How Do Consumers Evaluate Brand Extensions - Research Findings from India

Article excerpt

In today's intense competitive environment, companies launch new products to satisfy constantly changing consumers' preferences. The new products are prone to failures due to many factors. Companies take efforts to reduce new product failure rates to maximize their returns for their stakeholders. A brand extension, leveraging existing brand names to new product categories is one such strategy to reduce the risk of new product failures. Despite two decades of research in branding, many vagaries are yet to be explored and understood. This study primarily focuses on how consumers evaluate brand extensions for FMCG (Fast Moving Consumer Goods) and service product categories in Indian market conditions. It explores how exactly the consumers evaluate different product categories based on factors like, similarity fit, perceived quality, brand reputation and perceived risk. It brings out the impact of brand reputation of the core brand and perceived service quality on the brand extensions evaluations. It highlights the role of perceived risk involved in the extended product category in brand extensions evaluations. Most importantly, this study establishes the relationships among similarity fit, brand reputation, perceived service quality and perceived risk in extended product categories through appropriate multivariate analysis.

INTRODUCTION

The ever-changing market characteristics have huge impact on the corporate decisions. The global environment also poses several complexities to the marketer in understanding the market. The companies constantly develop newer marketing strategies to stay ahead in the market and reap more benefits for its stakeholders. More number of companies are relying on launching new products in the market to meet the changing consumer needs and preferences. This strategy is proven but not without risk. Some authors estimate that 30-35 % of all new products fail (Montoyo et. al., 1994; Booz et.al., 1982). Others estimate more negatively in that only two out of ten products launched are successful in the market. Adding to the difficulty in accurately predicting the market dynamics, the promotion cost and shelf space cost makes the company's new product launches even more difficult (Aaker 1996).

Companies are taking hard steps to reduce these failure rates. One way of dealing with the rate of failures of new products is using a firm's competence. Many business organizations are leveraging their brand names to reduce the risk of failure of new products. A brand extension is the use of well-known brand names for new- product introductions (Aaker and Keller, 1990; Keller, 2003; Klink and Smith 2001). For FMCG (Fast Moving Consumer Goods) as well as services more than 80% of the new products introduced are brand extensions (Rangaswamy, et.al., 1993; Ernest and Young and Nielsen 1999). Brand extension strategies are beneficial because they reduce new product introduction costs, and perceived risk in new product, hence increasing the chances of success (Aaker and Keller, 1990; Keller 1998). These benefits are largely due to the transfer of parent brand's awareness and associations to the new product (Keller 1998). Like any other strategy it has both positive side and negative side to it. Brand extension strategy needs a careful analysis of the market before adopting it. If it turns out well in the new product category it will enhance the brand name; otherwise it will dilute the core brand value. This is the reason why many researchers are keen on continuously exploring the different dimensions of brand extensions.

Managers assume they can exploit the equity of a well-known brand when entering new markets, capitalizing on recognition, goodwill, and any positive associations. Case studies abound of successful brand extensions. For example, Dettol, with its antiseptic liquid origin, successfully extended into shaving creams, toilet soaps and floor cleaner. Tata successfully extended into telecom and insurance sectors. …