Consumer evaluation of brand extensions: can online brands be extended to offline products?

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Consumer evaluation of brand extensions: can online brands be extended to offline products?

  1. 1. MSc in INTERNATIONAL BUSINESS WITH MARKETING 2011 CONSUMER EVALUATIONS OF BRANDEXTENSIONS: CAN ONLINE BRANDS BE EXTENDED TO OFFLINE MARKETS? By ANTONIO MARTINEZ H00023227 Presented for the award of MSc. Heriot-Watt University i
  2. 2. Can online brand be extended to offline products? ACKNOWLEDGEMNENTI would like to thank my parents for their continual support throughout myundergraduate and postgraduate years of study.To my supervisor, Steve Clode, thank you for allowing me to learn from my ownmistakes, and for encouraging me to explore. Your faultless guidance and unwaveringtrust will remain a standard of comparison for me in my future academic endeavours.To Ana Martinez, for being there, and for providing an ever-sympathetic ear to mygrievances. Thank you for your succor and faith.To my friend, Claudio Rider, without whom these academic year would have beenconsiderably less enriching. I also thank Dolores Rider for her assistance in providinggrammatical proof reading.Lastly, I offer my regards and blessings to all of those who supported me in anyrespect during the completion of the dissertation.Declaration I declare that the thesis embodies the results of my own work and has beencomposed by myself and meets the University policies on plagiarism and ethicalresearch. Where appropriate within the thesis I have made full acknowledgement tothe work and ideas of others or have made reference to work carried out incollaboration with other persons.Signature of student ………………………… Date: …………….Word count: 14,989 i
  3. 3. ABSTRACT Increasing competence within the marketplace has provoked that firms seek togo beyond the boundaries of their actual businesses by offering products in totallynew markets. Companies attempt to reduce the risk associated with launching thesenew products by using an existing brand name, which allows the companies toleverage brand equity in the new product categories. Brand extension has become apopular strategy not only within the limits of offline markets but, also in an onlinecontext to the extent that numerous offline companies have extended their brands toonline markets. Nevertheless, a recent trend shows that the reverse is also possible,and Internet brands can also benefit from entering in new offline product categories.This study examines whether online brands can be successfully extended to offlineproduct categories from a consumer perspective. Specifically, this study develops anexplanatory model of consumer evaluation of brand extensions which combinesvariables previously studied in the literature with other extracted from online brandingand applies them to the research context. Empirical survey data are analysed through aregression analysis applied to different online brands and their offline extensions toidentify the most important factors influencing consumers´ attitude toward the brandextensions. The main results indicate that the attitude towards the offline extensionslaunched by online companies is determined by the degree of product similarity, thetransference of emotional associations with the parent brand to the new product, themarketing support received by the extension and the extent to which the consumersare involved with the new product category. As consequence of these findings, thesuccess of online brands going offline will depend on the capability of managers tobuild a strong and positive brand personality and organisational relationships withconsumers as well as implementing marketing activities which reinforce productsimilarity perceptions and foster consumer involvement with the brand extension.Keywords: Brand extensions, Brand equity, Brand associations, Brand knowledge,Brand loyalty, Brand image, online companies, perceived quality, similarity,consumer innovativeness, consumer involvement. ii
  4. 4. TABLE OF CONTENTSACKNOWLEDGEMNENT ...................................................................................................................... IABSTRACT .......................................................................................................................................... IILIST OF FIGURES ................................................................................................................................VILIST OF TABLES ..................................................................................................................................VICHAPTER 1.INTRODUCTION ...................................................................................................... 1 1.1 BACKGROUND..................................................................................................................................... 1 1.2 PROBLEM STATEMENT.......................................................................................................................... 3 1.3 CONTRIBUTIONS .................................................................................................................................. 4 1.3.1 Theoretical Contributions ........................................................................................................ 4 1.3.2 Practical Contributions ............................................................................................................ 5 1.4 THESIS OUTLINE .................................................................................................................................. 5CHAPTER 2.BRAND EXTENSIONS ............................................................................................. 6 2.1 INTRODUCTION ................................................................................................................................... 6 2.2 CONCEPTUALISATION. .......................................................................................................................... 6 2.3 PSYCHOLOGICAL PROCESSES INVOLVED IN BRAND EXTENSION EVALUATIONS .................................................. 9 2.4 CONSUMER EVALUATIONS OF BRAND EXTENSIONS .................................................................................. 10 2.4.1 Similarity ............................................................................................................................... 12 2.4.2 Characteristics of the parent brand ...................................................................................... 13 2.4.3 The extension´s marketing context ....................................................................................... 14 2.4.4 Consumer characteristics ...................................................................................................... 14 2.4.5 Limitations of the current research on brand extensions...................................................... 15 2.5 BRAND EXTENSIONS OF ONLINE BRANDS ............................................................................................... 16 2.6 SUMMARY ....................................................................................................................................... 18CHAPTER 3. HYPOTHESES........................................................................................................ 20 3.1 INTRODUCTION ................................................................................................................................. 20 3.2 BRAND EQUITY VARIABLES................................................................................................................... 20 3.2.1 Brand knowledge .................................................................................................................. 22 3.2.2 Perceived Quality .................................................................................................................. 23 3.2.3 Brand Associations. ............................................................................................................... 24 3.2.4 Brand Loyalty ........................................................................................................................ 27 3.3 MARKETING SUPPORT ........................................................................................................................ 28 3.4 PERCEIVED SIMILARITY ........................................................................................................................ 29 3.4.1 Product category similarity ................................................................................................... 29 3.4.2 Brand image Similarity .......................................................................................................... 30 iii
  5. 5. 3.5 INVOLVEMENT IN THE EXTENSION PRODUCT CATEGORY ............................................................................. 31 3.6 CONSUMER INNOVATIVENESS .............................................................................................................. 32 3.7 THE HYPOTHESIZED MODEL ................................................................................................................ 34 3.8 SUMMARY ....................................................................................................................................... 35CHAPTER 4. METHODOLOGY .................................................................................................. 36 4.1 INTRODUCTION ................................................................................................................................. 36 4.2 RESEARCH PHILOSOPHY ...................................................................................................................... 36 4.3 RESEARCH DESIGN ............................................................................................................................. 37 4.3.1 Research strategy ................................................................................................................. 38 4.3.1 Time horizon ......................................................................................................................... 39 4.4 SURVEY DEVELOPMENT ...................................................................................................................... 39 4.4.1 Selection of brands and extensions ....................................................................................... 40 4.4.2 Scaling and multi-item scales................................................................................................ 41 4.5 SAMPLING........................................................................................................................................ 46CHAPTER 5. DISCUSSION .......................................................................................................... 48 5.1 INTRODUCTION ................................................................................................................................. 48 5.2 RELIABILITY AND CORRELATION ANALYSES. ............................................................................................. 48 5.2.1 Reliability analysis ................................................................................................................. 48 5.2.2 Correlation analysis............................................................................................................... 49 5.3 REGRESSION ANALYSIS ........................................................................................................................ 50 5.4 HYPOTHESES TESTING ........................................................................................................................ 53 5.5 DISCUSSION ..................................................................................................................................... 55 5.6 SUMMARY ....................................................................................................................................... 57CHAPTER 7. CONCLUSION........................................................................................................ 59 7.1 CONCLUSION .................................................................................................................................... 59 7.2 IMPLICATIONS ................................................................................................................................... 59 7.2.1 Theoretical Implications ........................................................................................................ 59 7.2.2 Managerial Implications ....................................................................................................... 60 7.3 LIMITATIONS AND DIRECTIONS FOR FURTHER RESEARCH ........................................................................... 61REFERENCES ..................................................................................................................................... 63APPENDIX ........................................................................................................................................ 78 APPENDIX A – SPSS DATA ...................................................................................................................... 78 Appendix A.1: Reliability Analysis .................................................................................................. 78 Appendix A.2: Correlation analysis ................................................................................................ 80 Appendix A.3: Regression analysis ................................................................................................. 82 iv
  6. 6. APPENDIX B - QUESTIONNAIRES ........................................................................................................... 90 QUESTIONNAIRE 1: GOOGLE.......................................................................................................... 91 QUESTIONNAIRE 2: AMAZON ........................................................................................................ 95 v
  7. 7. LIST OF FIGURESFIGURE 2.1: TAUBER´S GROWTH MATRIX ......................................................................................................... 7FIGURE 2.2: E-SERVICE PORTALS GRID ........................................................................................................... 17FIGURE 3.1: HYPOTHESIZED MODEL .............................................................................................................. 35LIST OF TABLESTABLE 2.1: MAIN FACTORS OF BRAND EXTENSION EVALUATION ......................................................................... 11TABLE 3.1: HYPOTHESES ............................................................................................................................. 33TABLE 4.1: OVERVIEW OF ONLINE BRANDS AND OFFLINE EXTENSIONS .................................................................. 41TABLE 4.2: SCALES USED IN THE QUESTIONNAIRES ............................................................................................ 44TABLE 5.1: CRONBACH´S ALPHA COEFFICIENTS FOR MULTI-ITEMS CONSTRUCTS.................................................... 49TABLE 5.2: CORRELATIONS .......................................................................................................................... 50TABLE 5.3: REGRESSION I (AGGREGATED COMPONENTS OF SIMILARITY) ............................................................... 51TABLE 5.4: REGRESSION II (SEPARATED COMPONENTS OF SIMILARITY)................................................................. 52TABLE 5.5: REGRESSION ANALYSIS BY TYPE OF COMPANY .................................................................................. 53TABLE 5.6: REVIEW ON HYPOTHESES ............................................................................................................. 58 vi
  8. 8. Can online brand be extended to offline products? CHAPTER 1.INTRODUCTION1.1 Background. Increasingly competitive forces in the global markets are forcing companies todifferentiate themselves from competitors in order to survive and take advantage ofthe current opportunities of growth. One way to differentiate from competitors is theestablishment of strong brands that allow companies to increase the efficiency of theirmarketing expenses (Keller, 1993) achieving thus benefits to the company such as amore favourable perception of the products by the customers, greater loyalty, lessvulnerability to competitors´ marketing actions, high profits margins, less negativereactions by consumers to price increases, higher support of middlemen, highermarketing promotion effectiveness, increasing licensing and brand extensionsopportunities (Keller, 2008). In other words, while competitors can emulate financialand physical assets, intangible assets, as brands, represent a more sustainablecompetitive advantage (Hunt and Morgan 1995). The importance of brands is not onlymeasured in terms of the competitive advantages that they provide in their presentmarkets but also the future opportunities that they provide in untapped markets(Srivastava and Shocker, 1991). This way, firms can enter new markets by using anexisting, well-known brand name in order to reduce both the cost of launching newproducts and the risk of product failure. The strategy behind the leverage of thecompany brand equity to new markets, products or sectors is known as brandextension. The acceptance of brand extension is principally due to the benefits that bothbrand and extension provide (Keller, 2003). On the one hand, the productcommercialised under a well-known brand is more attractive to the consumers (Aakerand Keller 1990) and suppliers, thus reducing the marketing costs and increasing thechance of success (Morrin, 1999). On the other hand, brand extensions reinforcebrand image and notoriety, which make consumers purchase other products offered bythe brand (Chen and Liu, 2004). All this allows an increase of the market share andefficiency of market efforts (Smith and Park, 1992). In other words, extensions benefitthe companies because they transfer intangible components of the brand such as brandawareness, trust or other specific brand associations (Broniarczyk and Alba, 1994) 1
  9. 9. stored in the consumers´ minds to the new products. For example, NationalGeographic has been able to extend successfully its brand by transferring associationsof nature, adventure and multiculturalism from photography and documentaries totravel products, furniture or outdoors clothing (shop.nationalgeographic.com). Despite the positive effects of brand extensions, their inappropriate use mayharm the company´s brand image if the new products do not fit with the consumers´brand associations. This does not mean that a high degree of similarity between theparent brand product category and the new product has to be present; in fact, somecompanies have stretched their brands to very dissimilar product classes. For instance,Louis Vuitton successfully extended to luxury resorts although it is a differentbusiness from fashion (Passariello, 2010). The use of brand extensions as a strategy to achieve growth has drasticallyincreased in recent years. In fact, between 80 and 90% of new products are launchedunder the name of an existing brand (Völckner and Sattler, 2004). This recentproliferation of brand extensions has contributed to change market structures in manysectors. For example, in the financial services sector the entry of new competitorsfrom the retailing sector (e.g., Tesco or Sainsbury´s) has intensified the competenceand divided even more the market among participants. On the other hand, extensionshave also gone through the borders of the offline markets to markets from the onlinedomain. Consequently, companies have stretched their brands within and towards theonline markets. Traditionally based offline companies, in addition to use the internetas an alternative distribution channel (Levin et al. 2003) or mean of runningcommunication campaigns (Srisuwan and Barnes, 2008), have considered the onlinedomain as a valuable market to commercialise both their current products or servicesand their extensions. For instance, Apple sells mobile applications and music on theinternet through its iTunes shop (Bravo et al., 2010). For offline brands, the expansioninto the online market increases the brand value for consumers by providingadditional availability and exposure through the internet (Rubinstein and Griffiths,2001). On the other hand, some online businesses, such as Google, Amazon, Yahooand eBay, have extended their brands within the Internet limits, becoming some of thetop 100 global brands according to the Interbrand report (Interbrand, 2010). Amazon,for instance, started to sell electronic goods and music online in addition to books.It isalso possible to extend online brands to offline markets. Following this trend, Google 2
  10. 10. has launched a new mobile phone which uses Google´s mobile operation system,Android. Besides, Amazon has extended its name to a new device, Amazon Kindle,which enables consumers to read eBooks, newspapers and magazines through anInternet connection. Therefore, offline markets enable Internet brands to enhancebrand awareness by making them more tangible for consumers, which may createstronger trust and consequently higher brand loyalty (Yoo and Donthu, 2001; Delgadoand Hernández, 2008). Furthermore, the adaptation of online brands´ competences(communication, customer service, IT) to the commercialisation of offline productsand the absence of some of the costs originally attributed to brick and mortarcompanies such as, costs linked to the establishment of stores, turn offline productinto attractive markets where online brands can be extended. Hence, it would beinteresting to investigate how online brands can leverage brand equity to new offlineproducts.1.2 Problem Statement. Customer evaluation of brand extensions plays a vital role in the success orfail of new products launched into the markets (Klink and Smith, 2001). Numerousacademic studies have contributed to determinate the factors that shape customerattitudes towards the extension. However, there is a lack of agreement regarding thevalidity of these factors across sectors, brands and product categories. This studyinvestigates the applicability of the aforementioned factors in the context of onlinebrands that launch their products into offline markets. In other words, the studyattempts to answer the following statement: Can online brands be extended to offline products? Additionally, the purpose of this research is to: (1) determine the feasibility offactors proposed by previous research within the context of online brands, (2) assessthe significance of the variables within the brand equity construct (Aaker, 1996) inpredicting consumer attitude towards extensions, (3) examine whether antecedentsfrom brand extension theory can be combined with those related to online brandmanagement in order to build a valid model to predict consumer acceptance of brandextensions in the research context; and (4) establish managerial recommendations 3
  11. 11. based on the research´s findings that may help online brand managers to developstrategies oriented to enhance the acceptance of brand extensions.1.3 Contributions 1.3.1 Theoretical Contributions Extensive research on brand extension has added a considerable number ofpotential determinants of brand extension success without achieving generallyaccepted conclusions (Czellar, 2003; Völckner and Sattler, 2007). Indeed,approximately 15 explicative factors of brand extension success have been found tobe significantly relevant in at least one empirical study (Völckner and Sattler, 2006).However, the majority of these studies are focused on a limited number of variablesand they do not consider possible relationships among determinants (Buil et al.,2008b). The current study includes the determinants that have been mostly accepted byscholars within a unique model with the objective of assessing the validity of thesefactors when they are applied to a different scope (online brands). In other words, thestudy will examine whether current research is extra-sectoral and thus, brand equitycan be leveraged beyond the online limits towards offline products. Besides the above mentioned replication, the study contributes to the existingtheory on brand extension by measuring the similarities between the parent brand andthe extension as a multidimensional construct. Along with the product categorydimension suggested by Aaker and Keller, (1990), the proposed model includes theperceive similarity between the new extension and brand image (Park et al., 1991). On the other hand, an additional contribution of this study is the incorporationof brand equity variables such as brand loyalty (Yoo and Donthu, 2001), brandknowledge (Dawar, 1996) and brand associations (Aaker, 1996) as determinantsfactors of the success of brand extensions. Specially, brand associations areintroduced within the model according to the differentiation made by Aaker, (1996)who distinguished three types of associations: brand-as-product (value associations),brand-as-person (brand personality) and brand-as-organisation (organisationalassociations). This study also contributes to extend the current research on online brandextensions (van Riel and Ouwersloot, 2005) by incorporating new factors, relative to 4
  12. 12. consumer characteristics such as innovativeness and involvement with the extension,to the explanatory model of brand extension evaluations. Finally, the theoretical findings of this study contribute and complement thecurrent understanding within the online branding theory. 1.3.2 Practical Contributions This study may help managers identify and monitor the factors that stimulatethe acceptance of offline products launched under online brand names as well as todetect harmful factors to the parent brand image. Moreover, the findings of thisresearch may determine whether the explicative factors affect in the same manner todifferent kinds of online brands which have a virtual origin (e-portals and e-tailers)and thus, brand extension strategies for each of these types of online brands should beadapted accordingly.1.4 Thesis Outline The thesis is structured as follows: the first part reviews the existing literatureon brand extension concepts and antecedents as well as the studies that haveconsidered brand extensions in the context of online brands. Thereafter, the secondpart introduces a conceptual framework and, establishes a set of hypotheses based onthe theories provided in the preceding chapters and presents the hypothesizedtheoretical model applied to online companies. This is followed by a research designsection where the applied methodology is described. The third part presents theresearch findings, where the proposed hypotheses and model are tested by analysingand interpreting the empirical data. Finally, the last section is related to theconclusions and provides a summary of the main findings, obtained conclusions,theoretical and managerial implications, as well as, limitations and directions forfuture research. 5
  13. 13. CHAPTER 2.BRAND EXTENSIONS2.1 Introduction Brand extensions represent an important growth strategy for companies facinga fierce competence within the marketplace. The use of an already existing brandwhen launching new products into the market increases the likelihood of successbecause consumers perceive a lower risk in their purchasing process (Montgomeryand Wernerfelt, 1992) and transfer positive consumer associations to the new product(Aaker and Keller, 1990). Therefore, the way in which consumers evaluate the newextensions and the determinants involved in this process will determine the success orfail of brand extensions and, consequently, the image of the parent brand may bereinforced or harmed (Keller, 2003) In order to investigate how consumers evaluate brand extensions, scholarshave proposed numerous explicative factors of consumers´ attitude towards the newproducts and they have applied them to different types of products, companies andmarkets. Following this idea, this chapter reviews the existing literature regardingconsumer evaluation of brand extensions. The chapter begins with a conceptualisationof the different strategies in which a company can make use of its band in order tolaunch new products. Afterwards, the psychological processes involved in consumers´evaluations of new products are described. Thirdly, a review of the main explicativefactors of brand extensions evaluation is provided along with the limitations on brandextension research. Finally, the chapter concludes with a review of the studies thathave been applied to the context of online companies in which this research worktakes place.2.2 Conceptualisation. Intense competition forces companies to adopt strategies that allow them toremain in the market while taking advantage of the opportunities of growth that arepresent across sectors. Tauber (1981) categorised the opportunities of growth for afirm by using two dimensions: product category and firm´s brand name as shown inthe matrix in Figure 1. 6
  14. 14. FIGURE 2.1: Tauber´s growth matrix New Existing New New product Flanker brand Brand name Existing Franchise extension Line extension Product categorySource: Tauber, (1981) Tauber made a difference between four possible strategies that utilise a new orexisting brand name in order to commercialise products within a new or existingproduct category for the company (new product, flanker brand, franchise extensionand line extension). Regarding the strategies where the company adopts an existingbrand name to take advantage of market opportunities by leveraging the benefitslinked with the brand such as customer awareness, goodwill and impressionsconveyed by its brand name, Tauber identified two ways to extent an existing brand,termed as line extension and franchise extension. Whereas line extension representsnew sizes, flavours, and the like where items use an existing brand name in a firm´spresent category, franchise extensions refers to taking a brand name familiar to theconsumer and apply it to products that are in a new category to the parent brand.Following Tauber´s definition of extension strategies, scholars have also identifiedtwo extension strategies: line extensions and brand extensions. Keller and Aaker(1992) defined line extension as the fact of extending a current brand name into a newmarket segment in its product category. In contrast, Brand extensions are those thatuse a current brand name to enter a completely different product class or category(Aaker and Keller, 1990). According to Ambler and Styles (1997) the definition ofbrand extension proposed by Aaker and Keller (1990) acknowledges to the Tauber´sconcept of franchise extension. The different attempts to define brand extension by academics shownoticeable variations in the literature. Kotler (1991) defined brand extensions using aholistic approach as “any effort to extend a successful brand name to launch new ormodified products or lines”. On the other hand, Choi (1998) supported that brandextensions are explained as the use of an existing brand name in a category to 7
  15. 15. introduce products in a totally different category. A more general definition of brandextension was given by Keller (2003, p. 577) who held that “a brand extension iswhen a firm uses an established brand name to introduce a new product”. Extension strategies have not only been classified according to differences inproduct category but also regarding quality of the extension and similarity amongcategories. In this line, Randall et al. (1998) distinguished between horizontal andvertical brand extensions. The former is regarded as dissimilar brand extensionswhich apply an available brand name to enter a new product category. Vertical brandextensions involve products with similar or modified features within the same productcategory, although at a different price or quality level (Reddy et al., 1994). Therefore,according to Buil et al. (2008b) the definition of vertical brand extension addsdifferences in quality and price to the definitions of line extension proposed by Tauber(1981) and Keller and Aaker (1992), but represent the same concept. The differences in quality and price within vertical brand extensions can becategorized in upscale and downscale brand extensions (Pitta and Katsanis, 1995).The first one is related to extension with higher quality and price than the parent brandproducts. On the other hand, downscale extensions involve products in the samecategory of the parent brand products but at a lower price and quality. The category ofvertical extension, upscale or downscale, depends on the type of product offered bythe company. Whereas downscale vertical extensions allow consumers try and learnabout the new functional product based on brand awareness and parent brandcompany prestige (Xie, 2008), upscale extensions are more effective for luxuryproducts where consumers are more likely to transfer perceptions about quality andconsequently high price to the new products (Pitta and Katsanis, 1995) All these definitions agree with the fact that an existing or established brandcan be used as ways of commercialising products which are, in certain degree, new tothe firm. Nevertheless, the degree to which scholars define the product category hascaused that the terms of brand and line extensions are used interchangeably dependingon how broad the product category is defined (Ambler and Styles, 1997). Forexample, Sony´s range of mobile phones could not be considered as brand extensionif Sony´s product category was defined more broadly as “consumer electronics” andthus mobile phones would represent a line extension in this case (Ambler and Styles,1997). Regardless, the existence of variations in defining brand extension, researchers 8
  16. 16. (Volckner and Sattler, 2007) have mostly adopted the definition proposed by Aakerand Keller (1990) who defined brand extension as: “Brand Extensions involve the use of an established brand name to enter anew product category” However, whether the existing brand name is used to a new or existingproduct category; the company pursues the objective of transferring positiveconsumers´ associations towards the brand to the new products (Aaker and Keller,1990) and thus, the psychological processes by which customers assign certainproducts to one category rather than another (Kapferer, 1997), create impressions ofbrand extensions as well as of the factors involved in these processes, which willdeterminate whether a brand can be successfully extended to a given category (Klinkand Smith, 2001).2.3 Psychological Processes Involved in Brand ExtensionEvaluations Consumers play a significant role within brand extension strategy becausetheir judgements regarding the new extensions will be one of the principaldeterminants of successful brand extensions (Klink and Smith, 2001). Therefore,understanding how consumers evaluate brand extensions and the subjacentpsychological processes involved is crucial in order to elaborate and implementefficient branding strategies for new products. Two main psychological processes have been used in order to explain howconsumers evaluate the new products: categorical and piecemeal evaluation process.The former suggests that individuals evaluate the new instances by comparing themwith previous acquired information stored in form of categorical structures withinmemory (Fiske, 1982). In contrast, “piecemeal” information processes (Fiske, 1982),“analytical” (Cohen, 1982) or “computational” (Brooks, 1978) stated that evaluationsof a new instance are based on its specific attributes rather than on initial beliefs(Bristol, 1996). Related to the evaluation of brand extensions, Boush and Loken (1991)maintained that a categorical evaluation process is developed when the brandextension is perceived by consumers as belonging to an already existing category(brand). Therefore, beliefs and attitudes associated with the parent brand are 9
  17. 17. transferred to the new product (Romeo, 1991). However, if consumers do notidentified congruence with the mental category associated to the brand, a piecemealprocess is activated in which consumers evaluate the new product by makinginferences over the extension individual attributes (Fiske and Pavelchack, 1986).Thus, both theories are not exclusive and result on a two-stage process where brandextensions are evaluated according to previous affect associations towards the brandin the first place and a second stage where consumers elicit an analytical evaluation ofthe extension (Fiske and Pavelchack, 1986).2.4 Consumer Evaluations of Brand Extensions Ever since the first relevant article on customer evaluations of brandextensions was published by Boush et al. (1987), researchers have focused theirresearches on investigating the antecedents, processes, and consequences of brandextension evaluation (Hem et al. 2003), as well as achieving a generalisation of thesefactors across product categories and parent brands (Volckner and Sattler, 2007;Czellar, 2003). Boush et al. (1987) identified perceived similarity and parent brand reputationas explicative factors of positive customer evaluations of extensions. They concludedthat similarities between product categories, original product and extension, enablethe transfer of positive affection to the new product. On the other hand, the studysuggested that a brand´s good reputation in one product area cannot be transferred inthe same way to a dissimilar product category, since it would produce negativeevaluations from consumers. Following the research line supported by Boush et al., (1987), Aaker andKeller´s (1990) seminal article assessed not only the role of similarity betweenoriginal and extension product classes but also proposed that customers´ qualityperceptions about the parent brand and the difficulty of producing the extensiondetermined the consumer acceptance of brand extensions. Despite of the fact thisarticle stated the base of subsequent research on brand extensions and it has beenapplied to different contexts such as services (Hem et al. 2003) or online extensions(van Riel and Ouwersloot, 2005), replications have emerged about the validity andgeneralisation of its conclusions (e.g., Broniarczyk and Alba, 1994; Bottomley andDoyle, 1996; Bottomley and Holoden, 2001). Moreover, additional factors such as 10
  18. 18. consumer innovativeness (Klink and Smith, 2001), familiarity (Dawar et al., 1996) or marketing support (Reddy et al. 1994) were subsequently tested in brand extension literature with mixed conclusions. These factors can be classified, as shown in Table 1, in four groups: (1) parent brand characteristics, (2) perceived similarity, (3) the extension´s marketing context (Völckner and Sattler, 2006), and (4) consumer characteristics (Czellar, 2003).TABLE 2.1: Main factors of brand extension evaluationFactors related to the parent brandFactor Consumers evaluate positively the extension if… Source Bottomley and Holden, (2001);Perceived quality The perceived quality of the parent brand is high Gronhaug et al., (2002) Park et al., (1991); Hem et al., They transfer positive brand associations to theBrand associations (2003); De Ruyter and Wetzels, extension (2000) Hem et al, (2003), Buil and Pina,Brand Loyalty They are loyal to the parent brand (2008)Familiarity The familiarity with the parent brand is high Swaminathan, (2003)SimilarityProduct category similarity There is congruence between product categories Aaker and Keller, (1990)Brand concept consistency Parent brand and extension share the same image Park et al., (1991)The extension´s marketing contextMarketing support The extension receives appropriate marketing support Reddy et al.,(1994)Advertising The extension is well supported in terms of advertising Völckner and Sattler, (2006)Consumer characteristics Klink and Smith, (2001); Hem et al.,Innovativeness They are highly innovative (early adopters) (2003) They have a high motivation for purchasing theMotivation Gürhan-Canli and Maheswaran, (1998) extension There is an involvement in the brand extension Hansen and Hem, (2004); SteenkampInvolvement category and Baumgartner, (1992). 11
  19. 19. 2.4.1 Similarity One of the most important contributions of Aaker and Keller´s (1990) studywas the role of similarity in consumer attitude towards brand extensions. Aaker andKeller (1990) included three dimensions of similarity: complementarity, substitutionand transfer. Whereas the two first concepts allude to how consumers view twoproducts classes as complement or substitutes respectively, transfer shows howconsumers evaluate whether the skills, competences and resources owned by theparent brand can be employed in producing the extension. The authors concluded thatonly the transfer dimension presented a direct association with attitude towards theextension. Boush and Loken (1991) defined similarity by evaluating how typical brandextensions are for consumers in terms of product features shared by the brand´scurrent products and the extension. Whereas typical or atypical extensions areevaluated by categorisation, moderately typical extensions are likely to be assessedthrough piecemeal process. Furthermore, they suggested that the direct relationshipbetween similarity and consumer evaluations of brand extensions can also producenegative effects to the parent brand, in the case of atypical brand extensions. Unlike the aforementioned studies that explain similarity by using a product-category approach, Park et al. (1991) suggested that extensions are more favourablyevaluated when they are consistent to the consumers´ brand-concept associations suchas reliability or status. Consequently, they concluded that similarity is explained bytwo factors, product feature similarity and brand-concept consistency. The importanceof brand concept consistence has been supported by subsequent studies (Broniarczykand Alba, 1994; Volcker and Sattler, 2006; Hem and Iversen 2009) In this line, Broniarczyk and Alba (1994) indicated the existence of specificbrand associations (e.g., friendliness or reliability) that moderate the influence ofproduct category similarity in extension evaluations because of the fact that theseassociations are strong, so they enable a brand to extend to dissimilar productcategories. Thus, the existence of a high degree of congruence between the consumerbrand specific associations and extension product concept has positive effects onconsumer appraisal. (Czellar, 2003) Regardless of the fact that positive outcomes of similarity have beenrecognised, scholars have found moderating conditions which affect similarity when it 12
  20. 20. comes to explaining consumers´ attitude towards the extensions. Smith and Park(1992) considered that when a greater amount of product related information isavailable, consumers do not use similarity between the brand and the extensioncategories as a major cue in their evaluations and, hence, more analytical evaluationprocesses take place. Supporting these findings, Klink and Smith, (2001) argued thatthe limited extension attribute information provided in prior research has provoked anoverestimation of similarity as evaluation factor. Most recent studies have included other moderating variables of similaritysuch as the number of products associated with the brand (Del Vecchio, 2000), theexposure to the extension (Klink and Smith, 2001); and the price and perceivedquality of the extension (Taylor and Bearden, 2002). Despite of the aforementionedmoderating variables, there is an agreement among academics regarding theimportance of similarity on brand extension evaluation (Völckner and Sattler, 2006). 2.4.2 Characteristics of the parent brand The research on factors related to the parent brand has principally focused ondifferent elements of the brand equity construct (Aaker, 1996) such as perceivequality, brand familiarity, brand associations and brand loyalty. In Aaker and Keller´s,(1990) study, perceived quality of the parent brand did not present any positive directeffect on brand extension evaluation. Nevertheless, further empirical research(Bottomley and Holden, 2001; Gronhaug et al., 2002) demonstrated a positiverelationship between perceived quality and brand extension success. Supporting thesefinding, Rao et al., (1999) suggested that quality perceptions of parent brands aretransferred to new products. In a recent article, Völckner et al., (2010) went evenfurther by stating that perceived quality is the principal driver of brand extensionssuccess rather than similarity in the case of services. On the other hand, brandfamiliarity has proved to have a positive direct effect on brand extension evaluationbecause consumers are more inclined to buy products of brands they have previouslyconsumed (Swaminathan, 2003). Dawar, (1996) studied familiarity in relation toperceived fit and found contrasting results depending on the different associationsbetween the extension and the brand. Brand associations represent another importantfeature of the parent brand. These associations have been investigated in terms ofperceptions of credibility (De Ruyter and Wetzels, 2000), reputation (Hem et al., 13
  21. 21. 2003), prestige (Park et al., 1991) and the consumers’ affection for the brand (Sheininand Schmitt, 1994). Regardless of the fact that brand associations have proved toproduce positive effect on quality, similarity and, consequently, attitude towards theextension (Martinez and Pina, 2005); there is a lack of agreement in the way in whichthey are measured. Finally, brand loyalty has been incorporated by recent studies(Hem and Iversen, 2003, Build and Pina, 2008) as an important driver of brandextension success. However, the implications of brand loyalty in brand extensionevaluation have not been replicated and tested in different contexts. 2.4.3 The extension´s marketing context A third group of brand extension factors has emerged in order to explain themarketing context in which extensions are developed. Therefore, scholars haveproposed variables such as the marketing support of the brand towards the newproducts and the role of advertising in brand extension evaluation. Reddy et al.,(1994) studied the effects of marketing competences and advertising support on brandextension evaluations. The author concluded that extensions which receive greatermarketing support in terms of advertising and promotional effort are more favourablyevaluated by consumers. However, this relationship was studied regarding lineextensions rather than brand extension. In order to test these findings, Völckner andSattler, (2006) applied Reddy et al´s, (1994) measures of marketing support to thecontext of fast moving consumer goods, supporting the positive effect of marketingsupport on consumers´ attitude towards extensions . 2.4.4 Consumer characteristics Certain consumer characteristics such as innovativeness, motivation orinvolvement with the extension category, have been introduced within the explicativefactors of consumer attitude towards brand extensions. Klink and Smith, (2001)suggested that highly innovative consumers (early adopters) perceive a lower riskfrom the new products and consequently, they do not base their evaluations onsimilarity. Hem et al., (2003) demonstrated a direct relationship betweeninnovativeness and consumer acceptance of brand extensions and suggested that thisis even stronger in the case of service brand extensions. A second factor is theconsumers´ motivation towards the extension. Gürhan-Canli and Maheswaran, (1998) 14
  22. 22. found that whereas highly motivated consumers tend to evaluate the new products in apiecemeal manner, under low motivation conditions, consumers are more likely totransfer affect and prior beliefs from the parent brand to the new extension. On theother hand, consumer´s involvement with the extension product category has beenfound to increase the purchase intention of brand extensions (Hansen and Hem, 2004).In this way, highly involved consumers tend to be less risk averse than otherconsumers and therefore, they are believed to evaluate extensions more positively(Steenkamp and Baumgartner, 1992). The review of brand extension factors presented above only explains thosefactors that have been proved to be significantly relevant, as they are significant in atleast one empirical study, following the line proposed by Völckner and Sattler,(2006). However, literature on brand extension has not achieved a generalisationwhich is applicable across sectors, brands and extensions. In addition, it still presentsa series of limitations which have prevented scholars from elaborating an explanatoryempirical model of consumer evaluation of brand extensions. These limitations areoutlined in the following section. 2.4.5 Limitations of the current research on brand extensions According to the previous review of the drivers of brand extension success, thelimitations of the current research on brand extension are explained by: (1) the use ofhypothetical brand extensions rather than real extensions already introduced in themarket, (2) the scarce number of studies dedicated to obtain general conclusions(Völcker and Sattler, 2007) and (3) lack of studies in the online context. There is a preponderance of studies that have evaluated consumer attitudetowards brand extensions by making use of hypothetical brand extensions associatedto real brands (Aaker and Keller, 1990; Bottomley and Holden, 2001; Broniarczykand Alba, 1994). These extensions do not provide additional information from themarketplace as it is the case of extensions already introduced into the markets. Asmentioned, Klink and Smith, (1992) suggested that additional product informationmoderates the significance of perceived quality and similarity. Nevertheless, Völcknerand Sattler, (2007) argued that similarity and perceived quality are the two moresignificant drivers of both real and fictitious brand extensions. 15
  23. 23. According to Buil et al., (2008) the majority of explanatory models proposedby scholars are centred on a limited number of factors rather than seekinggeneralisation. Only three studies have been addressed to achieve general results(Klink and Smith, 2001; Bottomley and Holden, 2001; Völckner and Sattler, 2007).Whereas Klink and Smith, (2001) considered that the positive effects of perceivedsimilarity were generally applicable across brands and extensions, Bottomley andHolden, (2001) suggested that, along with similarity, perceived quality and thedifficulty of producing the extension (Aaker and Keller, 1990) were common factorsof consumers´ evaluations of brand extensions. However, the pointed out that culturaldifferences may affect the intensity of these variables. Finally, Völckner and Sattler´s,(2007) findings reinforced the empirical generalizability of similarity and perceivedquality across product categories, parent brands, samples, success measures and bothreal and hypothetical extensions. Notwithstanding, these generalizations did not testother significant determinants of brand extension success (e.g., brand loyalty) and arefocused on fast moving consumer goods extensions and offline brands withoutmaking any consideration for online brands and extensions. Numerous empirical studies have been conducted in order to establish thepredictive factors of consumer attitude towards extensions in the cases of fast movingconsumer goods, durable goods and services within an offline context (Aaker andKeller, 1990; Martínez and De Chernatony, 2004; Völckner and Sattler, 2006;Martinez et al. 2008; Salinas and Perez 2009). However, scholars have not dedicatedmuch research to the study of the effects of these factors on online brands whichstretch their products or services (van Riel and Ouwersloot, 2005). The followingsection is dedicated to review the brand extension research in the case of onlinecompanies.2.5 Brand Extensions of Online Brands As mentioned, to the date, only a limited number of studies have investigatedthe explicative factors of brand extension success in the online context. Van Riel andOuwersloot, (2005) introduced the first study on brand extension applied to onlineservices. They categorised online services in four groups depending on the origin ofthe company (online or physical) and the type of product that provide (tangible goods 16
  24. 24. and traditional services or virtual products). These four types of online companies areshown in Figure 2. FIGURE 2.2: e-service portals grid ORIGIN Virtual Physical E-portals (Click & bits) Company portals (Bricks & bits) Virtual  Google  MSNPRODUCT  Yahoo  CNN E-tailers (Click & mortar) E-sellers (Bricks & mortar) Physical  Amazon  EasyJet  DellSource: van Riel and Ouwersloot, (2005) Van Riel and Ouwersloot, (2005) tested the model proposed by Aaker andKeller, (1990) for each of the aforementioned types of e-service providers, mentionedin the grid. They found that the variables of similarity, perceived quality and difficultyof producing the extension help explain consumer attitude towards online servicesextensions. Therefore, they concluded that consumers perceive online extensions in asimilar way to other product categories. Despite these affirmations, the authorsmaintained that online services are subject to a more complex evaluation mechanismthan offline goods or services. Moreover, the research presented the limitation ofconsidering only factors previously proposed by Aaker and Keller, (1990) neglectingother important determinants of brand extension success such as brand image,consumers innovativeness or involvement in the extension. Following the line of van Riel and Ouwersloot, (2005), Song et al., (2010)proposed an explanatory model of brand extensions success in the online context. Inaddition to perceived quality and fit between the parent brand and the extension, theynoted that the existence of hyperlinks in the online environment enables interactionsbetween different online products and fosters the perceived tie between the currentproducts and the extension. For example, Google search engine provides access toother services such as Google Earth, Google News or Gmail with one click.Therefore, Song et al., (2010) suggested perceived tie as a significant factor of onlinebrand extension evaluation. The two aforementioned studies were only focused on 17
  25. 25. extensions launched by online brands within the Internet limits. However, they did notconsider potential offline extensions. Bravo et al., (2010) covered this research gap by examining potential offlineextensions of online brands. In their study, they incorporated, along with perceived fit,brand image variables such as emotional, commitment or functional associations inorder to explain consumers´ evaluation of offline extensions. Their findings regardingsimilarity or fit are in line with the previous research (van Riel and Ouwersloot,2005), considering similarity as a key determinant of brand extensions. Moreover,they found that whereas emotional and commitment associations with the parentbrand are more likely to be transferred in the case of internet brands, more functionalassociations (e.g., perceived quality) are transferred from offline companies to brandextensions. Even though these findings contributed significantly to the currentresearch the authors recognised that this study did not test the moderating effects ofconsumer characteristics. Therefore, they recommended further research in order tobuild an updated model in the online context.2.6 Summary Consumer evaluation of brand extension is explained by means of twopsychological processes: a categorical evaluation process and a piecemeal oranalytical process. In the first one, consumer previous beliefs are transferred to thenew product. The analytical process is based on product attributes rather thanmemories in order to evaluate the new product. In addition to these psychologicalprocesses, scholars have identified a series of factors which explain consumer attitudetowards extensions. These factors have been classified in: factors of similarity,consumer characteristics, factor related to the parent brand and factors related to theextension´s marketing context. The current research shows an agreement regarding the generalizability of twoexplicative factors: similarity and perceived quality of the parent brand. However,scholars have proposed a broad variety of additional factors which call for furtherresearch in order to prove their significance as predictors of attitude towardsextensions across sectors and extensions. On the other hand, the literature reviewrevealed that scarce brand extension research has been addressed to the onlineenvironment and these research efforts have only considered a limited number of 18
  26. 26. factors. Therefore, the following chapters of this study are oriented to build and testan empirical model applied to online brands which bridges these research gaps withthe aim of contributing to a better knowledge of brand extension evaluations. 19
  27. 27. CHAPTER 3. HYPOTHESES3.1 Introduction Chapter 2 has reviewed the most relevant studies in the field of brandextension. It has also suggested the existence of a series of limitations in brandextension research such as the utilisation of a reduced number of factors inconsecutive research and the scarce investigation in the field of online companies,specifically in those online companies that utilise a brand extension strategy in orderto stretch their brands away from the internet world. In addition to address these research gaps in the literature, this chaptercontributes to fulfil the research objectives of contrasting the conclusions obtained byscholars regarding the implication of the explicative factors of consumer evaluationsof brand extensions in the area of online companies and particularly when extensionsare produced in an offline context, and examining whether antecedents from brandextension theory can be combined with those related to brand equity and online brandmanagement in order to build a valid model to predict consumer acceptance of brandextensions. In order to do so, hypotheses based on previous research in brandextension and online brand management are proposed by selecting those factors thathave generated major research and acceptance among scholars but have never beeninvestigated simultaneously in the context of online companies. Finally, the chapter concludes by describing the hypothesized model, based onthe formulated hypotheses, in which the overall attitude toward the extensionperforms as the dependent variable that is explained by the effects either positive ornegative of the independent variables or explicative factors included in the model.3.2 Brand Equity variables Brand equity has been the subject of increased interest in marketing in recentyears. The current research has identified benefits from achieving high brand equitysuch as consumer preference and purchase intention (Cobb-Walgren et al., 1995);consumer perceptions of quality (Dodds, Monroe and Grewal 1991) and consumerevaluations of brand extensions (Aaker and Keller 1990; Bottomley and Doyle 1996).Even though scholars agree on the positive effects of strong brands that have highbrand equity, the conceptualisation of the brand equity construct lacks of a general 20
  28. 28. agreement that has provoked that numerous definitions and dimensions arise from theliterature (Christodoulides et al., 2006) Brand equity can be measured either from a consume level or a firm level.Whereas the firm-based brand equity is defined in terms of the financial market valueof a company and the cash flows generated from a product as a consequence of havinga brand name (Simon and Sullivan 1990), the consumer-based approach measuresbrand equity in terms of consumer behaviour which can be object of actionable brandstrategies (Keller 1993). Brand equity from a consumer perspective has been defined by two mainframeworks. On the one hand, Keller (1993) defined brand equity as “the differentialeffect of brand knowledge on consumer response to the marketing of the brand.”Therefore, he considered brand knowledge as the main determinant of brand equityand measured it in terms of two components, brand awareness and brand image. Onthe other hand, Aaker (1996) defined the concept of brand equity as “a set of assetsand liabilities linked to a brand, its name and symbol that adds to or subtracts fromthe value provided by its product or service to a firm and/or to that firm’s customers”and identified five dimensions of brand equity: brand awareness, perceived quality,brand associations, brand loyalty and proprietary brand. Although this last dimension,proprietary brand assets, is normally omitted in brand equity research since it is notdirectly related to consumers (Buil et al., 2008a) Both Keller´s and Aaker´s definitions of brand equity have been applied to thecontext of online companies. Page and Lepkowska-White, (2002) adopted Keller´sdefinition and stated that web equity (brand equity) for online companies can be madesimilar to offline companies´ brand equity by enhancing brand awareness and brandImage. They also suggested that Aaker´s dimension of brand loyalty was an outcomerather than a determinant to create high brand equity. In contrast, Rios and Riquelme(2008) used the conceptual framework from Aaker (1996) and considered brandLoyalty as an important source of online brand equity. Recent studies have introduced Aaker´s (1996) brand equity variables with theaim of evaluating consumer attitude towards brand extensions (Lassar et al. 1995; DeChernatony et al., 2004; Pappu et al., 2005; Buil et al. 2008b), However, these studieshave investigated a small group of these dimensions rather than them as if they were aunique construct in which the relationships between dimensions can be tested in orderto predict attitudes towards the extensions. 21
  29. 29. The following sections develop the conceptual framework supported by Aaker(1996) in the context of online companies by establishing the hypothesescorresponding to the dimensions of brand awareness, perceived quality, brandassociations and brand loyalty. 3.2.1 Brand knowledge Aaker (1996) defined brand awareness as the salience of the brand in thecustomers´ mind and identified six levels of awareness: recognition, recall, top-of-mind, brand dominance, brand knowledge and brand opinion. The brand extensionresearch has focused its attention on brand knowledge in order to explain extensionevaluations. According to Aaker (1996), the concept of consumer brand knowledge isconcerned with the consumer awareness of what the brand stands for. Brucks (1985)identified three types of consumer knowledge, named subjective knowledge, objectiveknowledge and usage experience. Whereas subjective knowledge refers to whatcustomers believe they know about the brand, objective knowledge is related to whatis actually stored in consumer’s memory. The third type of knowledge, usageexperience, is related to the purchased amount or experience with the brand. Brucksalso stated that objective and experience-based measures are less directly linked topurchase behaviour than subjective knowledge measures and therefore customerbehaviour research has mostly utilised subjective consumer knowledge to measurebrand knowledge. Subjective knowledge has been applied within the brand extension domain todifferent variables (original product category, parent brand and extension category)with mixed results. Keller and Aaker (1992) examined the effects of high subjectiveknowledge about the original product category without finding any directrelationships with the way in which customers evaluate extensions. However, theyconcluded that a high perceived knowledge of the extension product category presentspositive effects on extensions assessments. In contrast, Smith and Park (1992)supported that if the knowledge of the extension category is low, consumers evaluateextensions more favourably. On the other hand, studies that researched the subjectiveknowledge or familiarity with the parent brand (Herr et al., 1996; Dawar, 1996) foundpositive effects on consumer attitude toward extensions. Finally, in a most recentstudy, Hem and Iversen (2009) discovered that a high subjective knowledge about the 22
  30. 30. current product category of the parent brand correlates negatively to consumerevaluations, while knowledge about the parent brand and extensions favours howextensions are assessed. Hem and Iversen (2009) suggested that the conflicting resultsregarding brand knowledge are produced by the use of fictitious parent brand in theresearch (Keller and Aaker, 1992), the limited number of parent brands involved inthe studies (Dawar, 1996) and the diverse number of products associated with theparents brands. In the case of online companies which offer offline products, the role ofsubjective knowledge has not been investigated and therefore, in order to replicate theaforementioned conclusions, this research proposes the following hypothesis: H1. A high consumer subjective knowledge of the online brand, originalproduct category and offline extension category has positive effects on the extensionevaluation. 3.2.2 Perceived Quality According to Zeithaml (1988), Perceive quality designates a global assessmentof a consumer´s judgement about the superiority or excellence of a product. Theperceived quality construct has been included in diverse brand extension articles.Aaker and Keller (1990) suggested that when consumers have a high overallperception about the quality of the brand, the extension should be assessed morepositively than when they infer a low overall quality. Nevertheless, they found thatquality only affected the attitude towards the extension favourably when it wasaccompanied by a high degree of similarity. In contrast, Bottomley and Holden,(2001) concluded that there is a direct relationship between the quality of the parentbrand per se and consumer evaluations of the brand extension. Subsequent studieshave supported the positive effects of quality on consumers´ attitudes towardsextensions (van Riel et al., 2001), suggesting that if the brand is associated with a highlevel of quality, this perception is transferred to the extension products. However, ifthere is a perceived low quality of the parent brand, the extension is harmed as aresult. Völckner et al., (2010) measured the implications of parent brand quality inservice brand extension evaluation by distinguishing three different dimensions ofquality: outcome quality, interaction with service employee quality and psychical 23
  31. 31. environment quality. They concluded that, in the case of extensions from servicebrands, quality represented the most significant factor of consumer evaluation ratherthan perceived fit or similarity. The implications of perceived quality have been testedin numerous contexts (Völckner and Sattler, 2006). For online brands, Danaher et al.,(2003) suggested that consumers base their quality inferences on the brand namerather than in more tangible product attributes due to the fact that products acquiredonline cannot be usually assessed prior to purchase. Therefore, only the dimensionsuggested by Völckner et al., (2010) regarding outcome quality is applicable to onlinebrands. Finally, van Riel and Ouwersloot, (2005), in their pioneer study about onlinebrand extensions, suggested that the quality of the parent brand helps explain positiveevaluations of extensions but its weight is relatively low compared to similarity.Hence: H.2 Higher quality perceptions toward the original online brand areassociated with more favourable attitudes toward the offline extension. 3.2.3 Brand Associations. Keller (1998) defines brand associations as “informational nodes linked to thebrand nodes in memory that contain the meaning of the brand for consumers”. Aaker,(1991, pp. 109-13) highlighted the importance of brand associations for bothmarketers and consumers. Consumers use their previous beliefs and attitudes towardsthe brand to help their purchase decision making process. On the other hand,marketers seek to differentiate the brand by creating positive attitudes and feelingtowards the brand. Brand associations have been considered as a multidimensional construct. Inthis line, Keller (1998) used the concept of brand image in order to explainconsumers´ perceptions about the brand. He suggested that brand image consists ofassociations of brand quality and attitude toward the brand. On the other hand, Aaker(1996) considered that brand associations can be categorised in value associations,organisational associations and brand personality. The first group of associations,value associations, is linked to functional benefits that the brand represents under theperspective of brand as a product. The value proposition is considered as amultidimensional concept (Anckar et al., 2002) which is formed by variables such asshopping convenience, customer service, broad product assortment and after sale- 24
  32. 32. care. The organisational associations represent the brand-as-organisation perspectiveand consider facts such as concern for customers, being innovative, being successful,having visibility, being oriented towards the community, providing trust and being aglobal player. Finally, brand personality follows the brand-as-person approach whichmight transfer emotional and self-expressive benefits to consumers as well as being abasis for customer/brand relationships and differentiation. 3.2.3.1 Value associationsIn previous brand extension research (Bravo et al., 2010); value associations have notbeen separated from the concept of perceived quality. However, Aaker (1996)suggested that value associations represent a different dimension from perceivedquality. Whereas perceived quality makes reference to a more overall constructrelated to a higher level of abstraction (Zeithaml, 1988), perceived value reflect morespecific functional benefits and practical utility of the brand. Therefore, Zeithaml(1988) defines brand value as the consumers overall assessment of the utility of aproduct based on perceptions of what is received and what is given. These specificfunctional benefits have been measured in terms of convenience, value for money,accuracy and quality of product information (Burke, 2002). In the case of online brands, functional benefits can be measured in terms ofonline experience (Christodoulides et al., 2006), value for money (Anckar et al.,2002), shopping convenience, product breadth, and compensation (Rios andRiquelme, 2008). According to Aaker (1996, p.81), value associations also add theprice component to perceived quality. In addition, (Burke, 2002) noted the importanceof price availability and price comparison as required characteristics in onlineshopping. Hence, hypothesis 3 is proposed as follows: H.3 The offline extension will be more positively evaluated, if consumersperceive brand value in the online business 3.2.3.2 Brand personality The brand-as-person approach is represented in the concept of brandpersonality. Aaker, (1997, p.347) defined bran personality as “a set of humancharacteristics associated with a brand”. In this line, Keller (1993) suggested thatbrand personality consists of symbolic values which shape and maintain consumers´ 25
  33. 33. social identity (Fiske, 1989). According to Aaker, (1996), brand personality providesself-expressive benefits to consumers. Thus, consumers can express their actual self,ideal self or social self through their relationships with the brand (Malhotra, 1988).Aaker (1997) also noticed that the formation of brand personality can be producedirectly or indirectly. Direct sources of brand personality are those related to thehuman characteristics of people associated with the brand such as customers, users,employees or managers. Indirect sources include decisions made by the company interms of marketing-mix variables such as advertising, promotion or brand symbol(Plummer, 1985). Freling and Forbes (2005) found that strong and positive brand personality haspositive effects on product evaluations. Moreover, Wang and Yang, (2008) suggestedthat brand personality also influences positively the consumers´ purchase intention. Inthe case of brand extensions, Czellar, (2003) suggested that consumers who give moreimportance to self-expressive associations with the parent brands are also more likelyto evaluate positively the new extensions. Hence: H.4 The offline extension will be more positively evaluated if consumersperceive a positive brand personality of the online brand. 3.2.3.3 Organisational associations Aaker (1996) identified a third category of brand associations which reflect thebrand as an organisation rather than as a product or a person. These organisationalassociations are related to consumer perceptions and attitudes of the brand in terms ofpeople, values and programs that lie behind the brand. In this line, Keller and Aaker,(1992) identified corporate credibility within these associations and noted itsimportance in consumer evaluation of new products. They distinguished threedimensions of credibility: expertise, trust and likability. Expertise refers to thecapability of the parent brand to produce or provide its products. Trust reflects theextent to which the brand is considered honest and sensitive to consumers´ needs.Finally, likability is the degree of interest and prestige that consumers perceive in theorganisation. On the other hand, Keller (1998) suggested that marketing campaignsaddressed to reinforce organisational associations such as innovativeness,environmental concern and community involvement favour brand extension 26
  34. 34. evaluations even in presence of product-specific advertisement. Therefore, thefollowing hypothesis is suggested: H.5 The offline extension will be more positively evaluated if consumersperceive positive organisational associations in the online brand. 3.2.4 Brand Loyalty As mentioned before, Aaker (1991; 1996) introduced the concept of brandloyalty within the brand equity construct. Aaker (1991, p. 39) defines brand loyalty as“the attachment that a customer has to a brand”. This attachment involves abehavioural and attitudinal component (Keller, 1993). The customer behaviour linkedto loyalty is measured in terms of repeat purchase, whilst the attitudinal componentreflects the positive disposition towards the brand, which includes a commitment interms of some unique values associated with the brand (Chaudhuri and Holbrook,2001). Depending on the level of commitment with the brand, Oliver, (1997)identified four stages in which loyalty moves: First, cognitive loyalty, where theconsumer makes a cost-benefit evaluation of the product and act in consequence.Second, an affective loyalty in which consumers create positive feelings towards theproduct as a result of satisfactory usage occasions. Then, a conative loyalty isdeveloped by means of repeated affective situations which generate a behaviouralintention of repurchasing the product. Finally, an action loyalty in which behaviouralintention turns into a routine and positive word-of-mouth behaviour. Therefore,Oliver´s phases suggest how loyalty is created from attitude to behaviour (Kabiraj,2010). In this way, customers who are loyal to the brand present an action loyalty,which benefits the brand in terms of reduced customer acquisition costs, increasedbase revenues, positive word-of-mouth, and the ability to impose price premiums(Edvardsson et al., 2000). Brand loyalty has also had a significant relevance in studies focused on theonline context. Srinivasan et al., (2002), defined e-loyalty as a customer’s favourableattitude toward the e-retailer that results in repeat buying behaviour. Clarke, (2001)highlighted the difficulty of earning and maintaining customer loyalty for Internetcompanies where the cost of switching between online services is extremely low, andthus online companies often face constant competition with numerous others 27
  35. 35. companies which are just one click away. In this line, van Riel and Ouwersloot,(2005) pointed that the lower heterogeneity among Internet services makes it moredifficult to create consumer loyalty. Regardless loyalty is more challenging for onlinecompanies, Srinivasan et al., (2002) coincided with previous offline brand loyaltystudies (Edvardsson et al., 2000) in the positive outcomes of online brand loyalty (e-loyalty): positive word-of-mouth and willingness to pay more for products or services.However, the majority of studies on online brand loyalty focus their research on e-retailers rather than other types of online companies such as e-portals in which there isnot a transactional component. The concept of brand loyalty has been scarcely studied in the context of brandextensions. Hem and Iversen, (2003) found that loyal behavioural intention towardsthe parent brand affects significantly the evaluation of brand extensions. Moreover,Buil and Pina, (2008) supported these findings by stating that grater consumer loyaltyincreases the probability of brand extension success. However, this relationship hasnot been investigated in the case of brand extensions from online companies.Therefore, the following hypothesis is proposed: H.6 Online brand loyalty has a positive effect on consumer attitudetowards the offline brand extension launched by online companies.3.3 Marketing Support As commented in chapter 2, the marketing support of brand extensions hasbeen found by previous literature as a crucial success factor (Klink and Smith, 1992;Reddy et al., 1994, Völckner and Sattler, 2006). Within these marketing activities,Sattler et al., (2010) studied the impact of advertising support and product availabilityin the distribution channel on consumers´ attitudes towards brand extensions. Theyconcluded that both advertising and product availability increase the probability of thenew extensions being purchased. In the case of online brands going offline,advertising and appropriate availability of the new offline product are necessary tocreate consumer awareness and perceptions of similarity on consumers´ minds.Hence: H.7 Offline brand extensions that received competent marketing supportfrom the online parent brand are more favourably evaluated by consumers. 28
  36. 36. 3.4 Perceived similarity As mentioned in chapter 2, perceived similarity has been found to be a majordeterminant of brand extension evaluations (Aaker and Keller, 1990; Volckner andSattler, 2006). According to Gierl and Huettl, (2011), the rationale behind the effectsof similarity on attitude towards extensions is explained by the application of thecategorisation theory (see chapter two, section 2.4.1.2) to the brand extension domain.In this line, consumers compare their knowledge category related to the parent brandto the characteristics presented by the extension product (Park et al., 1991) and, ifthere is a sufficient level of similarity, this information about the brand, stored inconsumers’ memories, is transferred to the extension product (Boush and Loken,1991). Therefore, consumers evaluate more favourably those extensions that present ahigh degree of similarity or fit with the parent brand (Aaker & Keller, 1990; Czellar2003; Hem et al. 2003; Völckner & Sattler 2006, Hem and Iversen, 2009). Thisoverall dimension of similarity leads to the following hypothesis: H8. The overall perceived similarity between the online parent brand andthe extension has a positive effect on consumer attitude toward the offline extension. The provided definition of similarity mentions the congruence between theparent brand and extension in general terms. However, scholars have identifieddifferent levels within the similarity construct. Park et al., (1991) suggested that thedegree of consistency between the brand concept or image and the extension product,along with the product category similarity (Aaker and Keller, 1990), form the overallsimilarity perception in consumers´ minds so that consumers can establish attribute-based (features, or benefits) and non-attribute-based (image, or context) associationsthat link the parent brand and the extension. 3.4.1 Product category similarity Product category similarity is the degree to which consumers perceive theextension as similar to other products affiliated with the brand in terms of the needsthey satisfy, situations in which they are used, physical features or component parts,and skills necessary to manufacture them (Smith and Park, 1992). 29
  37. 37. In the case of online brands going offline, the lack of practical examples mayproduce that consumers perceive a low overall degree of similarity between the brandand the extension, and thus consider offline extensions as incoherent with the imageof online brands (Bravo et al., 2010). However, product category fit can be explainedby the transference of competences or resources required to produce online productsto the new offline extensions. For example, the IT knowledge acquired by onlinebrands creating web applications may be applied to the development operatingsystems for electronic devices such as computers, mobile phones or GPS as Googledid by launching its operating system Android (Gandhewar and Sheikh, 2010).Moreover, the extensions to devices with connection to the internet enable thecomplementarity and adaptability between the parent brand original products (e.g.,search engines, web applications or ecommerce portals) and the new devices.Therefore, consumers may perceive these offline extensions as coherent with theonline parent brand. Hence: H8a. Offline brand extensions in to categories perceived as more similar tothe original product category of the online parent brand are more likely to beevaluated favourably by consumers. 3.4.2 Brand image Similarity Although a product class similarity may determine a positive attitude towardsthe extensions, the existence of successful brand extensions in dissimilar productcategories from those of the parent brand as for example, Tesco moving its brand intofinancial services (Alexander and Colgate, 2005), highlights the need to go beyondthe dimension of product category similarity (Hem and Iversen, 2009). Consumers also perceive similarity between the extension and the parentbrand image formed in their minds (Bhat and Reddy, 2001). This way, brand image ismade up of specific associations that set the brand apart from other competing brands.Park et al., (1991) suggested that whereas product features can vary from concretelevels to other more abstract ones, brand concepts are brand-unique abstract meaningsthat typically originate from a particular configuration of product features and a firmsefforts to create meanings from these arrangements. Hence, consumers evaluate the 30
  38. 38. extensions more positively when there is a match between these associations towardsthe brand and the new product (Broniarczyk and Alba, 1994). In the case of online companies, associations linked to the brand image mustbe coherent with perceptions of the new product in order to achieve consumeracceptance. For example, if users consider Google as an innovative brand thatincorporate the latest technology to their products, they will expect that both onlineand offline extensions share the same degree of innovativeness. Hence: H8b. The match between the specific image of the online brand and theextension product has a positive effect on the attitude towards the offline extension.3.5 Involvement in the extension product category The relevance of consumer involvement in consumer behaviour has beenexplained by its influence in consumers´ decision making and communicationbehaviour (Hansen and Hem, 2004). Involvement concerns to “a person’s perceivedrelevance of the object based on inherent needs, values, and interests” (Antil, 1984;Zaichkowsky, 1985). The concept of consumer involvement has been categorised byHouston and Rothschild, (1978) as a multidimensional construct. The authorsdifferentiated between three types of involvement: enduring, situational and response.Enduring involvement is related to the long-term attachment of a consumer to aspecific product category. This type of involvement is characterised as an extensiveinformation search, brand knowledge and, eventually brand loyalty. (Mittal, 1989)considered that consumers who became involved with a specific situation, generally apurchase decision, present a situational involvement. Finally, a response involvementrefers to a behavioural orientation characterised as information acquisition anddecision processes (Leavitt et al., 1981). The study of involvement in brand extension evaluation has been focused onthe first type of involvement (enduring) which was measured by two dimensions:consumers knowledge of the product class of the extension (Smith and Park, 1992)and the importance of purchase decisions in the extensions product category (Nijssenand Bucklin, 1998). Therefore, high consumer´s knowledge of the extension productclass reduces the perceived risk of purchasing the new product and fosters the positiveevaluation of the extension (Smith and Park, 1992). Hence: 31
  39. 39. H.9 High involved consumers in the extension category will positivelyevaluate the brand extension.3.6 Consumer innovativeness Rogers and Shoemaker, (1971, p. 27) defined consumer innovativeness as “thedegree to which an individual is relatively earlier in adopting an innovation thanother members of his system”. Roehrich, (2004) identified four explicative causes ofthis early adoption from consumers: (1) new products help satisfy consumers´ need ofstimulation, (2) consumers seek novelty in the new products in terms of information,adoption or use; (3) consumers make innovative decisions independently from thecommunicated experience of others (Midgley and Dowling, 1978), and (4) the need ofuniqueness which differentiates the consumer from others. Therefore, consumers whopresent a high degree of innovativeness, also known as early adopters, play a veryimportant role in the success of new products (Goldsmith and Flynn, 1992), since theyare more willing to try new products and brands (Steenkamp and Baumgartner 1992),are less price sensitive, but more knowledgeable about new products and less riskaverse (Rogers, 1983). Therefore, these characteristic of early adopters affect theirpurchase and learning processes within the marketplace. In evaluating brand extensions, consumer innovativeness has been consideredas an antecedent of positive consumer attitude towards extensions. Klink and Smith,(2001) concluded that early adopters react positively to a new extension in the case ofdurable goods. Furthermore, the authors found consumer innovativeness as amoderating factor of similarity, stating that consumers with high degree ofinnovativeness do not base their extension evaluation on perceived similarity. Hem etal., (2003) extended the Klink and Smith´s (2001) study to fast moving consumergoods and services finding positive effects of consumer innovativeness on consumers’evaluation of brand extensions. Xie (2008) studied consumer innovativeness withregard to different types of extensions, product information and interpersonalcommunication. The study found that innovative consumers evaluate extensions indifferent categories more favourably than those of the parent brand (horizontalextensions) and than those which present a lower degree of similarity with the parentbrand. In addition, the availability of product information and interpersonal 32
  40. 40. communication moderate the effects of consumer innovativeness and the evaluation of extensions. Despite the research on consumer innovativeness for different kinds of product and extensions, there is no study regarding the positive role of consumer innovativeness in the evaluation of extensions from online companies. Therefore, the following hypothesis is suggested: H.10 Consumers with a high degree of innovativeness will evaluate more positively offline brand extensions from Internet brands. The hypotheses proposed by this research are summarised in the following table:TABLE 3.1: HypothesesH.1 A high consumer subjective knowledge of the online brand, original product category and offline extension category has positive effects on the extension evaluation.H.2 Higher quality perceptions toward the original online brand are associated with more favourable attitudes toward the offline extension.H.3 The offline extension will be more positively evaluated, if consumers perceive brand value in the online businessH.4 The offline extension will be more positively evaluated if consumers perceive a positive brand personality of the online brand.H.5 The offline extension will be more positively evaluated if consumers perceive positive organisational associations in the online brand.H.6 Online brand loyalty has a positive effect on consumer attitude towards the offline brand extension launched by online companies.H.7 Offline brand extensions that received competent marketing support from the online parent brand are more favourably evaluated by consumers.H.8 The overall perceived similarity between the online parent brand and the extension has a positive effect on consumer attitude toward the offline extension.H.8a Offline brand extensions into categories perceived as more similar to the original product category of the online parent brand are more likely to be evaluated favourably by consumers.H.8b The match between the specific image of the online brand and the extension product has a positive effect on the attitude towards the offline extension.H.9 High involved consumers in the extension category will positively evaluate the brand extension.H.10 Consumers with a high degree of innovativeness will evaluate more positively offline brand extensions from Internet brands. 33
  41. 41. 3.7 The Hypothesized Model Following the procedures of the previous research (Aaker and Keller, 1990),the hypotheses proposed above are studied within a linear regression model, where thedependent variable, the attitude towards the extension, is explained by ten explicativefactors that represent the independent variables of the regression. The linearregression model is as follows:Where the dependent variable: ATT= Overall attitude towards the brand extension, and where the independent variables are: FAM= Brand knowledge or familiarity PQ= Perceived quality of the parent brand BAV= Value associations BAP= Brand personality BAO= Organisational associations BLO= Brand loyalty SIMP= Product category similarity SIMI= Brand image similarity MS= Marketing support INE= Consumer involvement in the extension product category CIN= Consumer innovativeness 34
  42. 42. The hypothesized model is summarised in Figure 3.1:3.8 Summary This chapter has reviewed the factors that build an explanatory model of consumerattitude towards brad extensions which is applied to online brands that extend the brand nameto the offline context. A set of hypotheses related to the principal factors involved in themodel was proposed in order to demonstrate their implications on consumer evaluations ofbrand extensions. The next chapter will describe the research methodology which was used inorder to gather the required information to test the aforementioned hypotheses. 35

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