The Role of Corporate Associations in New Product Evaluation

Robert Madrigal, University of Oregon
ABSTRACT - Corporate associations represent the total set of information a consumer has about a company. In addition to their effect on company evaluation, this study considers the influence of two types of corporate associations (corporate excitement and corporate environmental friendliness) on new product responses and evaluation. The perceived fit between the company’s image and the new product was included as an overarching moderator. As predicted, those perceiving a good fit placed greater weight on corporate associations in responding to a new product; whereas those perceiving a poor fit relied more the new product’s attributes as a basis for evaluation.
[ to cite ]:
Robert Madrigal (2000) ,"The Role of Corporate Associations in New Product Evaluation", in NA - Advances in Consumer Research Volume 27, eds. Stephen J. Hoch and Robert J. Meyer, Provo, UT : Association for Consumer Research, Pages: 80-86.

Advances in Consumer Research Volume 27, 2000      Pages 80-86

THE ROLE OF CORPORATE ASSOCIATIONS IN NEW PRODUCT EVALUATION

Robert Madrigal, University of Oregon

ABSTRACT -

Corporate associations represent the total set of information a consumer has about a company. In addition to their effect on company evaluation, this study considers the influence of two types of corporate associations (corporate excitement and corporate environmental friendliness) on new product responses and evaluation. The perceived fit between the company’s image and the new product was included as an overarching moderator. As predicted, those perceiving a good fit placed greater weight on corporate associations in responding to a new product; whereas those perceiving a poor fit relied more the new product’s attributes as a basis for evaluation.

Corporate associations refer to the total set of linkages held in a consumer’s memory to a company (cf. Aaker 1991; Keller 1993) and serve as points of differentiation that are especially important when a company is considering a product extension. In an effort to influence these corporate associations, marketers spend substantial sums of money each year on corporate advertising, sponsorships, and philanthropic causes. Recently, Brown and Dacin (1997) reported the results of a hierarchical model in which corporate associations (i.e., ability and social responsibility) had a direct effect on company evaluation and new product responses (i.e., sophistication and social responsibility) which, in turn, influenced new product evaluation.

A separate stream of research suggests that new product evaluation is also dependent on its perceived fit to its corporate brnd (Aaker and Keller 1990; Keller and Aaker 1992). When a new product is seen as being consistent with a company’s image, consumers are more likely to transfer attitudes and beliefs held about the company to the new product. If the fit is perceived as being poor, consumers use a piecemeal approach whereby new product evaluation relies less on what they think about the company and more on the specific attributes offered by the new product.

The current study seeks to extend our understanding of the effect of corporate associations on new product evaluation in two ways. First, the generalizability of Brown and Dacin’s model is tested by using a different, more familiar product category than those considered in the original study and for which different corporate associations should be salient. Specifically, the corporate associations of excitement and environmental friendliness are considered in the context of a new line of clothing. Second, the causal sequence described by Brown and Dacin (1997) is extended by considering the moderating influence of the perceived fit between the company’s image and the product extension.

BACKGROUND

Corporate associations include beliefs, attitudes, and feelings toward a company gained through either direct or indirect experience; information about the company’s past behavior; and summary judgments about the company and its products (Brown and Dacin 1997). This definition closely parallels and is treated synonymously in this study with that of Keller’s (1993, 1998) description of core brand associations and Aaker’s (1996) notion of organizational associations. Common to each definition is a focus on the seller rather than a specific product or service. Often the link between a particular product and firm is nonexistent (e.g., Milk Bone dog treats and RJR Nabisco), at other times the two are inseparable (e.g., Nike Air Jordan). In the case of corporate brands, the type of associations likely to be generated are corporate in nature rather than product oriented (Aaker 1996).

Corporate associations rely on an activation model of memory which suggests that information is stored in a network of memory nodes that is organized according to some set of relationships (Anderson 1983; Collins and Loftus 1975). Each memory node represents a concept related to the category and is connected to other nodes in a complex web of associative links. When a node is triggered, a process of spreading activation occurs from node to node that determines the amount of information retrieved from memory. Spreading activation occurs in memory based on the strength and salience of an associative link to a node. For example, when thinking about the product category of ice cream, a consumer might think of Ben and Jerry’s Homemade. Other information associated with the firm may also be considered such as quality, various flavor offerings, or the company’s reputation for social responsibility. Thus, corporate knowledge may be thought of as existing on a company node located in memory to which other associations about it are linked. The total set of corporate associations held in a consumer’s memory comprises its corporate image or how it is perceived.

Brown and Dacin (1997) developed a path model in which the corporate associations of ability and social responsibility were related directly to their corresponding product responses (i.e., sophistication and social responsibility, respectively). Each corporate association was also posited to have a direct effect on company evaluation. New product evaluation was then predicted by company evaluation and the two product responses. The results reported from two studies indicated that both corporate associations were positively related to company evaluation. Corporate ability was also found to be positively related to product sophistication in both studies; whereas no effect was found from corporate social responsibility to its corresponding product respone. Two differences between the studies were found. First, although positively related in both studies, the product response of social responsibility was a significant predictor of new product evaluation in only the second study. The second difference was that the path from company evaluation to new product evaluation was positive in Study 1 but negative in Study 2. The authors suggested that this effect may have been attributable to the use of actual companies in Study 2 rather than the fictitious one used in Study 1.

The use of corporate ability and product sophistication appears especially appropriate in the Brown and Dacin study given the functional nature of the product extensions that were considered. However, as noted by the authors, it is unlikely that respondents were either familiar with or particularly interested in these products. In contrast, I investigate Brown and Dacin’s model in the context of a new line of clothing and consider the corporate associations of excitement and environmental friendliness.

Corporate Excitement. Aaker (1997) suggested that brands frequently take on characteristics reminiscent of human beings and identified five factors of brand personality (sincerity, ruggedness, competence, sophistication, and excitement). In contrast to a company’s ability to deliver certain tangible attributes, a firm’s personality serves a symbolic function that reflects how people feel about the company behind the brand. Once a company has defined its personality, consumers know what to expect from that firm. These expectations should influence consumers’ ability to learn about new products introduced by the company. For instance, it should be easier for a company associated with "excitement" (e.g., Ralph Lauren) to link itself to a new product that is "fun" than to one that is "utilitarian." Given the product category of clothing, corporate excitement seemed an especially appropriate association to consider in this study.

Corporate Environmental Friendliness. One way that companies have sought to create goodwill among consumers in recent years is to position themselves as being environmentally friendly (Drumwright 1994; McDaniel and Rylander 1993; Menon and Menon 1997; Sheth and Parvartiyar 1995). Consumer surveys have indicated that people are either willing to reward or intend to reward companies that are environmentally friendly in their business and marketing practices and punish those firms that ignore environmental concerns (Carlson, Grove, and Kangun 1993). Berger and Kanetkar (1995) have argued that how a company presents itself on environmental issues is often more important to consumers than other corporate associations, including brand image.

Although Brown and Dacin (1997) reported a positive effect of corporate social responsibility on company evaluation, no relationship was found between it and the perceived social responsibility of a new product. They concluded that a reason for the lack of a transfer may have been because the new product was not positioned as being socially responsible. It is also possible that the products used in the study did not share any obvious connection to social responsibility. It is unlikely that a corporate association will "rub off" on a new product unless the product is seen as being compatible with the association. Thus, a stronger correlation is hypothesized when an environmentally friendly company is seen as producing a product that can actually be construed as having a link to that particular cause.

THE ROLE OF PERCEIVED FIT BETWEEN A COMPANY AND A PRODUCT EXTENSION

An overarching variable expected to influence the relative importance of effects linking corporate associations to company and new product evaluations is the perceived fit between the company’s image and the new product. Perceived fit is a term used to describe the congruence, typicality, or similarity between a core brand’s image and a product extension.In a study of 276 actual product extensions, Tauber (1988) reported that perceived fit was an important predictor of a new product’s success. Similarly, Boush et al. (1987) found that greater similarity between a new product and a company’s existing products enhances the transfer of positive or negative affect to the new product.

Boush and Loken (1991) suggested that a new product extension can be evaluated in at least two ways. First, consumers may evaluate the new product on the basis of what they know about the company. For example, given the company’s reputation for authenticity, a new tennis shoe introduced by Nike might be expected to be for avid competitors rather than recreational players. Theoretically, this perspective might be explained in terms of category-based processing (Fiske 1982) or cognitive consistency (Heider 1958). The second way of judging an extension is a piecemeal approach whereby the new product is evaluated on the basis of its specific attributes. In general, research has shown that product extension judgments are moderated by perceived fit such that greater similarity leads to new product evaluations that are based on attitudes or beliefs held by consumers about the core brand (Aaker and Keller 1990; Boush and Loken 1991; Boush et al. 1987; Park, Milberg, and Lawson 1991). In contrast, when overall similarity is not perceived as being good, consumers are more likely to consider specific product-related attributes and benefits.

HYPOTHESIZED MODEL

The proposed structural model to be tested in this study is shown in Figure 1. As per the preceding discussion, the corporate association of excitement (CEX) is predicted to be positively related to the perceived trendiness of a new product. A positive relationship is also expected from corporate environmental friendliness (CEF) to the perception of the product as being good for the environment. In addition, both CEX and CEF associations are expected to have positive effects on company evaluation which, in turn, is expected to predict new product evaluation. Each product response is hypothesized to have a positive effect on new product evaluation.

Extending the logic outlined in the previous section suggests that perceived fit should play a moderating role in the path model shown in Figure 1. Specifically, I hypothesize that corporate associations will have a greater influence on new product responses for individuals who perceive the fit between the company’s image and new product to be good compared to those perceiving a poor fit. In addition, the influence of company evaluation on new product evaluation should be greater for those perceiving a good fit. I also hypothesize that in contrast to those perceiving a good fit, responses to the product will have a greater effect on new product evaluation for those who see the fit as being poor. In effect, those who view the fit between the company and product extension as being good will rely more on what they know about the company; whereas those who see the fit as being poor will put greater emphasis on their reactions to the new product itself.

METHOD

The decision to use either real companies or fictitious ones presented a challenge. On the one hand, selecting real companies determined through pre-testing to vary on CEX and CEF would have achieved the goal of manipulating corporate associations. On the other hand, Keller (1993) has noted that the use of real companies may lead to unintended manipulations that confound the effects of the focal variables (see Brown and Dacin [1997], Study 2). In light of this and given that no research was found investigating the associations tested here, the decision was made to use fictitious names and manipulate corporate associations experimentally in a laboratory setting.

Procedures. Data were collected from 297 university undergraduates who received class credit in exchange for their participation. Approximately 60 percent of the respondents were male. The study was conducted in small groups of approximately 20 subjects. Following Brown and Dacin’s (1997) original study, test booklets containing the manipulations were randomly assigned to study respondents upon their arrival at the testing site. Each booklet featured a cover story that described a new type of company profile presenting potential investors with information about an apparel company named LAUREC. A separate profile for a new product was also included. Although LAUREC was a fictitious name, respondents were told that the data were being collected for use by a research firm and that LAUREC was an actual company whose name was disguised for purposes of confidentiality. Respondents were also led to believe that the product profile was for an actual product that LAUREC was considering introducing to the marketplace.

The company profile (see Appendix), ostensibly prepared by a group of industry experts, described LAUREC’s image in terms of corporate attributes related to CEX and CEF. Following the narrative, a company report card was presented that graded (i.e., A through F) LAUREC on each of these attributes. The two CEF attributes were social responsibility and environmental friendliness. Depending on the manipulation described in the narrative, LAUREC was given either a favorable grade (A or B) indicating that it exceeded the industry average on the attribute or a poor grade (D or F) indicating that it fell below industry standards. For CEX, LAUREC was described either as an exciting company built on a reputation to set industry trends (i.e., trendy) or as a company known for its traditional approach (i.e., traditional). Letter grades were assigned to four CEX attributes: innovative image, cutting-edge image, sense of tradition, and conservative image. These manipulations led to four different versions of the LAUREC company profile: (1) CEXtraditional, CEFpos; (2) CEXtraditional, CEFneg; (3) CEXtrendy, CEFpos, and (4) CEXtrendy, CEFneg. Cell sizes ranged from 65 to 80.

FIGURE 1

CORPORATE ASSOCIATION EFFECTS ON NEW PRODUCT EVALUATION

Next, after being told that potential investors were often interested in learning about a company’s products, respondents were asked to read the new product profile (see Appendix). The profile described a clothing line made of industrial hemp fabric that was being considered as a potential product extension. The profile, which began by differentiating industrial hemp from marijuana, described clothing made from hemp fabric in generally positive terms. All respondents read the same new product profile. Upon completing the new product profile, respondents answered an open-ended question designed to reinforce the cover story. The remainder of the test booklet included the measures used to test the hypotheses.

Measures

As per Brown and Dacin (1997), measures assessing respondents’ attitude toward the new product were asked first, followed by product responses (i.e., product as trendy and product as environmentally friendly), company evaluation, and corporate associations. The reason for this ordering was to avoid any biasing effects on product evaluation from questions related to corporate associations. Also consistent with the original study, LAUREC’s grades on the corporate association attributes presented as part of the company profile were reproduced and included on the same page as the company evaluation items. The specific items used to measure each variable in the study follow. All items were measured on 10-point scales with an item range of 0 to 9.

The new product evaluation measures asked respondents to assess the hemp line of clothing using three semantic differential scales: very unfavorable/very favorable; very bad/very good; very negative/very positive. The product as trendy construct was assessed by three items using a strongly disagree/strongly agree (SD/SA) scale in response to the following stem. This line of clothing is:" trend-setting; cool; cutting-edge. Product as environmentally friendly was measured using three SD/SA scales with the stem "This product line is:" environmentally friendly; more beneficial to the environment than other types of clothing; good for the earth. Company evaluation was assessed with three items: very unfavorable/very favorable; very bad/very good; and very negative/very positive.

For the association of corporate environmental friendliness (CEF), respondents were asked to respond on a SD/SA scale in regard to the following items: LAUREC is an environmentally-friendly company; cares about the earth; and is a socially-responsible company. The following items were drawn from Aaker’s (1997) scale and used to measure associations to corporate excitement (CEX), each was measured on a not at all descriptive/extremely descriptive scale: daring; trendy; exciting; spirited; cool; young; imaginative; contemporary; unique; independent; and up-to-date.

RESULTS

Preliminary Analysis

Although the items comprising the excitement domain in Aaker’s (1997) scale are thought to represent four facets, a principal axis analysis with oblimin rotation revealed two factors. Principal axis factoring was chosen because it focuses on the variance that each item shares with the other items. The results indicated that all of the items but "independent" and "unique" loaded on the first factor. "Imaginative" loaded on both factors. Moreover, the correlation between the factors was .62. Accordingly, the scale was treated as unidimensional. In order to provide a multiple item construct of CEX, the eleven scale items were randomly divided into three separate groups and items within each group were summed. Each of the three summed measures were then used as an indicator of the latent CEX construct.

TABLE 1

FACTOR INTERCORRELATIONS AND DESCRIPTIVE STATISTICS

In order to determine whether the manipulations were successful, mean differences between conditions were examined for each summed corporate association construct. A significant difference was found on the eleven summed CEX items for those assigned to the traditional and trendy conditions (Ms=40.32, 59.77, SDs=16.32, 12.69, respectively, t295=-11.35, p<.001). Similarly, those assigned to the environmentally less friendly condition scored significantly lower on the summed CEF items than did the alternate group (Ms=9.01, 19.37, SDs=6.32, 4.86, respectively, t295=-15.70, p<.001).

An initial analysis of normality indicated substantial skewness in a number of the variables. Consequently, each item was normalized prior to analysis in PRELIS 2.30. A covariance matrix of the normalized scores was subsequently generated and used as input to the confirmatory factor analysis. The CFA revealed an adequate fit to the data, c2=194.70, df=120, p<.001, root mean square error of approximation (RMSEA)=.044, goodness of fit index (GFI)=.93, and comparative fit index (CFI)=.98. The majority of individual item reliabilities were quite high ranging from .57 to .94. Composite construct reliabilities were also acceptable with a mean of .92 (range: .81 to .96). The mean AVE (average variance extracted per construct) was .79, suggesting that the constructs explained approximately 80 percent of the variance in the measured items. Discriminant validity was evidenced in the fact that significant differences were found when one-at-a-time comparisons were made between the CFA and alternate models where each construct correlation was sequentially fixed at 1.0. The factor intercorrelations and descriptive statistics of the constructs included in the structural model are featured in Table 1.

Structural Model

The hypothesized structural model was tested usingLISREL 8.30. The model yielded the following fit statistics: c2=205.59, df=126, p<.001, RMSEA=.045, GFI=.93, CFI=.98. Moreover, there was no significant difference between the hypothesized model and the CFA, X2diff=10.89, df=6, p>.05. The completely standardized structural parameter estimates and t- values from the model are shown in Figure 1. Consistent with the hypothesized model, each of the parameter estimates was significant and in the predicted direction. Although an analysis of total effects on evaluation of the new product revealed a comparable effect for CEX and CEF associations (bs=.13, .18, ts=4.24, 5.25, respectively), it is obvious from the model that CEF had a greater direct effect on the evaluation of the company. The joint effects of CEX and CEF explained 37 percent of the variance in company evaluation. CEF associations also had a greater effect on product response than did CEX associations. CEF associations explained eight percent of the variance in the perceived environmental friendliness of the new product, whereas CEX associations accounted for only four percent of the variance in the perceived trendiness of the product. However, respondents who perceived the product to be trendy were more inclined to have a favorable evaluation of the hemp line of clothing than did those who thought it was environmentally friendly. Overall, 33 percent of the variance in the evaluation of the hemp line of clothing was predicted by its antecedents. Finally, it is also interesting to note the substantial correlation between the two product response constructs. People who believed that the product was trendy also considered it to be environmentally friendly.

Testing Perceived Fit as a Moderating Variable

Greater levels of perceived fit between the company’s image and the hemp line of clothing are hypothesized to lead to stronger effects from corporate associations to product responses. In addition, the path from company evaluation to new product evaluation is expected to be greater for those perceiving a good fit. In contrast, the paths from product responses to new product evaluation are hypothesized to be greater for those perceiving the fit to be poor than for those who see it as good. In order to test for these possibilities, a multigroup analysis was performed based on a median split of perceived fit. The median score on perceived fit was 19 (range: 0 to 36 with 36 maximum) which indicates that respondents felt that there was an adequate level of fit between the new clothing line and the company’s image. The group sizes for low and high fit were, respectively, 149 and 148.

TABLE 2

TESTING THE MODERATING INFLUENCE OF PERCEIVED FIT ON THE MODEL'S PATH COEFFICIENTS

As described by J÷reskog and S÷rbom (1996), data from those low and high in perceived fit were stacked and then the models were compared sequentially using chi-square difference tests. Following J÷reskog and S÷rbom, unstandardized data were used for this analysis. The first step examined whether the pattern of factor loadings across groups was equivalent. This model is unconstrained in the sense that it specifies the same pattern of loadings across both samples. The unconstrained model yielded an acceptable fit to the stacked data, c2252=381.60, RMSEA=.053, GFI=.87, CFI=.97. Next, the unconstrained model was compared to a constrained model in which the factor loadings were held invariant across samples. The difference in fit was not significant, c2dif=7.61, df=11, p>.10.

Given equivalent loadings, a test of structural parameters (i.e., the path coefficients) was conducted. Specifically, all of the path coefficients shown in Figure 1 were held invariant across samples. This model tests the moderating effect of perceived fit. The resulting model was significantly different from both the unconstrained and constrained models (c2diff s=34.99, 27.18, dfs=19, 5, ps<.05, .001). Thus, those high in perceived fit were found to differ from those low in perceived fit on at least one or more of the path coefficients. Additional models were subsequently tested in which one or more of the regression paths were held invariant across groups.Each constrained model was compared to a preceding model in a series of one-at-a-time chi-square difference tests to determine where differences existed on path coefficients across samples. If no difference was found between models, the additional constraint was added to the model. Of the seven paths tested, all differences between groups were in the predicted direction and five were statistically significant. A comparison of the path coefficients between the two groups is shown in Table 2. As expected, the regression weights for the direct effects of corporate associations on product responses and from corporate evaluation to new product evaluation were greater for those perceiving the fit to be good; whereas the influence of product responses on new product evaluation was greater for those perceiving a poor fit.

DISCUSSION

A laboratory experiment was conducted investigating the direct and indirect effects of corporate associations for a hypothetical company on new product evaluation. The results of a structural equations model are consistent with the path model reported by Brown and Dacin (1997) in that corporate associations do indeed have differential effects on new product evaluation through product responses and company evaluation. The current study extends past research by providing empirical support indicating that the corporate associations of excitement and environmental friendliness directly predict company evaluation as well as specific product responses. The results also reveal that the perceived fit between the new product and the company’s image moderates the set of relationships described in the model.

Predicting New Product Evaluation from Corporate Associations and Product Responses

Corporate excitement was positively related both to the perception of the product as being trendy and the extent to which the company was favorably evaluated. In contrast to the corporate association of ability (Brown and Dacin 1997) whose effect on company evaluation would appear rather straightforward, corporate excitement represents a unique construct in the sense that its effects are not necessarily apparent. It is worth noting, however, that the positive effects found for CEX in this study may have been due, in part, to the age of the respondents. College students may simply like a company more when it is positioned as being exciting. It would be interesting to see if excitement’s effect on company evaluation found here can be duplicated using an older group of subjects. It is also interesting to note that while Aaker (1997) conceptualized excitement as consisting of four facets, the current study found excitement to be unidimensional. Future research should not only examine the underlying structure of excitement using other age groups, it should also consider how other brand personality dimensions operate in this theoretical framework.

The results also indicated that the corporate association of environmental friendliness was significantly related both to product response and company evaluation. In contrast to the weak associations reported between corporate social responsibility and product response by Brown and Dacin (1997), a strong effect was found here between environmental friendliness and the perception of the product as being good for the environment. A point of difference between the two studies is that the current research used a product that could easily be seen as having an environmental connection. The use of a line of clothing made from all natural hemp facilitated a stronger association with environmental friendliness. This suggests that companies are likely to benefit more when their products are in fact representative of their corporate positioning.

Not only did those perceiving the company to be "green" think that the product was good for the environment, they also evaluated the company more favorably. It appears that the goodill associated with being an environmentally responsible company "rubs off" on the company’s image. Creating a corporate association for environmental friendliness is fundamentally different from more traditional associations tied to product benefits and attributes. Aligning with a cause shows consumers that a company shares their concerns about an important issue that transcends the typical buyer-seller relationship. It is also worth noting that CEF associations had a greater direct influence on company evaluation than did CEX associations. This suggests that a clothing company that aligns itself with a meaningful cause and communicates that association may reap greater benefits than relying merely on positioning itself as an exciting company.

The Moderating Role of Perceived Fit

Corporate associations are established in consumers’ minds through marketing activity and serve as the basis for brand equity (Keller 1993). The topic of perceived fit or similarity between the company or core brand and a product extension has received considerable attention. In general, when fit is perceived as being good, consumers use their knowledge of the core brand as a basis for evaluating the new product (Aaker and Keller 1990; Boush and Loken 1991; Keller and Aaker 1992). This was found to be the case in the current study. Affect toward the company was transferred to the new product and this effect was most pronounced for those perceiving the similarity between the two to be high.

The current study extends previous work on perceived fit by considering more explicitly its ability to moderate the hierarchy of effects described in Brown and Dacin’s (1997) path model. Perceived fit was found to be an overarching modifier that significantly influenced a number of the model’s parameters. The results suggest that consumers who judge the fit between the company’s image and a new product to be congruent are more likely to respond to the product in a way that is consistent with their corporate associations. Consumers who see the product extension as being prototypical of the company use corporate associations as the basis for responding to a new product and rely less on product-related benefits and attributes in their overall judgment of the new product. In contrast, for those perceiving a poor fit, new product evaluation depends predominately upon product responses which, as it turns out, have little to do with corporate associations. These findings suggest two implications. First, a company wishing to capitalize on its brand equity should strive to maintain consistency between how it positions itself in the marketplace and its product extensions. Second, a company may want to use a separate branding strategy for an extension falling outside the scope of the company’s image because consumers’ assessments of such a product will rely more on product responses than on corporate associations.

As with any study, a number of limitations must be acknowledged. First, perceived fit was not manipulated in this study. Unlike other research, fit was operationalized as a continuous variable capturing the respondent’s own judgment of the similarity between the new product and the company’s image. This has the advantage of capturing respondents’ own perceptions which adds an element of external validity, but does so at the price of internal validity. A second limitation of the study is the use of a single product. Future research should examine the effects reported here using different products with different levels of fit. Finally, although the use of a specific cause (i.e., environmental friendliness) represents a more tangible association for respondents to consider than the broader notion of social responsibility, it lacks generalizability. Future work should examine whether the results reported here can be duplicated using other specific corporate alignments such as athletic and cultural sponsorships.

APPENDIX

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