Does Competition Matter in the Evaluation of Brand Extensions?

EXTENDED ABSTRACT - This study reviews the literature on the evaluation of brand extensions, and reports the findings of an experiment that explores whether or not existing competing brands affect the evaluation of brand extensions, taking into account the perceived relevance or fit of the extension to the parent brand. Results indicate that competition does indeed affect the evaluation of brand extensions but that the impact depends on the perceived congruency of the extension fit with the parent brand.

Citation:

Harish Kapoor, Louise A. Heslop, and Statia Elliot (2005) ,"Does Competition Matter in the Evaluation of Brand Extensions?", in AP - Asia Pacific Advances in Consumer Research Volume 6, eds. Yong-Uon Ha and Youjae Yi, Duluth, MN : Association for Consumer Research, Pages: 86.

Asia Pacific Advances in Consumer Research Volume 6, 2005      Page 86

DOES COMPETITION MATTER IN THE EVALUATION OF BRAND EXTENSIONS?

Harish Kapoor, Carleton University, Canada

Louise A. Heslop, Carleton University, Canada

Statia Elliot, Carleton University, Canada

EXTENDED ABSTRACT -

This study reviews the literature on the evaluation of brand extensions, and reports the findings of an experiment that explores whether or not existing competing brands affect the evaluation of brand extensions, taking into account the perceived relevance or fit of the extension to the parent brand. Results indicate that competition does indeed affect the evaluation of brand extensions but that the impact depends on the perceived congruency of the extension fit with the parent brand.

Brand extensions are often used to enter a well-established or rapidly growing product category under the assumption that when consumers’ attitude toward the parent brand is positive, this attitude is transferred to the extension. While the evaluation of brand extensions has been widely researched, most efforts fail to recognize the pre-existence of competing brands in the extension category and do not account for their impact on the evaluation process. Considering the expense of new product introductions, a managerially relevant and theoretically significant research effort would examine brand extensions in the presence of competing brands. This study represents a first step towards the understanding of how competing brands affect the evaluation of brand extensions.

The literature on the evaluation of brand extensions has significantly contributed to the understanding of how brand extensions are evaluated, but has focused on product and brand attributes, ignoring te competition. In most product categories, especially consumer goods categories, numerous brands compete and consumers do not make purchase decisions in a "competitive vacuum" (Han 1998) and their attitudes are affected by competitor activity (Czellar 2003). Research on extension evaluation has focused on the fit between the parent brand and the extension. Relatively little is known about the role and influence of competing brands on brand extension evaluation.

The authors argue that the evaluation of a brand extension will be adversely affected by existing competing brands even when the fit between the parent brand and its extension is high. To test this hypothesis, an experiment was conducted to explore the evaluation of brand extensions when taking into account both perceived fit with the parent brand, and competing brands.

Five brands that possessed dominant brand associations were selected, and a total of eight brand extensions were chosen for the experiment. Of the resulting eight extensions, four were associated with complex products and four with routine product categories. Two versions of questionnaires were developed, each with two complex and two routine product categories, and randomly allocated to one hundred and three participants who were undergraduate students enrolled in marketing courses at a Canadian university.

Questions using a nine-point Likert scale captured respondents’ familiarity with the parent brand, relevance of the brand extension used as a measure of fit, and attitude toward the brand extension. Respondents were then asked to list existing major brands and their brand associations in the extension category in order to induce competitive comparison effects. Following this, two questions based on a nine-point Likert scale captured attitudes toward the brand extension in comparison to existing brands, and how well respondents felt the brand extension would fare in the target category compared to the existing brands. Finally, two open-ended questions asked respondents to list their favorite brand in the extension category and the reasons for their liking or disliking the proposed brand extension.

Paired t-tests were conducted on the evaluation of brand extensions before and after the competitive comparison was induced. In six out of eight cases, paired t-tests indicated that when the extension is perceived to be of high relevance, cuing of the competition adversely affected the evaluation of the brand extension. These results indicate that the evaluations of brand extensions are affected by the competing brands, particularly when relevance of the brand extension is high. It is important to note that relevance (fit) of the brand extension with the parent brand in the brand extension evaluation process becomes unimportant once competing brands are introduced. This suggests that either the measures of fit used to assess the relevance of an extension to its parent brand were inadequate to capture the fit in the presence of competing brands or, possibly, the notion of fit between a parent brand and its extension is not an indicator of an extension’s success in the target category.

The results of our study can be explained using the "attraction effect" that posits that the introduction of a new brand in a category affects the attractiveness of the existing brands due to "data and cognitive deficiencies" (Pan and Lehman 1993; Malaviya and Sivakumar 2002). The findings of our study imply that brand extension programs should take into account the effects of competitive comparisons while planning to introduce a brand extension. Future studies should examine the impact of target category structure, intensity of competition, and relative strengths of the parent brand and competing brand attitudes on the evaluation of brand extensions vis-a-vis existing brands.

REFERENCES

Han, J. K. (1998), "Brand Extensions in a Competitive Context: Effects of Competitive Targets and Product Attribute Typicality on Perceived Quality," Academy of Marketing Science Review, http://www.amsreview.org/articles/han01-1998.pdf

Czellar, S. (2003), "Consumer Attitude Toward Brand Extensions: An Integrative Model and Research Propositions," International Journal of Research in Marketing, 20, Vol. 20, pp. 97-115.

Malaviya, P. and K. Sivakumar (2002), "The Influence of Choice Justification and Stimulus Meaningfulness on the Attraction Effect," Journal of Marketing Theory and Practice, (Fall), pp. 20-29.

Pan, Yigang and Donald R. Lehman (1993), "The Influence of New Brand Entry on Subjective Brand Judgments," Journal of Consumer Marketing, Vol. 20 (June), pp. 76-86.

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