Brand extension has been a popular strategy for entering into new segments by extending brands into similar or new product categories through leveraging existing brand perceptions and image. In other words, it is a marketing endeavor that links and transfers existing positive consumer perceptions of a parent brand with the new product thereby capitalizing on existing emotional relationship and heritage of the parent brand. There are several managerial perspectives behind brand extensions however, the basic idea is to capitalize on the existing positive brand associations which signify consumer trust and commitment by introducing new brands in similar or dissimilar categories in order to achieve diversification and most importantly generate new sources of revenue and increase market share. Extending a brand leads to economies of scale, reduced marketing costs, lesser time for market adaptability as compared to launching entirely a new brand. Brand extensions are also a profitable strategy for franchise development and licensing. Brand extensions are also a strategy to take care of the value migration.
For decades, firms have been employing brand extensions and the trend is on the rise. Aaker (1990) found that from 1977 to 1984, approximately 175 new brands were launched in the United States each year and out of which 40% were brand extensions. Similarly, Murphy (1997) showed that 95% of the 16,000 new products launched in the United States every year were brand extensions. Aaker (1990) revealed that US companies spent around US$ 50 Million per year for launching new brand extensions. Nevertheless, the hype in brand extension has led many brand extensions to face a disastrous failure where not only the brand extension entailed a negative perception and caused significant monetary losses but also harmed the overall brand equity of the parent brand. Ernst, Young and Nielsen (1999) in their study covering several countries showed that brand extensions in FMCG categories had a failure rate of about 80%. This shows that brand extension is a double-edged sword and some industry analysts call extension as a low-risk branding strategy but also term it as a gamble.
Since brand is an emotional relationship between the company and its consumers therefore the success of extension is dependent on how consumers evaluate it. Therefore, it is important to understand the factors and their interaction affecting consumer evaluations of brand extension. During the past three decades, considerable research has been conducted in exploring and understanding factors influencing brand extensions which provide key insights in generalizing success strategies for brand extension.
1 Brand Extension Characteristics
Aaker and Keller (1990) presented some of the most useful concepts in the brand extension literature. Their study which involved hypothetical brands revealed a number of useful concepts including a concept of ‘fit’. They found that the brand extension will carry the parent brand positive associations only if there was a basis of fit between the two product classes. They elaborated different dimensions of fit including the concept of Transfer, Complement and Substitute. When there was a perception that the parent company had necessary related capability in the original product class to introduce a brand extension in a new product class then consumers evaluated that extension positively regardless of the quality of the parent brand. For instance, Honda generators gained popularity because consumers believed that the company had necessary engineering capability to launch a quality product in a new segment. However, if Honda had introduced sneakers then it would have resulted in a failure. In other words, parent brand positive associations are successfully ‘Transferred’ when there is a perceived ability of the firm to enter the new category. Similarly, Compliment is...