm's current offerings, and (b) the perceived variability of brands in an entry category. Inferences about the potential quality of the brand extension, and about the manufacturer's reasons for attempting to enter the new product category were measured. Repercussions of these inferences on judgments of the firm launching the brand extension were also examined. Implications of the results for product management are discussed.
[ to cite ]:
Frank R. Kardes and Chris T. Allen (1991) ,"Perceived Variability and Inferences About Brand Extensions", in NA - Advances in Consumer Research Volume 18, eds. Rebecca H. Holman and Michael R. Solomon, Provo, UT : Association for Consumer Research, Pages: 392-398.

Advances in Consumer Research Volume 18, 1991      Pages 392-398

PERCEIVED VARIABILITY AND INFERENCES ABOUT BRAND EXTENSIONS

Frank R. Kardes, University of Cincinnati

Chris T. Allen, University of Cincinnati

ABSTRACT -

Recent research on consumer reactions to brand extensions has focused on the judgmental effects of the match between the attributes, benefits, and uses of established versus new products sharing the same brand name. The present experiment extends this research by investigating the effects of two types of perceived variability on consumers' inferences about brand extensions: (a) the perceived variability of a firm's current offerings, and (b) the perceived variability of brands in an entry category. Inferences about the potential quality of the brand extension, and about the manufacturer's reasons for attempting to enter the new product category were measured. Repercussions of these inferences on judgments of the firm launching the brand extension were also examined. Implications of the results for product management are discussed.

A great deal of recent research has focused on the concept of brand equity, which refers to the value added to a product by a brand name (Farquhar 1989; Leuthesser 1988). A successful brand name is strongly associated with concepts designed to (a) enhance the perceived value of a product, and (b) differentiate a product from competitors' offerings. However, building a successful brand name requires the commitment of a large pool of resources for an extended period of time (Park, Jaworski, and MacInnes 1986).

Because organizations have limited resources, risks and costs must be managed in an efficient manner. One way to manage risks and costs is through brand leverage, which refers to the use of a successful, established brand name to facilitate entering new markets. This can be achieved by attaching the established brand name to a new offering in either the same (a line extension) or a new (a brand extension) product category. Extending a strong brand name should result in easier and wider acceptance, on the part of both consumers and distributors.

Recent research on consumer acceptance of brand extensions has focused primarily on the effects of the categorization process on judgment and choice (for reviews of the categorization literature, see Alba and Hutchinson 1987; Cohen and Basu 1987; Sujan and Bettman 1989). Several studies have shown that judgments of original brands are generalized to judgments of new brands only when there is a good match between the attributes, benefits, and uses of parent and new brands (Aaker and Keller 1990; Farquhar, Herr, and Fazio 1990; Leuthesser 1988; Tauber 1988). Hence, new products should benefit from established brand names if (a) concepts having favorable implications for the purchase decision are strongly linked to the brand name, and (b) generalization is likely due to a high degree of overlap between the attributes, benefits, and uses of parent and new brands.

Although the degree of similarity between new and parent brands is clearly an important mediator of consumer response to extensions, other factors are likely to be important as well. We suggest that some parent brands provide greater leverage than others, and that some new product entry categories are more receptive to extensions, even when one controls for similarity. Specifically, we focus on two new variables that should influence consumer response to extensions: the perceived variability of a parent brand's current offerings, and the perceived variability of existing brands in an entry category.

Perceived Variability and the Generalization Process

Why do people make sweeping generalizations on the basis of limited evidence, in some cases, whereas in others, they fail to generalize even when extensive evidence is available? In addressing this issue, it becomes immediately apparent that other factors besides perceived similarity are also likely to influence the generalization process. Theories of categorization must address not only the abstraction and use of distributional knowledge such as knowledge about the central tendency of category members on a given dimension (e.g., attributes, benefits, uses), but also knowledge about the perceived variability or dispersion of category members on focal dimensions (Flannagan, Fried, and Holyoak 1986; Fried and Holyoak 1984).

For example, social judgment research has shown that generalization is greater when perceived variability on a target dimension is low, as opposed to high (Linville, Fischer, and Salovey 1989; Nisbett, Krantz, Jepson, and Kunda 1983; Park and Hastie 1987; Quattrone and Jones 1980). That is, when perceived variability is low, the observed characteristics of one individual is attributed to all members of the individual's social category ("you've seen one, you've seen them all"). Because perceptions of variability are lower for unfamiliar categories (e.g., out-groups), and for abstraction based (as opposed to instance-based) categories, greater generalization occurs for unfamiliar and for abstraction-based categories.

Perceived Variability of a Parent Brand's Current Offerings

Some firms attach a single brand name to a wide variety of products in several different categories. Other firms use one brand name for one current offering. Henceforth, these end-points of the breadth continuum will be referred to as umbrella vs. niche brands, respectively. Because there are advantages and disadvantages associated with each of these alternatives, strategy selection calls for an analysis of costs and benefits.

One advantage of the umbrella strategy is that the manufacturer is likely to be perceived as having a wide variety of strengths and skills in several different product categories. Such a firm may be perceived to have the requisite knowledge and skills for entering new markets, and, consequently, brand extensions should seem legitimate. A firm adopting a niche strategy, on the other hand, may be perceived to possess highly specialized knowledge and skills that cannot be transferred readily to new markets.

Of course, an umbrella firm runs the risk of being perceived as a "jack-of-all-trades" (master of none); further extensions into new markets support and strengthen this perception. Moreover, images and values associated with a brand name become more ambiguous and more diffuse as extending increases (Ries and Trout 1981). In contrast, a niche firm can more readily build a strong brand name by linking it to unambiguous concepts that clearly differentiate the offering.

Perceived Variability of Existing Brands in the Entry Category

Some product categories may be more receptive to new brands than others. When perceived variability of an entry category is low, category members should be perceived as undifferentiated; new brands entering this category should be perceived as legitimate (e.g., if everyone else is doing it, you can, too), but not really new or exciting. Conversely, when perceived variability is high, there is "room" for extensions, but generalization is difficult and consumers may be unable to make predictions about the quality of new brands.

Research Propositions and the Experimental Design

Inferences about brand extensions should be affected by these two types of perceived variability: (a) the perceived variability of a firm's current offerings (i.e., umbrella vs. niche brands), and (b) the perceived variability of extant brands in an entry category. Perceptions of variability may be formed for several different dimensions of an existing category. We focused on one key dimension: perceived quality. Quality judgments of parent brands should generalize more readily to brand extensions when perceived variability is low in entry categories.

To investigate the role of perceived variability in consumer inference, an experiment was conducted in which brand name and new product concept information was manipulated. Subjects received either an umbrella brand name, a niche brand name, or no brand name, paired with concepts for six different packaged goods (i.e., the entry categories). On the basis of idiothetic ratings (Jaccard and Wood 1986), the entry categories were split into high and low perceived variability groups. Hence, a 3 (umbrella, niche, or no brand name [between-subjects]) X 2 (high or low perceived variability in the entry category [within-subjects]) factorial design was employed. This design has several advantages over previous correlational research on brand extensions: (a) subjects were randomly assigned to brand name conditions, (b) reactions to all possible combinations of brand name and concept information were examined, and (c) the no brand name control condition enables one to measure inferences about a new product concept while controlling for prior knowledge about a brand.

METHOD

Subjects

Sixty evening MBA students (40 males and 20 females) participated in the experiment. Thirty five were married, and subjects reported that they personally shopped for groceries at least four times per month (M = 4.29, median = 4.00; only one subject reported shopping 0 times per month).

Procedure

Subjects received a booklet containing perceived variability measures, parent brand measures, and message designed to tap inferences about new product concepts in six established packaged good categories. The instructions stated that we were "interested in your personal opinions about several new product ideas. Some of these ideas may lead to the introduction of a new product and some may be abandoned. We are not associated with the manufacturer in any way, so we are not concerned about whether your reactions are positive or negative."

First, subjects were asked to provide perceived quality distributions for several packaged goods categories (including the entry categories). Next, judgments of the parent brand were measured (pre-launch ratings). After these measures were taken, subjects were exposed to the new product concepts and inferences about these concepts were assessed. Finally, subjects were told to assume that the concepts would actually be launched and they were again asked to judge the parent brand (post-launch ratings).

Perceived Variability of Entry Categories

Subjects were asked to provide perceived quality distributions for 11 (6 target and 5 filler) packaged goods categories. They were asked to allocate 100 points to five levels of overall quality for each category. The variance of a distribution served as the perceived variability index (Linville et al. 1989). The instructions and the index are provided in the Appendix.

Pre-Launch Ratings

Subjects were asked to indicate their overall impressions of the parent brand (Nabisco or Sealtest) on a scale from 0 (Extremely unfavorable) to 10 (Extremely favorable). They also rated the quality of the parent brand's current offerings on a scale from 0 (Extremely low quality) to 10 (Extremely high quality). The breadth of these offerings was measured by asking "when you hear the name Nabisco/Sealtest, does a wide variety of products or does only one product come to mind?" (a scale from 0 [one product] to 10 [An extremely wide variety of products] was provided).

TABLE 1

NEW PRODUCT CONCEPTS

New Product Concepts and Inference Measures

After the perceived variability and pre-launch measures, subjects received descriptions of new product concepts in six established packaged good categories. Care was taken to select entry categories that: (a) were new for both parent brands, and (b) were equally applicable to both parent brands. The new product concepts are presented in Table 1.

Each concept was paired with the umbrella brand name (Nabisco), the niche brand name (Sealtest), or no brand name. Each concept was printed in capital letters at the top of separate pages, and all measures pertaining to a brand extension were printed on the same page. Because we focused solely on responses to various pairings of brand names and concepts, detailed product descriptions were not provided.

Inferences about the perceived quality of a brand extension were measured on a scale from 0 (Extremely low quality) to 10 (Extremely high quality). Two attributional measures were included to assess inferences about why the manufacturer is attempting to extend into the entry category. Likelihood ratings on scales from 0 (Not at all likely) to 10 (Extremely likely) were assessed for the following questions: "How likely or unlikely is it that this product was developed because it capitalizes on the unique strengths and skills of the manufacturer?" and "How likely or unlikely is it that this product was developed because many manufacturers have jumped into this product category recently?"

Post-Launch Ratings

Finally, subjects were asked to rate the manufacturer of the parent brand, given that the manufacturer intends to launch each of the new product concepts. Overall impressions of the manufacturer, for each new product concept, were measured on scales from 0 (Extremely unfavorable) to 10 (Extremely favorable).

RESULTS

Manipulation Checks

Perceived variability of entry categories was operationalized by performing a median-split on the perceived variability indices for the six entry categories. The indices were averaged across the three high and across the three low perceived variability categories, separately, for each subject. A repeated measures analysis of variance performed on these indices showed that existing product offerings were perceived to be more dispersed in the high than in the low perceived variability entry categories (Ms = .99 vs. .50), F(1, 59) = 170.97, p < .001. Thus, our operationalization of the perceived variability of entry categories was effective.

It was predicted that the perceived variability of the parent brand's current offerings would be greater for the umbrella brand (Nabisco) than for the niche brand (Sealtest). As anticipated, the umbrella brand was perceived as having a much wider variety of current offerings- than the niche brand (Ms = 6.20 vs. 3.00, for Nabisco vs. Sealtest, respectively), F(1, 38) = 14.56, p < .001. Thus, our operationalization of the perceived variability of the parent brand's current offerings was effective.

Inferences about the Quality of the Extensions Relative to Extant Offerings

To assess the inferential effects of the perceived variability of the parent brand's current offerings while controlling for judgments of the quality of these offerings (subjects had more favorable impressions towards the umbrella brand [M = 7.35] than towards the niche brand [M = 5.85], p < .01), a difference score was computed in which quality ratings of current offerings were subtracted from quality ratings of brand extensions. Positive scores on this index indicate that the brand extensions were rated as higher in quality, whereas negative scores indicate that the extensions were rated as lower in quality, relative to existing products associated with the parent brand name.

In the no brand name conditions, the scale midpoint was subtracted from quality ratings. Because no brand name information was provided, average ratings of current offerings were assumed. This provides a very conservative index because consumers often infer below-average values for dimensions with unknown values in multiattribute evaluation (see Huber and McCann 1982; Meyer 1981). Scores on this index would be more extreme if below-average values were used.

TABLE 2

QUALITY INFERENCES

Quality inference means as a function of brand name and perceived variability in entry categories are presented in Table 2. A 3 X 2 mixed analysis of variance performed on these scores yielded a main effect for Brand, F(2, 57) = 14.55, p < .001, and a marginal main effect for Perceived variability, F(1, 57) = 3.11, p = .08. The interaction was nonsignificant.

As Table 2 indicates, mean difference scores were higher in the no brand name than in the umbrella or niche brand conditions (ps < .01), and quality inferences did not differ between umbrella and niche brands. Moreover, mean difference scores were positive in no brand name conditions, suggesting that the new product concepts were evaluated favorably.

The new product concepts also tended to be rated as higher in quality in low (M = -.63) than in high (M = -.95) perceived variability conditions. This pattern suggests that a brand extension tends to be accepted more readily in low perceived variability entry categories.

Inferences about Manufacturers' Motives for Extending into Entry Categories

One reason for entering a new market is that the manufacturer's unique strengths and skills may be perceived to facilitate the development of a high quality brand extension (a unique skills attribution). Means for unique skills attributions as a function of brand and perceived variability are presented in the first two rows of Table 3. A 3 X 2 mixed analysis of variance performed on unique skills attributions yielded a significant main effect for Brand, F(2, 57) = 3.73, p < .04, and a significant Brand X Perceived variability interaction, F(2, 57) = 5.31, p < .01. Extending was attributed more to unique skills (as opposed to other factors) in no brand than in umbrella or niche brand conditions (ps < .03). Moreover, perceived variability had a strong impact on unique skills attributions pertaining to the niche brand, F(1, 19) = 9.10, p < .01, but not to the remaining brands (ps > .20). In the niche brand condition, more extreme unique skills attributions were formed in low than in high perceived variability conditions.

Another reason for entering a new market is that many manufacturers may be entering this market (perhaps due to increased consumer demand), and the target firm may be perceived as following a reactive strategy (a copy cat attribution). Mean scores for copy cat attributions as a function of brand and perceived variability are presented in the bottom two rows of Table 3. More extreme copy cat attributions tended to be formed in the high perceived variability conditions, F(1, 57) = 2.14, p < .15. Copy cat attributions tended to be lowest in the niche brand low perceived variability cell, but this effect was nonsignificant.

Pre- Versus Post-Launch Impressions of Parent Brands

To examine the degree to which judgments of a firm were adjusted, when subjects were asked to assume that the manufacturer would launch each extension, difference scores were computed on the basis of pre- and post-launch impressions (initial ratings of the parent brand were subtracted from "post-launch" ratings). In the no brand name condition, the scale midpoint was subtracted from post-launch ratings (because no brand name information was provided, average ratings were assumed; this provides a very conservative index because below-average values are common for dimensions with unknown values in multiattribute evaluation; see Huber and McCann 1982; Meyer 1981). Positive scores on this index indicate that overall impressions of firms became more favorable when subjects assume the extensions will be launched; negative scores indicate that launching would have a negative impact on judgments about the firms.

TABLE 3

CAUSAL INFERENCES

TABLE 4

CONDITIONAL INFERENCES

Pre- versus post-launch difference scores as a function of brand and perceived variability are presented in Table 4. A 3 X 2 mixed analysis of variance performed on these scores revealed a main effect for Brand, F(2, 57) = 19.55, p < .001, a marginal main effect for Perceived variability, F(1, 57) = 3.32, p < .08, and a significant Brand X Perceived variability interaction, F(2, 57) = 4.82, p < .02.

As Table 4 indicates, when subjects assumed that the extensions would be launched, more favorable impressions were formed in no brand (M = .66) than in umbrella brand (M = -1.97), F(1, 38) = 51.00, p < .001, or in niche brand (M = -.77) conditions, F(1, 38) = 10.89, p < .003. Further, more favorable judgments were formed in niche brand than in umbrella brand conditions, F(1, 38) = 6.91, p < .02. Thus, the exact same product concepts that improve a brand's image when the brand name is unknown (i.e., the positive difference score in the control condition reflects an above average, post-launch impression), actually tarnish a brand's image when the brand name is known (i.e., the negative difference scores in the experimental conditions show unfavorable post-launch impressions). This effect is most robust for the umbrella brand.

Follow-up tests on the Brand X Perceived variability interaction revealed that, in the niche brand condition, more favorable brand image judgments were formed in low than in high perceived variability conditions, F(1, 19) = 9.99, p < .01. However, perceived variability had no effect on judgments in the umbrella or in the no brand name conditions (Fs < 1).

DISCUSSION

Together, the quality inference, causal inference, and conditional inference data suggest that brand extensions can tarnish global evaluations of a parent brand. Even when favorably-evaluated parent brand names are paired with favorably-evaluated brand extensions, a less favorable overall impression of the parent brand can result. Furthermore, this negative reaction seems more pronounced for umbrella brands. Thus, an umbrella brand does not automatically provide more leverage than a niche brand. When a parent brand name is stretched too far, additional extensions can have negative repercussions on judgments about the parent brand.

The results also imply that the perceived variability of brands in an entry category is an important moderator of consumers' initial inferences about a new offering. When perceived variability is high, generalization is difficult and consumers tend to form conservative, moderate judgments. In contrast, when the perceived variability of a parent brand's current offerings is low (i.e., niche brands), and when the perceived variability of existing products in an entry category is low, there appears to be some opportunity for brand leverage.

Why is the brand extension strategy so difficult to manage? To address this complex issue, we should consider the multiple inferential implications of brand name information. When the brand name is unknown, consumers are unable to determine if a given new product extends an existing product line or if the new product is the firm's only offering. In contrast, when the brand name is known, less extreme unique skills and more extreme copy cat attributions tend to be formed. If a new product is not perceived to be a natural sequel to prior offerings, it may be perceived to be an inferior brand (because the manufacturer may lack the experience needed to develop a superior brand), or it may be perceived to be the result of a quickly implemented tactic designed to exploit a recently emerging opportunity (if it does not capitalize on unique strengths, why else would it be launched?). The former case suggests that line extensions may be effective, and the latter case suggests that both line and product extensions are likely to be ineffective.

Future research should attempt to replicate the findings from this project using a more generalizable set of umbrella and niche brands (we employed only two brands). Although we attempted to select entry categories that were equally applicable to both parent brands, more rigorous controls for similarity or fit between parent and extended brands are needed. Future research should also examine consumer response to line and brand extensions using different parent brand names and different entry categories. Finally, future research on brand equity should (a) include a no brand name control condition to establish the general appeal of a new product concept while controlling for prior knowledge about the parent brand, and (b) employ pre- and post-launch measures to assess the ramifications of extending for judgments of the original, parent brand.

APPENDIX

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