Categorization theory explores how consumers categorize brand images and evaluate brand extensions based on their existing brand categories and memories. When entering a new market, companies hope consumers will perceive their brand extension as fitting within the category of the original brand based on its associations. Even if the perceived fit is low, consumers may still accept extensions of flagship brands due to the strong brand equity.

1. Categorisation theory: New dimension
Researchers tend to use “categorization theory” as their fundamental theory to explore the
links about the brand extension.
Now what is a brand extension? Its the strategy used by companies to use success of one
brand in a particular sector by relating it to a different product in a different sector.
As per the theory of categorization a market where consumers have lot of products confusion
in making a selection increase drastically there consumer tries to categorize the brand image
as per their understanding. When two or more products exit in front of consumers, they might
reposition memories to frame a brand image and concept toward new introduction. A
consumer can judge or evaluate the extension by their category memory. They categorize
new information into specific brand or product class label and store it.
This process is not only related to consumer’s experience and knowledge, but also
involvement and choice of brand.If the brand association is highly related to extension,
consumer can perceive the fit among brand extension. Some studies suggest that consumer
may ignore or overcome the dissonance from extension especially flagship product which
means the low perceived of fit does not dilute the flagship’s equity.