The Effects of Technology on Perceived Risk Attitude Towards Extended Products in Brand Extension

ABSTRACT - The major purpose of this study is to investigate the effects of technology on consumers' perceived risk attitude in different types of brand extensions. Three variables of perceived risk towards the extension: 1) financial risk, 2) performance risk, and 3) social risk, were measured and compared. The findings of this study indicated that the perceived level of financial risk and performance risk towards a brand extension varied positively with the level of technology of the extended product. However, the perceived level of social risk towards a brand extension to high technology products did not vary with the level of technology of the extended products.

Citation:

Alan Au, Alan Tse, Wai Kin Choi, and Chi Ming Siu (1994) ,"The Effects of Technology on Perceived Risk Attitude Towards Extended Products in Brand Extension", in AP - Asia Pacific Advances in Consumer Research Volume 1, eds. Joseph A. Cote and Siew Meng Leong, Provo, UT : Association for Consumer Research, Pages: 320-322.

Asia Pacific Advances in Consumer Research Volume 1, 1994      Pages 320-322

THE EFFECTS OF TECHNOLOGY ON PERCEIVED RISK ATTITUDE TOWARDS EXTENDED PRODUCTS IN BRAND EXTENSION

Alan Au, Hong Kong Baptist College

Alan Tse, The Chinese University of Hong Kong

Wai Kin Choi, The Chinese University of Hong Kong

Chi Ming Siu, The Chinese University of Hong Kong

ABSTRACT -

The major purpose of this study is to investigate the effects of technology on consumers' perceived risk attitude in different types of brand extensions. Three variables of perceived risk towards the extension: 1) financial risk, 2) performance risk, and 3) social risk, were measured and compared. The findings of this study indicated that the perceived level of financial risk and performance risk towards a brand extension varied positively with the level of technology of the extended product. However, the perceived level of social risk towards a brand extension to high technology products did not vary with the level of technology of the extended products.

INTRODUCTION

Brand extension has been a major topic for marketers for the past ten years. It involves the exploitation of an already developed brand name for the introduction of new products. One of the major concerns of marketers in brand extension is the transferability of favourable attributes to the extended product. Most studies done in the past decade were concentrated on studying effects of brand breath, fit of the extended product and the products of the original brand, as well as effects of the quality of the original brand using low involvement products. However, the effects of perceived technological level of the existing branded products and the extended product on risk attitudes of consumers have not been covered.

Therefore, the overall objective of this research is to develop an extended model of perceived risk with a product's technology level as the confounding variable. In addition to the factors studied in the past decade, the current study is designed to look at how the difference between the perceived technological level of the original product and that of the extended product can affect the risk attitude of consumers. In view of the increasing number of brand extensions carried out by different companies, the current research is undertaken to investigate possible relationships between different purchase decision variables, such as the level of technology of the original brand and the extended product, consumer's perceived risk attitude, and the willingness to buy the extended products, in the hope that this information can assist marketers to develop a better strategy in brand extension.

AN EXTENDED MODEL OF PERCEIVED RISK

Empirical research of perceived risk has been confined to the measurements of either the risk facets or the risk components but seldom the two together. Bauer (1967), Cox (1967), Cunningham (1967), Kogan and Wallach (1964), Sieber, et al (1964) and Hansen (1972), all in one way or the other, employed general measures on the level of uncertainty and importance as the components of perceived risk, but did not delineates the various facets of risk.

On the other hand, Jacoby and Kaplan (1972), Mtichell (1993), Mitchell and Greatorex (1993), and Stone and Gronhaug (1993) employed general measures on different facets of perceived risk, but neglected the components of perceived risk.

In addition, instead of measuring the two components, Jacoby and Kaplan (1972) suggested that the overall perceived risk is a function of the following ten elements: 1) Uncertainty of Financial Risk, 2) Consequences of Financial Risk, 3) Uncertainty of Performance Risk, 4) Consequences of Performance Risk, 5) Uncertainty of Physical Risk, 6) Consequences of Physical Risk, 7) Uncertainty of Psychological Risk, 8) Consequence of Psychological Risk, 9) Uncertainty of Social Risk, and 10) Consequence of Social Risk. However, the relationship between the facets is by no means thoroughly studied.

It seems to have three possibilities. It may be an exponential, a multiplicative, or an additive formulation. But, if the perceived risk were zero for one facet, a multiplicative or exponential formulation implied that the overall perceived risk would be zero. Therefore, both the multiplicative and exponential formulations are rejected and an additive model is formulated for this research.

To summarize, it seems that perceived risk can be categorised into two board elements: components and facets of risk. Hence, in this extended model, the perceived risk is depicted not only as a multiplicative function of the probability of loss and importance of loss, but also as an additive model of the various facets of risk. In particular, a three-facet and dual-component model of perceived risk is proposed. The three risk facets are financial, social and performance risks and the two components are probability and importance of loss.

What is more, with the cost of entering new markets has become formidable, the use of established brand names to facilitate new market entry is, therefore, a clever marketing ploy. Among the different product features in an extended product, we believe that the differences in the perceived technological level of the original products and the extended product are particularly important in consumers' risk perception. The perceived technological level of the brand may also have substantial effect on the risk perception of the extended product. Hence, the effects of the perceived level of technology is also included.

Consequently, the following three hypotheses are tested:

H1: For a brand with high perceived level of technology, the perceived performance risk is higher if the brand is going to be extended to high technology products, than if the brand is going to be extended to low technology products.

H2: For a brand with a high perceived level of technology, the perceived financial risk is higher if the brand is going to be extended to high technology products, than if the brand is going to be extended to low technology products.

H3: For a brand with a high perceived level of technology, the perceived social risk is higher if the brand is going to be extended to high technology products, than if the brand is going to be extended to low technology products.

TABLE 1

COMPARING MEAN SCORES OF THREE RISK FACETS

METHODOLOGY

Two sets of questionnaires which consisted of the following two imaginary brand extensions were used in this study:

(i) Type I: brand extensions from brands which have a high overall perceived technological level to products which have a high perceived technological level.

(ii) Type II: brand extensions from brands which have a high overall perceived technological level to products which have a low perceived technological level.

The two simulated extensions used were: Type I - BMW's microwave ovens, and Type II - IBM's jeans.

Subjects were 200 B.B.A. and M.B.A. students enrolled in the Chinese University of Hong Kong. They were asked to complete two operational statements: probability of loss; and importance of loss for each type of risk. These statements were developed from Kogan and Wallach (1964).

Risk attitudes with regard to the extension were rated by a seven point semantic differential scales listed under each question. The scales were fitted with adjectives 'extremely high' and 'extremely low' at both ends. Risk attitudes towards purchase of the extended products were measured in three ways: (i) performance risk; (ii) financial risk; and iii) social risk.

The experimenter began by explaining the idea of brand extensions and the concepts of financial, social and performance risks to the subjects. The subjects were also told that this was a study which investigated consumers' reactions to different brand extensions. By then, subjects were instructed to answer a seven point scaled questionnaire.

EMPIRICAL RESULTS AND DISCUSSIONS

Table 1 shows the mean score of each of the three facets, i.e. the financial, performance, and social risk in extension Type I and Type II. Both the perceived financial (p<0.05) and performance risks (p<0.05) in extension Type I are significantly higher than that of the extension Type II. It indicates that, as the technology of extended product increases, the perceived financial and performance risk also increase. These statistically significant results support hypotheses H1 and H2.

High technology products are usually more expensive. Therefore, it is normal that perceived financial risk increases as the technology of the extended products increases. Also, high technology products are relatively complicated, it may have considerable performance risk. As a result, perceived performance risk increases as the technology of the extended products increases.

Since the mean score of social risk in extension Type I is not significantly higher than that of the extension of Type II (p>0.05), it does not support hypothesis H3. For a brand name with a high perceived technological level, extension to products with high or low technology products makes no difference in perceived social risk to the consumers. It implies that the brand breadth of high technology brand name is broader. Consumers are more receptive to its extended products. If the brand is going to be extended to low technology but high involvement product, the brand name can, therefore, be leveraged to minimise consumers perceived social risk.

IMPLICATIONS FOR MARKETING PRACTITIONERS

Since this is an exploratory study involving students in the Faculty of Business Administration as the subjects, it would be premature to make any final conclusion on the relationship between the three risk facets and the technological level of the products in a general context.

However, if future research validates the instrument and results of this research, the following suggestions and implications would seem warranted.

1. In all two types of brand extensions studied, the variation in respondents' perceptions towards the extended products was explained partially by the three risk facets. For different types of extensions, the amount of variation explained was also different from each other. In order to have a successful brand extension, different degree of emphasis or marketing effort may be spent in different types of brand extensions to reduce consumers' perceived level of risk. In both the Type I and Type II extensions, financial and performance risks were found to be the significant risk facets which affect subjects' perceptions on the extended product. Hence, marketing strategy may be devised to reduce specifically these two types of risk.

2. For brand extensions involving original brands of high perceived level of technology, the magnitude of the three risk facets increased as the technology of the extended products increased. These findings prompt the management to look for ways to reduce the level of risk facets of consumers if the extension involves products that are perceived to be of high level of technology.

3. In Type I and II extensions, the perceived risk attitude was found to be associated positively with the perceived level of technological difficulty in producing the extended product. Marketers may need to specifically convey to consumers the message of their ability to make the extension.

4. One phenomenon to be noted is that the perceived level of technology of the existing products affects the perceived risk attitude of consumers. Therefore, a successful extension may demand transfer of a favourable technological image from the original brand. This requires spending on advertising a message that promotes the technological image of products of the existing brand. The carry-over effect of a favourable technological image is important in brand extension.

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