How Do Consumers Evaluate Brand Extensions - Research Findings from India

By Thamaraiselvan, N.; Raja, J. | Journal of Services Research, April 1, 2008 | Go to article overview

How Do Consumers Evaluate Brand Extensions - Research Findings from India


Thamaraiselvan, N., Raja, J., Journal of Services Research


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. However, caution needs to be exercised. For example when Ponds extended into toothpaste and was unsuccessful as it moved too far from its core values. Given the importance of brand extensions, a better understanding of this topic is needed. Researchers have predominantly investigated brand extensions among tangible goods. By contrast few have investigated the service sectors (Ruyter and Wetzels 2000; van Riel et. al., 2000). Notable brand extension activity has taken place in services. For example, ICICI entered into banking and insurance, Virgin moved into radio stations, airline, financial services, and bridal services. Likewise the Disney Company, which in the 1950s signified world-class animation, has extended into services such as television, publishing, software, Internet portals, theme parks, hotels and cruises.

CONCEPTUAL BACKGROUND

Brand extension strategies are used largely by companies because they believed that the brand extension strengthens the brand positioning, improves the brand awareness and enhances the quality associations and increases the trial rate by reducing the perceived risk involved in the new product. In India it is reported that more than 80% of new products additions are using brand extensions strategies. A brand extension into same product and new product category enhances and improves their market share and brand equity in the long run (Lane and Jacobson, 1995). …

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