The Effect of Brand Alliance Portfolio on the Perceived Quality of an Unknown Brand

ABSTRACT - Drawing upon signaling theory, we examine how the quality level and heterogeneity (product category variety) of established brands affect the perceived quality of an unknown brand in brand alliances. The results from two studies suggest that the perception of an unknown brand with high quality partners is higher than that of the brand with a combination of high and low quality partners. Especially, if those high quality partners come from different product categories, the quality perception of the unknown brand will be greatly enhanced in comparison with that in the control group.

Citation:

Xiang Fang and Sanjay Mishra (2002) ,"The Effect of Brand Alliance Portfolio on the Perceived Quality of an Unknown Brand", in NA - Advances in Consumer Research Volume 29, eds. Susan M. Broniarczyk and Kent Nakamoto, Valdosta, GA : Association for Consumer Research, Pages: 519-520.

Advances in Consumer Research Volume 29, 2002     Pages 519-520

THE EFFECT OF BRAND ALLIANCE PORTFOLIO ON THE PERCEIVED QUALITY OF AN UNKNOWN BRAND

Xiang Fang, University of Kansas

Sanjay Mishra, University of Kansas

ABSTRACT -

Drawing upon signaling theory, we examine how the quality level and heterogeneity (product category variety) of established brands affect the perceived quality of an unknown brand in brand alliances. The results from two studies suggest that the perception of an unknown brand with high quality partners is higher than that of the brand with a combination of high and low quality partners. Especially, if those high quality partners come from different product categories, the quality perception of the unknown brand will be greatly enhanced in comparison with that in the control group.

In addition, if the unknown brand forms alliances with several low quality brands, heterogeneity will have a positive effect on the quality perception of the unknown brand. However, for a mixed alliance with both high and low quality partners, heterogeneity will not enhance the quality perception of the unknown brand and sometimes even have a detrimental effect.

EXTENDED ABSTRACT -

Interest in brand alliance strategy has increased significantly in recent years, with examples ranging from jointly branded credit cards (e.g., AT&T and Master Card) to the alliance between IBM and Intel. However, past studies have focused exclusively on the alliance between two brands (one unknown and one established brand or two well-known brands). Little research in the literature has addressed the alliance between an unknown brand and multiple established brands (brand alliance portfolio). In this paper, we are interested in two issues: (1) Should an unknown brand form alliance with multiple established brands in the same product category (e.g., a new airline with hotel brands: RitzCarlton, Hilton, and Holiday Inn) or in different product categories (e.g., a new airline with Hilton Hotels, Hertz Rental Car, and Delta Airlines)? (2) At what quality level should each established brand be?

According to signaling theory (Wernerfelt 1988; Rao and Ruekert 1994), when a new brand forms alliance with many established brands, consumers use the perceived quality of the established brands (secondary brands) as cues to form their evaluation of the new brand (primary brand). The new brand may gain considerable credibility once multiple established brands "endorse" it by forming alliances. In the paper, two characteristics of brand alliance portfolio have been examined: the quality level of the secondary brands and the heterogeneity of product category (same vs. different)

Based on the quality of the secondary brands, the alliance can be of high-end (high-quality brands only), low-end (low-quality brands only), or a mixed one (a combination of high- and low-quality brands). We predict that there are main effects of the quality level and heterogeneity of the secondary brands. Specifically, the perceived quality of the primary brand for high-end alliances will be higher than that for mixed alliances, which in turn is higher than for low-end alliances. The rationale is that consumers make their evaluation of the primary brand based on the partners it is associated with. When the quality level of the partners is high (or medium, or low), so is the quality of the primary brand. Also, we predict that heterogeneity has positive impact on the quality perception of the primary brand.

Brand alliances are generally of two types: (1) homogeneous brand alliance (low heterogeneity), the primary brand allies with multiple partners in the same product category; and (2) heterogeneous brand alliance (high level of heterogeneity), the primary brand allies with multiple partners in many product categories. We hypothesize that the impact of heterogeneity on the quality perception of the primary brand depends on quality levels of secondary brands (interaction between the heterogeneity and quality levels). For high-end alliances, heterogeneity has positive impact on the quality perception of the primary brand due to its high consistency across different product categories (attribution theory). For mixed alliances, heterogeneity has negative impact due to its inconsistency. Finally, we have two competing hypotheses for low-end alliances (negative vs. positive impact).

Two studies were conducted to test these hypotheses. In study 1, an ad of a fictitious airline (primary brand) announced brand alliance information. Based on the quality levels, three brands in the same category (hotel) or different product categories (hotel, rental car, or another airline) were chosen as secondary brands since these product categories have relatively equal level of service fit with the airline. A 2 X 3 factorial design with one control group was used. The results revealed a significant interaction of quality level and heterogeneity and a main effect of quality level. In study 2, we added a Consumer Reports rating of the airline before the airline ad to manipulate consumers’ negative prior evaluation. The similar analysis was conducted. The results revealed significant main effects of quality level and heterogeneity but not interaction.

The results from two studies suggest that the perception of an unknown brand with high quality partners (high-end alliance) is higher than that of the brand with a combination of high and low quality partners (mixed alliance). Especially, if those high quality partners come from different product categories, the quality perception of the unknown brand will be greatly enhanced in comparison with that in the control group. In addition, if the unknown brand forms alliances with several low quality brands (low-end alliance), heterogeneity will have a positive effect on the quality perception of the unknown brand. However, for a mixed alliance with both high and low quality partners, heterogeneity will not enhance the quality perception of the unknown brand and sometimes even have a detrimental effect.

The findings have important theoretical and practical implications. Theoretically, it supports signaling theory and extends it to the multiple brand alliances context. The characteristics of multiple secondary brands provide different signals to consumers about the primary brand. Practically, our research will help managers better understand brand alliances and choose appropriate partners to build their brand equity.

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