Transfer of Brand Equity in Brand Extensions: the Importance of Brand Loyalty

Leif E. Hem, Norwegian School of Economics and Business Administration
Nina M. Iversen, Norwegian School of Economics and Business Administration
ABSTRACT - In this article, the authors explore the effects of different dimensions of brand loyalty towards the original brand on the evaluation of brand extensions Recent research on consumer reactions to brand extension has not investigated this relationship. We find that a high affective relationship towards the parent brand may reduce the evaluation of brand extensions. Second, loyal behavioral intention towards the parent brand is important for reaching a positive evaluation of extensions. Finally, self-image relationship towards the parent brand is found to increase the evaluation of brand extensions.
[ to cite ]:
Leif E. Hem and Nina M. Iversen (2003) ,"Transfer of Brand Equity in Brand Extensions: the Importance of Brand Loyalty", in NA - Advances in Consumer Research Volume 30, eds. Punam Anand Keller and Dennis W. Rook, Valdosta, GA : Association for Consumer Research, Pages: 72-79.

Advances in Consumer Research Volume 30, 2003     Pages 72-79


Leif E. Hem, Norwegian School of Economics and Business Administration

Nina M. Iversen, Norwegian School of Economics and Business Administration


In this article, the authors explore the effects of different dimensions of brand loyalty towards the original brand on the evaluation of brand extensions Recent research on consumer reactions to brand extension has not investigated this relationship. We find that a high affective relationship towards the parent brand may reduce the evaluation of brand extensions. Second, loyal behavioral intention towards the parent brand is important for reaching a positive evaluation of extensions. Finally, self-image relationship towards the parent brand is found to increase the evaluation of brand extensions.


One of a firm’s most valuable resources is the brand equity. In an attempt to leverage this asset, an increasing number of companies are extending their brands into multiple product categories (Court, et al. 1999). Richard Branson has for example extended the Virgin brand to a huge range of products like; magazines, record retailing chain, record label, airline company, train company, personal computers, vodka, cola, financial services, radio stations, bridal services, movie theaters, perfume, and cellular phones (Keller 1998).

Past research on brand extension has focused on what determines the success or failure of extensions. An assumption common to most of the research is that brand affect and product category similarity play important roles (cf. Boush 1987; Aaker and Keller 1990; Boush and Loken 1991; Park, et al. 1991; Herr, et al. 1996; Bottomley and Doyle 1996; Jun, et al. 1999). That is, evaluation of an extension is a joint function of how much the brand is liked in its original category and the similarity between the original and extension categories.

However, despite the interest, research on brand extensions has not covered all of the brand equity dimensions connected to the original brand. As such, the impact of brand loyalty on evaluations of brand extensions has not been investigated. This is surprising, given the core position brand loyalty has in the literature (e.g., Aaker 1991).

The purpose of this research is to explore the effects of different dimensions of brand loyalty towards the original brand on the evaluation of brand extensions. First, a short review of the literature is given. Second, relationships between brand loyalty and evaluation of brand extensions are hypothesized. Data from a quasi-experimental field study involving three established brands extended into a total of 11 hypothetical product-categories are used to test the hypotheses. Last, a discussion of results, limitations, and future research is given.


Brand equity has been variously conceptualized as a financial measure (e.g., Simon and Sullivan 1990), a measure of consumers’ behavior (e.g., willingness to pay a price premium, brand loyalty, see Aaker 1991; Swait, et al. 1993), or a measure of consumers’ beliefs (Keller 1993; 1998). Most researchers agree that brand equity can be described as the value a brand name adds to a product (e.g., Farquhar 1989). The main contribution of a brand name is identification and differentiation of the branded product. Keller (1993) introduced customer-based brand equity, which he defined as "the differential effect that brand knowledge has on consumer response to the marketing of a brand" (Keller 1993: 45). Differential consumer response is based on consumers’ knowledge of the brand as well as the favorability of associations. For the purpose of this study, brand equity is treated as a composite of brand-related beliefs, including brand awareness, brand image, and brand loyalty (Aaker 1991; Keller 1993; 1998; Agarwall and Rao 1996; Dawar and Pillutra 2000).

Brand extension research has focused on several of the brand equity dimensions. First, Herr, et al. (1996) studied the relationship between brand awareness and the evaluation of brand extensions. They operationalized brand awareness as dominance, which can be defined as the strength of the directional association between the parent category and the branded product, and measured dominance with subjects’ response latencies. Herr, et al. (1996) found that consumers’ affect for strong category-dominant brands transfers better than a weaker category dominant brand’s affect.

Second, several studies have investigated the relationship between brand image and the evaluation of brand extensions. Initial research by Aaker and Keller (1990) did not find any support for their hypothesis that higher quality perceptions toward the original brand are associated with more favorable attitudes toward the extension. Perceived quality was used as a measure for overall evaluation of the original brand. However, subsequent research has found a positive effect between the quality of the original brand and the evaluation of the brand extensions (Keller and Aaker 1992; Sunde and Brodie 1993; Dacin and Smith 1994; Bottomley and Doyle 1996). Furthermore, Broniarczyk and Alba (1994) found that brand-specific associations were important for evaluation of brand extensions (see also Glynn and Brodie 1998). Park, et al. (1991) studied functional and symbolic benefits. They found support for the notion in Park, et al. (1986) that brands have to be extended consequently as either functional extensions or symbolic extensions. Finally, Smith and Park (1992) have analyzed the effects of experience and search goods on the evaluation of brand extensions, similar to Keller’s (1993: 7) "non-product-related and product related attributes". Smith and Park (1992) defined search goods as attributes that can be evaluated accurately through visual inspection, while experience goods are attributes that must be assessed through actual trial. They found that the relative effect of brand extensions is greater for experience goods than for search goods (see Nakamoto, et al. 1993; Rangaswamy, et al. 1994; Park and Srinivasan 1994; Loken and John 1993; Sen 1999 for similar discussions and results).

Third, no one has fully investigated empirically the relationship between brand loyalty and the evaluation of brand extensions. The only research we have found is a short ACR abstract by Coderre, et al. (1998: 77). They found support for their hypotheses that brand-loyal consumers of a core brand react less favorably to brand extensions than do other groups of consumers. However, no data or statistics is available documenting this finding.

Aaker (1991: 39) states: "the brand loyalty of the customer base is often the core of a brand’s equity". Aaker (1991: 42) continues arguing: "Brand loyalty is a basis of brand equity that is created by many factors, chief among them being the use experience. However, loyalty is influenced in part by the other major dimensions of brand equity, awareness, associations, and perceived quality. In some cases, loyalty could arise largely from a brand’s perceived quality or attribute associations. However, it is not always explained by these three factors. In many instances it occurs quite independent of them and, on other occasions the nature of the relationship is unclear. It is very possible to like and be loyal to something with low perceived quality (e.g., McDonald’s) or dislike something with high perceived quality (e.g., a Japanese car). Thus, brand loyalty provides an important basis of equity that is sufficiently distinct from the other dimensions". This distinct brand loyalty construct has been investigated heavily for several decades (for reviews, see, e.g., Jackoby and Chestnut 1978; Kahn and Meyer 1991; Dick and Basu 1994; Fournier and Yao 1997) yet it has not been used to assess the favorability of brand extensions. There is therefore a gap in knowledge about the relationship between loyalty towards the original brand and the evaluation of brand extensions making this an important area to investigate. One can speculate that it has not been investigated due to the assumed relationship that high loyalty towards the original brand should result in more positive evaluations of the extensions.


The primary purpose of this study is to determine empirically the extent to which brand loyalty affects the evaluation of brand extensions. The following discussion provides a rationale for research hypotheses pertaining to different dimensions of brand loyalty.

Brand loyalty

Brand loyalty is a key element in sustaining stable demand and sales flows over time (Aaker 1991). Moreover, brand loyalty not only assures steady receipts and revenues but also facilitates reduced advertising and marketing budgets without forgoing effectiveness. The overall result of these advantages is increased marketing efficiency (e.g., Webster 1994; Fornell 1992; Zeithaml, et al. 1996). This is the reason why so much research is directed at achieving a better understanding of consumers’ loyalty behavior (e.g., Dick and Basu 1994; Liebermann 1999).

Brand loyalty refers to a "biased behavioral response expressed over time by some decision-making unit with respect to one or more alternative brands out of a set of such brands" (Jacoby and Chestnut 1978: 80). However, nuances regarding the basic concept of loyalty have not been explicitly articulated (Fournier and Yao 1997). Though Jacoby and Chestnut (1978) clearly identify brand loyalty as "a function of psychological (decision-making, evaluative) processes exhibited over time".

Different dimensions of brand loyalty have been presented and discussed in the literature. Most recently, Liebermann (1999) distinguished among three types of loyalty: (1) Image oriented loyalty representing the fact that a consumer prefers the brand over alternative offers made by competitors. (2) Marketing oriented loyalty defining the customers’ tendency to recommend the brand to relatives and friends; and (3) Sales oriented loyalty representing the larger sums spent by consumers. Liebermann (1999) advocates that this is a multistage process. The process evolves gradually, and it is likely that image oriented loyalty will precede marketing oriented loyalty, which will in turn precede sales oriented loyalty. This hierarchical order can be used to evaluating the relationship between brand loyalty and brand extensions. First consumers have to learn about the original brand, use it and then like it better than the competitors’ brands. Next, consumers must be so satisfied with the original brand that they recommend it to others. Finally, consumers spend more money on the brand, which is an indication that new extensions under the original brand will receive positive attention, promote positive evaluations and product trial.

Different operationalizations of brand loyalty have been presented and discussed in the literature. Calculative commitment measures the degree to which a consumer experiences the need to maintain a relationship given the significant perceived termination and switching costs associated with discontinuing the relationship (Fornell 1992). Consumers have reasons for this need to maintain the relationship with the brand because they invest time, as well as economic and cognitive resources in the relationship (e.g., Fornell 1992; Gronhaug and Gilly 1991). This dimension of loyalty may have an influence on the evaluation of a brand extension if there is a strong relationship between the producer and consumer. For example, a consumer may have a strong relationship with his/her bank agency. This relationship may be used as an argument for using the insurance products in the same bank (given that the bank has extended towards insurance products). There is doubt, however, that a consumer may feel any calculative commitment towards an extended product from a producer of a snack brand, for example. Therefore, this aspect will not be investigated any further at this time, but it could be an option at a later point in time.

Affective commitment expresses the extent to which consumers like to maintain their relationships with the brand, based on their affective attachment to and identification with the brand. This dimension of loyalty was first introduced in interorganizational studies (e.g., Allen and Meyer 1990). More recently, Fournier (1998) has discussed a related dimension in the marketing discipline. Her analysis suggests an alternative to the construct of brand loyalty by the notion of brand relationship quality. Brand relationship quality is similar to brand loyalty, since both constructs attempt to capture the strength of the connection formed between the consumer and the brand in order to predict the relationship stability over time. Fournier (1998) specified six facets of brand relationship quality. Several of them stipulate the affective components (e.g., love, passion, and self-attachment). Love, for example, captures strength as defined by degree of affect associated with the brand attitude. This is a major contribution to the loyalty construct. In the present paper the affective component suggested by Fournier (1998) and Allen and Meyer (1990) is used. Our argument is that consumers who have a strong affective relationship towards the original brand are going to transfer this affective relationship towards the brand extensions. We posit that:

H1: The evaluation of a brand extension is more positive when consumers have stronger affective relationships with the original brand

The intention to be loyal in the future signals that customers are forging bonds with a company or brand. Consumers are indicating behaviorally that they are bonding with the brand (Zeithaml, et al. 1996). Zeithaml, et al. (1996: 34) advocates that "Loyalty may be manifested in multiple ways; for example, by expressing a preference for a company over others, by continuing to purchase from it, or by increasing business with it in the future". These measures could be effected by both calculative and affective commitment, but also other constructs such as perceived quality and satisfaction can influence the loyalty behavioral intentions (e.g., Parasuraman, et al. 1991). Nevertheless, we keep the loyalty behavioral intentions construct as a measure for capturing the future loyal behavior towards the original brand. Having a positive behavioral intention towards the parent brand indicates that the consumers indirectly have high calculative and/or high affective commitment towards the original brand. Furthermore, consumers indirectly have positive perceived quality and satisfaction towards the parent brand, given the positive behavioral intention. Therefore:

H2: The evaluation of a brand extension is higher when consumers have a more positive behavioral intention towards the original brand

Self-image relationship towards the parent brand: Most of the research on brand extensions has used a feature match approach similar to Tversky’s (1977) contrast model. This focus has limited researchers to only investigate the relations between the original brand and the extension (product category fit). Therefore researchers largely have overlooked the relations between consumers and their preferred brands. By so doing one has neglected the effects of similarity in terms of a match (level of congruity) between individual consumers’ self-image and the symbolic expressions of different brands (based on self-congruity theory). This type of similarity is better understood as congruity between an individual’s self-image and a brand’s personality traits. Aaker (1997: 347) defines brand personality as "the set of human characteristics associated with a brand". According to Aaker creating a brand personality literally involves "personification" of a brand. She argues that brands are vehicles that consumers use for self-expression. To accommodate this need for self-expression marketers try to build brands imbued with strong personality traits that match consumers’ self-image. Aaker (1999) investigated how such brands are evaluated when they possess a strong personality that may or may not match the personality of a consumer. She found support for the notion that individuals who identify themselves on a particular personality dimension have a greater preference for brands that are highly descriptive on that dimension (for similar findings see e.g., Vitz and Johnson 1965; Dolich 1969; Ackoff and Emsoff 1975). Thus, consumers prefer brands that are associated with a set of personality traits congruent with their self-image (Sirgy 1982).

Previous research has shown that the greater the congruency between the personality traits that describe an individuals self-image, and those that describe a brand, the greater the preference for the brand (e.g., Malhotra 1988; Sirgy 1982; 1985; 1986). Our question is whether the same logic is relevant for brand extensions. In other words, we do expect that consumers have a tendency to prefer brands extensions with personalities highly congruent with their own actual and ideal self-image. Therefore:

H3: The evaluation of a brand extension is more positive when consumers self-image is closely related towards the original brand


In order to test the hypotheses a quasi-experimental field research design was chosen. Data was gathered through a consumer survey.

Stimuli: The original brands were selected with regard to the criteria of being relevant to subjects, highly familiar, and not broadly extended previously. Established rather than fictitious brands were chosen because affective relationship (H1) and buyer intentions (H2) towards the original brand were important variables. We also wanted to measure the brand personality and brand image dimensions, which demanded established brands (H3). Five brands were subjected to a pilot study in order to assess to which degree they were highly familiar, and associated with one or several product categories: DnB (bank), IBM (computers), Maarud (snack), Ford (automobile), and Telenor (telecommunications). Based on the results from this initial study, a brand was selected from each of the following categories: snacks, cars, and telecommunications. Maarud is the leading snack brand (FMCG) in the country where the study was conducted (Norway). It has been on the market since 1936. Ford has been one of the most selling automobile brands in Norway for more than fifty years. Telenor is the number one telecommunication company in Norway, and it was the only telecom company until recently. Choosing original brands from three such different categories would hopefully give some variation (in affective relationship (H1), behavioral intention (H2), and brand personality (H3) towards the original brands) and allow good external validity. These three parent brands were leveraged to 11 hypothetical brand extensions: Maarud snack extended into ice cream, beer and chocolate; Ford extended into bicycle, motorcycle and lawnmower; Telenor telecom extended into cable TV, travel agency, PC, bank and insurance.

Sample and data collection: A questionnaire was constructed for each of the three focal brands and administrated to subjects chosen from a population of a major Norwegian city. The city was first subdivided into geographical regions. Four of these regions were selected for collection of data. Respondents were contacted in person at their homes. A questionnaire delivered door-to-door was used because Smith and Park (1992) found that consumers have difficulty responding to the measures of similarity in the absence of visual aids. Each respondent was asked to complete questionnaires for one of the three original brands. The respondents participated voluntarily and without receiving any compensation. Nevertheless, of the individuals contacted, 81 % agreed to participate in the study. These individuals were given a short summary of the purpose of the study. In order to make the task more realistic, they were told that the study purpose was to estimate consumer reaction to a number of planned brand extensions. Respondents were told that the completed questionnaire would be collected personally by the researcher on the following day. This procedure yielded a response rate of 68.5 % of the contacted population (84.6 % of those who agreed to participate). Among the 760 questionnaires collected, 59 questionnaires had to be removed from the sample due to major non-response biases. A total of 701 questionnaires were conducted.


In the empirical literature on brand extensions, consumer response to brand extensions has most frequently been operationalized using attitudinal measures, typically some form of overall evaluation of the proposed extensions (Fishbein and Ajzen 1975). We use three measures developed by Keller and Aaker 1992; Broniarczyk and Alba 1994; Keller and Sood 2002/3; and Muthukrishnan and Weitz 1991 (see Table 1).

Independent variables: Affective relationship towards the parent brand (H1): was measured by three items captured from Allen and Meyer (1990) (Item a was removedBlow factor loadings). Loyal behavioral intention towards the parent brand (H2): was measured by three items captured from Zeithaml, et al. (1996). Relationship between the consumers’ self-image and the brands’ image (H3): was measured by two Likert type scales. Similarity between the parent brands and extensions: was measured using three items selected from the extension literature (see Table 1).


Table 2 reports the descriptive statistics associated with the variables in our study. It shows the means, standard deviation, and number of respondents for each brand.

Inspection of the measures shows that for all variables the standard deviations are greater than 0.90 indicating that subjects vary in their overall evaluations of the brand extensions; affective relationship; loyal behavioral intention; similarity between original brand and extensions; and similarity between the consumer’s image and the brand’s image. The mean scores on the variables varied also across the extensions. Overall, the car sample seems to be a little bit different from the snack and telecom samples since the evaluations on the average are lower. In our analysis we have aggregated the extensions as has been frequently done in prior studies in brand extensions (see, e.g., Aaker and Keller 1990; Smith and Park 1992).



Test of hypotheses

As illustrated in Table 3, we examined the relationships by using multiple regressions. The models included the main effects of the independent variables on the dependent variable (overall evaluation of the extensions). Prior to hypothesis testing, the correlations data were examined for extreme values. However, as mentioned earlier, there was found a strong relationship between perceived quality, loyalty, and behavioral intention in previous research (e.g., Zeithaml, et al. 1996). Therefore, we decided to test for multicollinearity by investigating the Tolerance, VIF, Eigenvalue, and Condition Index as suggested by Belsley, et al. (1980, Chapter 3; see also See Dillon and Goldstein (1984: 271-292); Cohen and Cohen (1983); Mason and Perreault (1991: 269-271)). The Tolerance value is less than 1.0 in all cases; VIF is less than 1.46 (critical value>2.0); Eigenvalue is less than 5.7 (critical value>10.0); and the Condition Index is less than 17.1 (critical value>30.0). Thus, we do not find any indexes which indicate high and dangerous multicollinearity. Based on the findings, we conclude that multicollinearity should not be a major concern in the present study.

As shown in Table 3, all models are highly significant and explain a substantial portion of the variance in dependent variables (ranging from 36 % to 37 % of total variance), indicating a reasonable model fit. Also, the standardized regression coefficients indicate significant relationships between independent and dependent variables.

Test of H1: H1 postulates that consumers evaluate brand extensions more favorably if they have a strong affective relationship towards the original brand. For all samples (Snack, Automobile, and Telecom samples) there is a negative impact of the construct on the evaluation (b=[-.06 -.03]), and the negative impact is slightly significant in the Telecom sample. Thus, H1 is not supported.

Test of H2: H2 states that consumers evaluate brand extensions more favorably if they have a high loyal behavioral intention towards the original brand. A significant positive main effect of loyal behavioral intention on the evaluation of brand extensions is seen for all samples. Hence, H2 is supported.





Test of H3: H4 states that consumers evaluate brand extensions more favorably when there is a high self-image relationship towards the parent brand. As could be seen from Table 3, self-image relationship towards the parent brand has a major influence on the evaluation of brand extensions. Thus, H3 is supported.

Similarity between the original brand and the brand extension was also included (more like a control variable in the model). And as found in most of the literature focusing on brand extensions, similarity was highly significant.


Past research on brand extension has traditionally focused on perceived similarities between parent brands and extensions and has examined the effects of this factor on evaluations of brand extensions. However, despite this interest, research on perceived similarity and brand extensions has some limitations. In this article we focus on some aspects of brand loyalty. We find that a high affective relationship towards the parent brand may reduce the evaluation of brand extensions. Second, loyal behavioral intention towards the parent brand is important for reaching a positive evaluation of extensions. Finally, self-image relationship towards the parent brand is found to increase the evaluation of brand extensions.

Managerial implications: Three significant managerial implications emerge from the research. First, the study findings reinforce the fact that brand loyalty is an important construct for brand equity (Aaker 1991) and also an important determinant of brand extension evaluations. Therefore, it is substantial to measure the level of brand loyalty towards the original brand. Given high loyal behavioral intention towards the original brand consumers are more positive towards extensions from the brand. On the other hand it seams dangerous to extend a brand too much if the consumers have strong affective relationships towards the original brand. This result was not significant, and we do not want to stress the managerial implications too fare at this stage. More research is needed to figure out these relationships.

Second, a substantial research stream has surmised that consumers’ initial perceptions of brand extension similarity are a key factor that limits the extension’s acceptance. This study extends that conclusion by demonstrating that extension similarity is not a fixed property. Instead, similarity judgments are dynamic; they, along with evaluations, do change with different features of similarity. It is important to have high overall similarity between the original brand and the brand extensions. However, it is also substantial to have high similarity on different features between the original brand and brand extensions. Different features could be usage situations, user image, associations, etc. High similarity on only one of the features could give opportunities for the brand managers because this similarity feature could be used in the advertising. Indeed, after repeated exposure of the similarity feature, also more (overall) incongruent extensions are evaluated positively.

Theoretical implications: In terms of our theoretical arguments, in a broad sense, the study findings support the importance of understanding the perceived relevance of brand loyalty. This construct has to be improved theoretical, as well as how to operationalize and measure it. Improving the theoretical understanding of brand loyalty can extend our understanding of the construct when investigating the effects on brand extension evaluations.

Limitations: A number of assumptions characterized our research setting that suggest limitations to our study findings. For example, the parent brands were well-regarded, well-known and characterized by their unique set of associations. But what if a generally undesirable parent brand comes out with a brand extension? Do the same rules apply? What happens with the affective loyalty and the intention to behave loyal? This issue arises because we predict in many cases that evaluations become more favorable. But this is likely to be true only if the parent brand is favorable. Furthermore, the chosen brand extensions could have been more realistic and more information about the extensions is normally available in a realistic decision-making process.

Relaxing any one of these or other assumptions could change the strengthCor even existenceCof the effects that were observed in the study. However, the strength with the chosen design is the use of a quasi-experimental field research design. This is a more realistic way of measuring consumers’ evaluation of brand extension (see e.g., Dacin and Smith 1994; Broniarczyk and Alba 1994). We could extend the present study making the evaluation processes even more "realistic". In a "real" situation, consumers would have access to considerably more information about an original and extended brand. In general, as the amount of information on a product increases, the weight given to any single piece of information decreases (Dacin and Smith 1994). In the future, researchers should not only use more complex multiattribute descriptions of extension products but also present extension stimuli in the form of different types of marketing communications such as print or television advertising (see one preliminary thoughts and investigation by Keller and Sood 2002/3). Similarly, though some measure of favorability of evaluation has been the core dependent variable in prior extension research, this approach does not correspond fully to the decision-making process in a competitive market. At a minimum, further studies should incorporate "competitive concept tests", in which consumers evaluate and/or engage in an actual choice task involving the stimulus extension (see e.g., Keller and Sood 2002/3) and a set of competing alternatives.

Finally, the measures used in this article could be improved in the future. These are particularly the case when it comes to the concepts of affective loyalty and behavioral intention of being loyal. This is an opportunity for further research.

Further research and conclusions: Our findings also suggest several specific issues which warrant further inquiry. First, the construct of affective relationship towards the parent brand could be drawn wider. One avenue for further research could be to use the framework developed by Fournier (1998). If one were to investigate the affective relationships towards some core brands in the manner Fournier (1998) has done, and then continue by asking about evaluations of different brand extensions, then the full answer about the relationship between affect towards the core brand and the evaluation of brand extensions could be found. Furthermore, a second issue for future research is the effect of different brand personality dimensions on the evaluation of brand extensions. Using the measurement scale developed by Aaker (1997) it could be interesting to investigate which dimensions of the brand personality construct effect the evaluations of extensions. This could possibly give some answers for brand managers when they propose to extend their brands. For example, the Marlboro brand has a specific brand personality, therefore, it would be interesting to use the brand personality construct to find categories matching these personality dimensions.


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