By Dr. Irini Rigopoulou, Lecturer, Athens University of Economics and Business, Greece.
Irini Rigopoulou holds a Ph.D. in Marketing from the University of the Aegean, Greece. She has worked as Group product Manager and Marketing Manager with multinational and local Companies in Greece for 10 years, while in parallel she has been member of a consulting group in Athens. She has 5 years academic experience and currently she is Adjunct Lecturer at the Department of Business Administration of the Athens University of Economics and Business and Lecturer at the Greek Open University. Her research interests are centered around Branding, Retailing and Societal Marketing.
This article focuses on the strategic implication and consequences of a brand extension decision, in relation to the use of the internet. It focuses on the potential of the Internet not only as a support to off-line Brand extensions but also as an environment for creating and building online Brand extensions, Brand eExtensions.
The article particularly defines the opinions of the managers, since we believe that the focus of future academic research has to shift from the external environment to the internal environment of the company, and requires the acquisition of long-term strategic knowledge.
As a result, it is true to say that the Internet is the ideal vehicle to contribute to branding, specially as a source of gaining competitive advantage, particularly in many services sectors, like the banking sector, where competition is becoming increasingly difficult, the effective and innovative use of technology-driven environment is a one-way solution to ensure Brands do not stagnate.
Among the several strategic decisions in Brand building, the launching of a Brand extension becomes an increasingly used option by Managers.
As it is widely known, the decision of adding a new product to an existing Brand, can be implemented via two alternatives, either via a line extension launch or via a brand extension one. The first strategic option refers to using an existing brand name for a new product which belongs to the same product class. The latter, brand extension, refers to the use of the existing brand name but as a vehicle for the new product, enabling it to enter to a completely different (new for the brand) product class. (Tauber, 1981, Aaker and Keller, 1990; Reddy et al., 1994). It seems that both alternatives are more preferable than launching a new brand. This, not only because there is protection from a risky and probably unsuccessful brand new launch, but mainly for the Brand Equity benefits, which the parent Brand holds (Rangaswamy et al., 1993; Shocker and Weitz, 1988).
This is also reflected in the literature, since a lot has been said and written in favour of those two strategies, though, as it happens in most of Marketing topics, the main body of the literature touches the issue mostly from the consumer point of view, focusing mainly on the implication of such a decision on the customers of the brand (Aaker and Keller, 1990; Sunde and Brodie, 1993; Boush and Loken, 1991; Broniarczyk and Alba, 1994).
This particular article focuses on the strategic implication and consequences of a brand extension decision, in relation to the use of the Internet as the carrying innovative vehicle with the most advantages for the product, particularly when regarding the services sector.
Therefore, the objectives of this article are twofold. One is to present the factors of successful (off-line) brand extensions, as they have been determined by the customers, and to combine those with the perceptions/ attitudes of the managers who are handling the Brands. The article particularly defines the opinions of the managers, since we believe that the focus of future academic research has to shift from the external environment to the internal environment of the company, and requires the acquisition of long term strategic knowledge.
In parallel, the study investigates the potential of the Internet not only as a support to off-line Brand extensions but also as a vehicle for creating and building online Brand extensions.
So, the second and main objective addresses the issue of the role of the Internet, as a vehicle for creating and building brand extensions, particularly in the Financial Service sector, i.e. Banking and Insurance, both technology related and affected.
Since Brands perform identically on-line and off-line, we also perceive that “knowing the product’s brand name is important / very important in the decision to buy online” (Ernst and Young, 1998). Basu, (Basu, 2000, p.424), also proposes that a trusted Brand is a composite of “experience” (looking back) and “expectation” (looking forward).
Unfortunately, the Internet is being treated mainly as a non-physical distribution channel or as an additional communication tool, bearing in mind the augmented dimension of a product, particularly when talking about Services, we believe that this view is a very myopic one.
We believe that the Bank or the Insurance sectors are of the most promising sectors for Internet usage as it has the best “environment” for launching new, competitively strong, services/brand extensions, the eExtensions.
Additionally, both issues, are being seen under the scope of Brand orientation (Urde, 1999), which perceives Brands as the “hub around which operations and strategies revolve”, (p.117) in the process of gaining long-term success via the sustainable competitive advantage they can offer.
The changing nature of commerce
Since the 1990’s, there has been a profound acknowledgement of the significance of eCommerce (eC) as a source of the abundant changes in the manner organisations conducts their business (Applegate et al., 1996; Bayles, 1998; Kiani, 1998).
Referring to eC, one could mean either a “horizontal” / inter-organisational (new) way of doing business, or the vertical, i.e. from business to customers, (Kalakota and Whinston, 1997). Of course, the “e” aspect influences (or can influence) both ways, since they are mutually dependent.
Timmers (1999) is not the only one who claims, that “conducting business electronically” may also include online marketing activities. But here a fundamental question arises: What are the promising Internet and eC-driven marketing opportunities? And particularly, regarding the Financial Services sector: how do the Companies in the sector accomplish the development of eBusiness and its integration within the overall Business?
The most common position in the literature says that “the Internet will become the most promising distribution channel for financial services” (Mols, 1998). Our position is that “the Internet should become the most promising environment for extending and expanding in an upgrading way its current business”. Surprisingly, little effort has put into investigating the potentialities of Internet as a supplement to Brands and Brand Extensions decisions.
Taking into consideration Brand extensions and branding in a new era, one shouldn’t forget that as it happens to all company’s resources, Brands should also search for a new identity.
In some business fields such as the financial services sector, the new realities of globalization and the consequences it brings with it, it drives (or should drive) leading competitors to a more efficient exploitation of their resources. Since Brands hold a dominant position amongst the company’s assets, it is obvious that this new exploitation could eventually liberate new capabilities of the resource, which until the present time had probably not been recognised and therefore not developed.
Brand extension Decisions / Literature review
In an off-line environment, literature recognises different reasons as driving forces in a brand extension decision. According to Ambler & Styles, (1997), the motives behind such a decision, can be the customers and their unfulfilled needs (though this is the “primary” motive behind any launching decision), competition and its activities (which should also be treated with scepticism, since it refers to the “reactors” archetype according to Miles and Snow Strategic Archetypes, (Miles and Snow, 1978)), and one other, on which we would like to give emphasis, i.e. the leverage of the Brand and its Brand Equity. Taking into consideration Brand Equity, which is strongly related to Brand success Dacin and Smith propose (1994) that “weak Brands do not contribute to the extensions as much as the strong ones” (p.230). So, with the precondition that the Brand possesses a strong position with strong and positive Brand Equity, and desiring the success of a further launch under the same brand, the main body of the literature has antecedently focused on the parameters / criteria under which a brand extensions success can be assured.
There is an agreement among the majority of the academics, concerning the need of fitness between the parent brand and the brand extensions. This fitness could apply to specific product characteristics or to the general concept of the brand. Even, since 1991, C.W. Park (1991) discussed for consumers’ reactions to brand extensions. He recognised a categorization process in which the new product was judged according to the suitability of its membership in the existing parent-brand. Therefore, his contribution to the subject can be summarized as follows: according to consumers’ beliefs regarding the relation between the parent and the “offspring” products, the parent brand may transfer to an extension when consumers believe that the extension ‘fits’ to other members of the family’ (Cohen and Basu, 1987; Fiske, 1982; Levy and Tybout,1989; Sujan, 1985). Answering the simultaneously posed question of what is actually meant by ‘fitting’, Aaker and Keller presented (1990), various bases of perceived fit between the original and extension product classes. Consequently, according to them, we can specify three distinctive bases, which are the following: complementarity, or the extent to which extensions and existing products share the same usage context, substitutability, or the extent to which one product can replace the other in satisfying the same need, and transferability, in other words, the degree to which the skill required for the extension overlaps with what already exists.
Other academics tended to combine consumers’ evaluations with brands’ performance criteria. Indeed, it seems that there is a positive relationship between product feature similarity and consumer’s evaluations, purchase intentions and sales of brand extensions (Chakravarti, Mcinnis and Nakamoto, 1990; Farquhar, Herr and Fazio,1989). Park et al. (1991), took in conjunction an other factor, in order to identify and examine the importance of factors that consumers may use in order to evaluate an extension’s ‘goodness of fit’ with the brand category, this was the brand concept consistency.
According to their findings, it seems that, in identifying brand extensions, consumers take into account not only information about the product-level feature similarity between the new product and the already existing one, but also the concept consistency between the brand concept and the extension’s one. The authors explain that though product features can vary from concrete levels to others more abstract, brand concepts are brand-unique abstract meanings which typically originate from a particular configuration of product features to more abstract meanings. They further associate the brand concept with the brand name concept, splitting the brand name concepts to the function-oriented one and the prestige-oriented, i.e. to names related to product performance or consumer’s expressions of self-concepts or images.
Previous research has focused on the Consumer’s attitude towards an extension and their relation to the attitude towards the parent-brand (Chakravarti, McInnis & Nakamoto, 1991) or on the criteria of ‘fitness’ between them.
Smith and Park (1992) combined the extension decision with the brand’s performance, when they researched the effects of the particular strategy in relation to market share and advertising efficiency.
As we mentioned in the introductory section of this paper, it is also interesting to see what the managers claim about the topic.
According to a field research conducted among managers who are handling Brands (Rigopoulou, 2000), it seems that the factors the managers recognize as influential to a Brand extensions success, are the following: “The Image of the parent Brand”, “The existing power of parent Brand” and “The fit between the extension and the parent brand” . More specifically, 57.8% of the sample deemed the first factor as absolutely important and another 37.6% as very important. For the second parameter the percentages are 56% and 38.5% respectively, and regarding the third criterion in the ranking the percentages are little lower, 42.2% and 45.9% respectively.
Evidently, as it happens to off-line Brand extensions, dilution effects do occur when Brand extension attributes are inconsistent with the family brand beliefs (Loken & John, 1993, p.71). However, a brand extension is the vehicle for an additional introduction of attributes and beliefs regarding the parent brand as well. So, there is a two-way influence between the “parent” and the “offspring” product, which may frequently be in favor of the parent brand, (Dacin and Smith, 1994; Keller and Aaker, 1992).
This can happen when the new product works beneficially to the parent brand, thanks to the image that the “vehicle” carries with it. The aforementioned is exactly what happens in the case of the Internet and the beneficial role it can play in relation to the Brand. It offers a multitude of advantages related to all three levels of the product (core, actual, augmented), and can assure an improved identity for the brand extension as well as for the Brand.
Prospects and Challenges
Simeon, 2001 (p.423), argues that “a strong Internet presence will be an essential component of future business strategies (in both, international and domestic markets)”. Furthermore, as Christopher says, “the emerging philosophy of relationship marketing (Christopher et al., 1991) is a reflection of the growing recognition that long-term competitive advantage is gaining by creating superior perceived value for customers” (p.60).
We also know that factors such as customer service, information quality and delivery are all very important elements for the modern-sophisticated customer, particularly when referring to sectors like Banking or the Insurance sector. Doyle (1990), has identified four possible dimensions of strong branding, i.e. high quality, an excellent source of competitive edge, particularly in the Services sector, Superiority in services offered, Pioneering, again very important if we compare it with top of mind awareness and differentiation, particularly in mature markets.
Summarizing, we could say that Brands are trying, via their extensions, not only to leverage their existing Brand Equity, but sometimes also to use their offspring as a boosters for the whole Brand, particularly in some sectors where the sources of competitive advantage are limited and there is a strong need for differentiation.
Given that these days Internet represents the most dynamic non-physical marketplace, managers should not use it simply as an additional communication tool or as a parallel distribution channel for the brand. Instead, because its potential in terms of developing desirable competitive advantage is definitely higher, they should utilize it for Brand extensions fully and even exclusively marketed in this non-physical market place. Furthermore, since, product augmentation leads the marketers to look at the buyer’s total consumption system, the Internet can be used as its “sole” environment for the Brand extensions’ building. By doing so, it is not only the brand’s offspring that is gaining all the advantages of the Internet environment, i.e. functional and / or symbolic advantages, but the parent brand itself also benefits being pulled to more advanced levels of competitive advantages.
As a result, it is worth noting that the Internet is the ideal vehicle to contribute to branding, particularly in some specific sectors.
Not counting, the symbolic value a Brand can work very effectively with its projected image as well as with the key associations perceived by the customers. If, particularly in sectors like the Financial sector where competition is becoming increasingly difficult, then the effective and innovative use of technology is a one-way solution, to ensure Brands do not stagnate.
A key question that deserves research attention relates to the circumstances surrounding online versus offline extensions. So, a direct estimate of the impact of eExtensions to the parent Brands should be modeled in order to gain more precise data on the symbolic values of the Internet and its impact on the Brand particularly in a specific category, the Bank sector.
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