Vertical brand extensions: current research and managerial implications Abstract: Relates evidence which suggests that launching a vertical brand extension generally has a negative impact on the core brand because it dilutes the core brand image, advising that a brand extension should be introduced only when its profit potential exceeds the losses that will be sustained as a result of damage to the core brand. Describes two important tools which can reduce the dilution of the core brand image and/or enhance the success of a new brand extension introduction distancing, and information cues: Explains that, to reduce damage to a valuable core brand or to benefit a new step-up brand extension, the extension should be maximally distanced from the core brand; however, to benefit a new step-down brand extension (at the expense of the core brand), the extension should be positioned close to the core brand. Highlights how information cues that describe a brand extension can also act like distancing techniques, simply by serving to reinforce the similarities (implied closeness) or differences (implied distance) between the brand extension and the core brand.43964

Introduction

Brand extensions are a popular means of introducing new products to the marketplace. In a typical brand extension situation, an established brand name is applied to a new product in a category either related or unrelated, in order to capitalize on the equity of the core brand name (DeGraba and Sullivan, 1995; Pitta and Katsanis, 1995). Consumer familiarity with the existing core brand name aids new product entry into the marketplace, and helps the brand extension to capture new market segments quickly (Dawar and Anderson, 1994; Milewicz and Herbig, 1994).

Brand extensions come in two primary forms: horizontal and vertical. In a horizontal brand extension situation, an existing brand name is applied to a new product introduction in either a related product class, or in a product category completely new to the firm (Sheinin and Schmitt, 1994). A vertical brand extension, on the other hand, involves introducing a brand extension in the same product category as the core brand, but at a different price point and quality level (Keller and Aaker, 1992; Sullivan, 1990). In a vertical brand extension situation, a second brand name or descriptor is usually introduced alongside the core brand name, in order to demonstrate the link between the brand extension and the core brand name (e.g. Marriott Hotels, Courtyard Inn by Marriott). Although a brand extension aids in generating consumer acceptance for a new product by linking the new product with a known brand or company name, it also risks diluting the core brand image by depleting or harming the equity which has been built up within the core brand name (Aaker, 1990). An inappropriate brand extension could create damaging associations which may be very difficult for a company to overcome (Lane and Jacobson, 1995; Ries and Trout, 1986).

Vertical brand extensions

The main purpose of this paper is to examine how introducing a vertical brand extension can have implications not only as to how consumers evaluate the new brand extension, but also as to how it may change consumer perceptions regarding the core brand image. In examining vertical brand extensions, we discuss the following variables:

• Brand concept: Does the brand concept of the core brand (e.g. prestigeoriented or function-oriented) have an impact on how consumers evaluate the vertical extension?

• Direction of brand extension: What is the impact on the core brand if the vertical brand extension is a step-up extension versus a step-down extension?

• Distancing techniques: What impact do distancing techniques have on how consumers evaluate both the vertical brand extension and the core brand? (Distancing techniques are a means of implying a closer or more distant relationship between a core brand and a vertical brand extension.)