Incongruent by a brand concept perspective vertical extensions and the use of a co-branding strategy as a way to launch them while reducing the possible negative effects on (a) attitude and perceived value of the core b

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UNIVERSITY OF AMSTERDAM

MSC BUSSINESS ADMINISTRATION

TRACK:MARKETING

THESIS TITLE: Incongruent by a brand concept perspective vertical extensions and the use of a co-branding strategy as a way to launch them while reducing the possible negative effects on (a) attitude and perceived value of the core brand And (b)attitude and perceived value of the extension

Supervisor: Dr. Karin Venetis Student : Sophia Galani Student number:10622462

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Statement of Originality

This document is written by Sophia Galani who declares to take full

responsibility for the contents of this document.

I declare that the text and the work presented in this document is original

and that no sources other than those mentioned in the text and in the

references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the

supervision of completion of the work, not for the contents.

Acknowledgements

It will be unfair not to give credit to the ones who contribute to

completing the most elaborate piece of work I have created in my

academic career so far.First of all Dr. Karin A. Venetis who strengthen

the focus of my brain and helped me keep my eyes on the research goal

of my study.Secondly my mother Irene Galani who always kept my heart

warm with her encouraging words and motivation.And last but certainly

not least God which gave my soul the strength to be able keep out the

noise and focus on the important stuff.

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2.9.1 Choice of whether the partner brand will come from the same product category as the core brand or not...p.26 2.9.2 Specification of the concept of the partner brand...p.26-27 2.9.3 Fit between the brands that form the brand alliance...p.27 2.9.4 Fit between the partners in the alliance VS fit between

the core and partner brand and the extension...p.28

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5 2.11.Co-branding extension Feedback effects...p.29-30

3.Methodology...p.31-43

3.1.Pretest 1...p.31-32

3.2.Pretest 2 and Pretest 3...p.32-38

3.2.1.Structure of pretests 2 and 3………...p.32-35 3.2.2Purpose of Pretest 2………..…….p.35 3.2.3.Results pretest 2...p.35-38 3.3.Measures...p.38-39

3.4.Main experiment- Design(scenarios presented in each group)...p.39-43

4.Results of the main experiment...p.44-71

4.1. Descriptives of the sample...p.44-46 4.1.1Νationality...p.44 4.1.2.Gender...p.45 4.1.3.Age...p.45-46

4.2.Controlled Variables...p.47-48 4.2.1Fit...p.47 4.2.2.Familiarity and Customer Expertise...p.47-48

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6 4.4. Hypotheses Testing...p.49-71 4.4.1.Comparison between the pre-attitude and post attitude………..p.50-51 4.4.2.Comparison between the pre-value and post value………..p.51-52 4.4.3.Extension attitude and extension value………..p.53-55 4.4.4. Core brand attitude and core brand value -Co-branding……….p.56-62 4.4.5 Extension attitude and extension value - Co-branding……….…p.63-71 5. Conclusion... p.72-81 5.1.Summary and Analysis of the results...p.72-79 5.2.Main findings of the research...p.79

5.3.Academic implications of the study...p. 80

5.4.Managerial implications of the study...p. 81

6.References...p.82-97

9.Appendices...p.98-109

10.Tables presented in the thesis

Table 1- Set of scenarios for pretest 2 and pretest 3...p.33 Table 2- Means and standard deviations for brand concept in the pretest……….p.36 Table 3-Nationality across questionnaires...p.44 Table 4-Gender Across Questionnaires...p.45 Table 5-Age across the questionnaires...p.46 Table 6-Means for attitude and value for vertical

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7 Table 7- Means of attitude and value for the core brand after a vertical

family branded extensions and after vertical co-branded

extensions...p.56

Table 8-Interaction of the independent variable(branding strategy) with each and every covariate(fit, customer expertise, familiarity)

for the model where attitude of the core brand is the dependent...p.58

Table 9-Means of the attitude towards the luxury brand adjusted to

the effect of the covariates(fit, customer expertise, familiarity)...p.59

Table 10-Partial eta squared of the model( where dependent is the attitude towards the core brand ) when the covariates are absent vs partial eta squared of the model

when the covariates are included...p.60

Table 11-Means for attitude and value for vertical family branded

extensions and for vertical co-branded extensions...p.63

Table 12 - Interaction of the independent variable(branding strategy) with each and every covariate(fit, customer expertise, familiarity)

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8 Table 13-Means of the attitude towards the extension of the core brand adjusted to

the effect of the covariates(fit, customer expertise, familiarity)...p.66

Table 14- Partial eta squared of the model where dependent is the attitude towards the extension) when the covariates are absent vs partial eta squared of the model

when the covariates are included...p.67

Table 15- Interaction of independent variable(branding strategy)

with each and every covariate(fit, customer expertise, familiarity)

for the model where value towards the extension is the dependent...p.71

Table 16-Pearson correlation between the independent(branding strategy)

and the covariates(fit, customer expertise, branding strategy)...p.71

Table 17-summary of the hypotheses and whether

they were supported or not...p.72-74

11.Figures presented in the thesis

Figure 1.1- The Luxury Ladder...p.20 Figure 2-The Brand Relationship Cycle...p.25 Figure 3-Picture Stimuli for all the different scenarios of Saint Laurent

Paris(including the control condition...p.40 Figure 4Picture Stimuli for all the different scenarios of ZARA(including the control condition)...p.40

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1.Introduction

1.1.Previous research in the field of brand extensions and brand alliances

The current study field of interest is corporate branding or also known organizational branding.As the name itself gives away, corporate branding describes all those actions who take place in order for a corporate entity to be promoted. A corporate entity resembles an alive organism: is made of cells(the employees).Is affected by the close members of his. her family (shareholders) and also by the other powers(consumers and competitors)of the environment .The organism when is powerful enough can also trigger a chain of actions and reactions in the environment. Same goes for the corporate brand whose strength is depicted through its level of brand equity. The cornerstone of brand equity is what is known by previous research as customer based brand equity(CBBE).According to Keller (1993) CBBE is “the differential effect that knowledge about the brand has on consumer response to marketing activity for the brand.” This brand knowledge is further divided into brand awareness and brand image (or the set of brand associations)(Keller,1993).The creation of a new brand (Arslan et al,2010) not only is an expensive process but also has high failure rates thus the capitalization of an existing brand‟s equity seems rather alluring to the members of a corporate‟s brand management team. According to Hennings et al(2013), (1)line extensions (2)category extensions,(3)co-branding and (4)franchising( Hennings et al(2013) are the common leveraging techniques.The current study will focus on line extensions and co-branding.

Dal‟Olmo Riley et al(2013) suggest that the perseverance of an extension strategy is an endeavor to capitalize the investment that the core brand has made in the past via the introduction in the market of new products which have unaltered or with some alterations the name of the core brand.The management team of a brand can either launch an extension of the brand in a new product category (category or brand extension) or launch an extension at different price or/and quality levels within a product category that the brand is already active.(line extensions).(Aaker and Keller,1990) Line extensions can further be divided in horizontal extensions introduced at same price as the already existed line and vertical extensions introduced at higher or smaller price range and/or quality level than the already existed brand. (Sullivan,1990,Keller and Aaker,1992).

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10 Whichever is the type of the extension introduced two are the main criteria of the success of the extension strategy.First,the existence of a positive attitude towards the extension and second the feedback effects from the extension to the core brand. (Chen & Chen, 2000; Loken & John, 1993; Sheinin, 2000).Feedback effects from an extension can be beneficial for the core brand and lead to an enhancement of the core brand equity(Tauber, 1988) but they can also be detrimental for the core brand and lead to dilution of the core brand equity. (Ries and Trout, 1986; Swaminathan, Fox, R. J., V., Reddy, S. K., 2001. )As it is expected the interest in literature leans towards instances of negative reciprocity effects and what can be done for them to be reduced. The existence of low fit between the core brand and the extension is the main reason that dilution of the core brand takes place.Fit can refer to overall fit ,brand image fit and product category.Since the current study is about vertical extensions the instances of low brand concept fit will be taken into consideration . Brand concept consistency exists when the brand concept are pertinent and beneficial for the brand extension associations(Park et al,1991).According to Park et al(1991) two are the different brand concepts :the functional brand concept and the luxury brand concept. Thousands pages have been written in the field of brand extensions about extensions with high incongruency from brand concept consistency perspective from the core brand. Thorbjonsen(2005) focused on brand category extensions and found evidence that the lack of brand concept congruency between core brand and extension can lead to negative feedback effects. Thorbjonsen(2005),in the experiment he conducted he manipulated the brand concept of the product category where the extension was introduced. So Thorbjonsen found evidence that the for a core brand of luxury(functional) concept is more favorable evaluated in the occasion when the extension is of luxury(functional) concept also.

If brand concept is dealt with as a dichotomous variable that takes the values of luxury and function then based on that distinction two are the incongruent cases that a researcher or manager may have to deal with the introduction of a step down extension of a luxury brand or the introduction of a step up extension of a functional oriented.As far as a the impact of a step down extension is concerned in literature agreement exists towards the feedback and the forward effects.For the step up extension of a functional brand on the other hand more than one opinions exist in literature.

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11 In cases where dilution of the brand equity of the core brand is expected ,precautions can be taken for the introduction of the extension.The use of branding strategy can act as an effective moderator of the negative feedback effects.Milberg et al(1997); Sood and Keller(1992) use sub-branding to indroduce an extension with low fit with the core brand. Sub-branding was presented in the brand relationship spectrum and in practice one says that an extension is a sub-brand of another brand when it has as logo a combination of the already existed brand with another unique word created specifically to differentiate the core brand from the sub-brand.That unique word can be suggestive of the attributes of the new brand(Courtyard Marriot Inn) or non-suggestive (See by Chloe) and it gives a special identity to the extension. Lets now move on to the other leveraging strategy that is of interest of the current study:Co-branding.But is co-branding different than brand extensions? No clear answer can be find in regard of that in literature one stream of articles suggest that co-branding is different than brand extensions why others recognize it as a special case of brand extensions.The current study will adopt the latter view.However at this point it should be salient that the current study is not interested in all the possible forms that co-branding can take but rather in the cases where both co-brands are visible in the logo even if one takes the lead.

Without specifying whether they follow the definition which views co-branding as a specific case of brand extension or as a strategic alliance several authors gave an inclusive definition of portfolio one which included co-branding as part of the brand portfolio .(Uggla,2006).And if co-branding is considered as part of the brand portfolio it must be find its place in brand architecture.The Brand relationship cycle (BRC) Åsberg, P. E. ; Uggla, H(2009) is a new brand architecture model which added to the classic brand relationship spectrum of Aaker and Joachimsthaler (2000) two more nodes standing for “primary co-branding” and “secondary co-branding” respectively.

owned by different corporate company.This can be used as an alternative to introduce a vertical extension.In more detail it will be examined whether the use of a brand which scores higher im brand concept fit with the extension than the cpre brand can protect the core brand from dilution while result in a favourable extension evaluation. The brand relationship spectrum(BRS)undoubtedly a helpful tool in the hands of brand architecture strategists but not a perfect tool. BRS has mostly an

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internal-12 organizational orientation and does not discuss how brands resulted from co-branding alliances should be integrated in the brand‟s existing architecture.

1.2.Research gap that the evidence found about the research question aims to fill Although vertical extensions are common in the market place very few articles have been written in the literature about them.What may come as a surprise is that from them only a small percentage refers the negative reciprocity or negative feedback effects that possible stem from incongruent step down or step up vertical extensions. From the ones who do mainly interest exist towards for the occasion when a core brand is of luxury concept and since the abstract nature of the core associations(the ones who are the heart of the brand image) the dilution from them is expected when step down extensions are introduced (Magnoni and Roux,2011) The current study agrees with most previous authors that the brand equity of a luxury brand is more fragile in front of shocks of lower /price quality.However following the lead of Kim et al(2001) who studied and also find evidence for the negative reciprocity effects that a step up extension may induce in the function oriented core brand.

What may come as a surprise is that even the articles that do study vertical extensions which as discussed above have higher price/or quality and based on the categorization theory which most if not all of them draw their conclusions from is expected to lead to the reduce of the core brand and from them only a small percentage refers to the factor that usually determines whether the core brand will decide to launch the vertical extension or no:the dilution of the core brand as a feedback effect of the potential extension.I the articles about co-branding feedback effect of the co-branded product on the core brand are again disregarded.

Again at this point it should be pointed out that this study will focus on co-branding situations were both partners collaborate and manufacture the product and although one takes the lead rolo ,both brand names are visible in the logo of the new co-brand product.That clarification is done here to illustrate that the focus when reviewing past literature in the field of branding alliances for the theoretical framework of the current text refer was on articles which refer co-branding in the same manner as the current study does.For instance rarely in the current text(and that holds for the theoretical framework later) findings from articles that

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13 had to do with for instances where co-branding represents a case of ingredient branding are going to be illustrated.

After that clarification it should be stated that most of the articles of interest in co-branding only checked the attitude towards the co-branded extension (Park et al,1996)(James,2006b)(Bouten et al,2011)(Lanseng and Olsen,2012). The current study will examine the feedback effect of a co-branded instance thus will start filling this research gap In sum,the current study aims at sheding light on the effectiveness of a co-branding extension strategy in comparison to the family co-branding extension strategy in the context of vertical extensions.

At last the information that the current study aims at producing will be a first empirical attempt towards the testing of whether of the reasoning underlying the brand relationship cycle( Åsberg, P. E. ; Uggla, H(2009) ) holds

1.3Research question

Having introduced all the articles which act a theoretical base to understand specific points of different sub-sectors of the fields of brand extension and co-brands and also to be motivated to examine even further findings of the previous authors it is now point to present the research question of the current study:

“ How does the use of co-branding by a core brand to launch an incongruent by brand concept consistency perspective extension impact the expected reduce of the attitude and perceived value of that core brand?And how is the evaluation towards the co-branded extension itself?”

1.4 Outline of the research

The remainder of the research is organized as follows:First,already existed literature in the area of brand extensions and of co-branding are revisited.Based on the findings of previous authors in that areas the hypotheses that this study will test are developed. After that a throughout description of the methodology including the sample ,the measurements,the pretests and the main experiment used to test the hypotheses follows. Since the reasoning that leads to the conduct of the experiment is set then the results are presented. The study comes to an end with the pinpoint of the managerial and academic implications.

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14 2.Theoretical Framework-Presentation of the hypotheses

2.1.Attitude towards the extension

2.1.1.Line extensions

For many years research underestimated the importance of studying the post-extension attitude of the core brand when the post-extension was of vertical type. To understand that “mistake” of previous researchers, one should look at how the congruence between the core brand and the extension ,also known as fit, was defined throughout the years. In earlier branding literature the product category fit dimension was the only one taken into consideration to asses total fit. Since with the vertical extension strategy, a new extension is introduced in the same product category, fit (based on product category dimension) is by definition high, so no feedback effects were expected. However soon researchers understand the multidimensionality of fit but then conflict in regard of its dimensions arise. Among the dimensions studied throughout the years were similarity, typicality ,relatedness and brand concept consistency(Aaker and Keller,1990;Farquhar et al,1990; Boush and Loken,1991; Park et al,1991 ; Gurhan-Canli and Maheswaran,1998).A popular way to view fit in its multidimensionality(and the way that this study is also going to use) is to acknowledge two dimensions of fit: (a) one dimension is the resemblance of the product category of the core brand with the extension and (b)the other dimension is the resemblance of the image of the core brand with the image of the extension. (Park,Milberg & Lawson(1991);Bhat and Reddy(1997).)

Line extensions can be vertical but they can also be horizontal. Vertical line extensions are introduced by the core brand in the same product category but their price or/and quality is higher (or lower) than the price or/and quality of the core brand.On the other hand, horizontal line extensions usually are line stretches which have only a slight differentiation compared to the core brand e.g they provide a new functional feature.(Dall O‟lmo Riley et al,2015).Most often than not horizontal line extension aim to broaden the selection range available for the consumers while still operating in the same price level as the initial brand.

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15 2.1.2Horizontal extensions –attitude towards the extension

In horizontal extension product category fit is expected by definition since the extension is introduced in the same category as the core brand. What is more the fact that the price range of a horizontal line extension is the same as that of the core brand is the main reason explaining why in the eyes of the consumers the abstract meanings and the important associations of the core brand are also salient in the horizontal extensions. (Bridges,Keller,and Sood,1997).Therefore, brand concept(image) fit is also high.Since both dimensions of fit product category and brand image fit are high,fit as a whole is high.For that reason is expected that the favourable attitude of a consumer towards the core brand will be translated as favourable attitude towards the horizontal extension.

2.1.3 Vertical extensions-attitude towards the step down extension

In vertical extensions product fit is high but the same cannot be said for brand concept consistency fit. According to Kirmani et al(1999).brand concept consistency is affected by two factors : (a) the brand image and (b) the direction of the stretch. Suppose that a luxury oriented brand chooses to introduce a step down extension. Prestige and exclusivity are usually considered important associations of a luxury oriented brand.(Kirmani et al,1999). More often than not, consumers use price as way to judge prestige. By definition step down extension is expected to have lower price than the initial brand thus prestige will not be as salient as an association in the step down extension(in fact it may not exists at all in the set of associations of the step down extension).Since the step down extension does no share important abstract associations of the core brand the favourability of the attitude towards the extension is expected to lower.

Thus the following hypothesis is proposed:

H3(a) The attitude towards an horizontal extension of a luxury oriented brand is more favourable than the attitude towards a step down extension of the same brand.

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16 2.1.4.Vertical extensions-attitude towards the step up extension

Consider a scenario where a function oriented brand launches a step up extension. Important associations for a function oriented brand (which is usually active in the middle price range) are the following: “value for money”, “moderate quality”, “accessibility”.The step up extension will be sold at higher prices than the original thus the salience and the performance level of the association “accessibility” is expected to be lower .What is more to justify the higher price the “uniqueness” or “high quality” associations should appear also in the set of associations of the new brand. The low similarity between the set associations of the core and that of the step up extension is interpreted as low brand concept consistency fit and it is expected to reduce the favourability of the attitude towards the extension.

H4(a) The attitude towards an horizontal extension of a function oriented brand is more favourable than the attitude towards a step up extension of the same brand.

Likewise one can hypothesise that:

H.3(b):The post-extension value of a (luxury-oriented) brand after a step down vertical line extension is less favourable than the initial brand‟s value.

H.4(b):The post-extension value of a (function-oriented) brand after a step up vertical line extension is less favourable than the initial brand‟s value.

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17 2.2.Attitude towards the core brand

As time goes by the core brand forms a network of associations in the consumers brain.(Boush and Loken,1991; Joiner and Loken,1998).When a new brand is introduced the connections of that network change since now new associations are added. What is of interest is the events which take place when the new associations are not congruent to the associations of the initial brand. To predict those events categorization theory is used. Specifically the “bookkeeping model”(Weber and Crocker,1983;Loken and Roedder John,1993) states that an inconsistent attribute signal modifies the relevant belief of the core brand. For a core brand which was previously favourable evaluated the loss of clarity will result in a lower evaluation. In most cases a vertical extension introduced differs in price or/and quality in comparison to the core brand.(lack of fit of the core brand with the extension)The already existing beliefs of the core brand for price or/and quality diametrically opposed to the vertical extension brands (regardless if direction step uo or step down ) attributes related to price or/and quality.As a result this “turbulence” in the initial set of associations of the core brand will make the core brand‟s image less clear.If one supposes that the initial attitude toward the core brand was favourable following the attitude theory of (Fishbein and Ajzen,1975) a damage of the favourable initial evaluation is expected. It is common in the literature that “damage” of favourability of the evaluation that happens to initial favourable initial evaluation of the core brand to be known as dilution of the core brand‟s image after the extension or simply dilution of the core brand.

The testing of the following hypotheses will provide evidence or not for the impact that according the Fishbein and Ajzen (1975) attitude theory a vertical(thus incongruent) extension is expected to have on the core‟s brand image :

H.1(a):The post-extension attitude of a (luxury-oriented) brand after a step down vertical line extension is less favourable than the initial brand‟s attitude.

H.2(a):The post-extension attitude of a (function-oriented) brand after a step up vertical line extension is less favourable than the initial brand‟s attitude .

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18 2.3.Perceived Value of the core brand

According to Zeitham(1988) perceived value represents the benefits that one enjoys by the use of a brand. Those benefits include terms which can be easily measured such as performance but also more intangible terms such as affect which cannot be depicted in measurable attributes.(Aaker and Keller,1992)When the expected benefits increase the perceived value of a product increases also.

Value basically represents the benefits for which one is willing to burden with some expected expenses. The example will make the term and what it includes more understandable. Suppose the brand Harley Davison creates a new range of affordable motorbikes .A loyal customer of the brand wants to buy a motorbike from the cheaper range since she believes that it will combine the usual quality of the core brand with lower price.(benefits)However her friends think that the new line is nothing like the already existed one and its meant for people who do not know much about motorbikes. There is a chance they think less of her if she buys the new motorbike at last .The disapproval of her friends it‟s the cost of the buy while the good quality for small amount of money is the benefit. Comparison between them results to the perceived value.

H.2(a):The post-extension value of a (luxury-oriented) brand after a step down vertical line extension is less favourable than the initial brand‟s value.

H.2(b):The post-extension value of a (function-oriented) brand after a step up vertical line extension is less favourable than the initial brand‟s value .

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19 2.4.Low fit-The advantages and disadvantages of vertical extensions

Low brand concept consistency fit (which results also in low total fit) exists between the function oriented brand and the step up extension and the luxury oriented brand and the step down extension. In more detail, a step down extension of a luxury oriented brand has lower price than the initial brand and also it is less luxurious. Since “high price” and “luxuriousness” are core associations of the main brand and they are not apparent in the brand extension, one can conclude that low fit exists between core brand and extension. Similar is the situation for a functional oriented brand which introduces a step up extension. There is incongruency (a.k.a low fit) between the functional oriented brand and its more expensive extension ,since the new brand has some abstract associations such as high quality which did not exist in the core brand where one can imagine that the core associations were: “affordability” or “easy access to the product”. So should these brands reconsider their decision to implement a vertical extension strategy?

The answer is no. Fit, with the exceptions of the cases when is prohibitive (a.k.a exceptionally) low , should not be the reason for a company to reconsider the vertical extension strategy as a leveraging option . It is rather naïve to suggest to brands to dish altogether the vertical extensions mainly because in some ways necessary vertical extensions are dictated by the market needs. For many years luxury brands were a niche market where the demand was only determined by few “players” of the market who were rich enough to afford these products. The past few years a new group of consumers with income at a level enabling them to purchase luxury brands sporadically ,created a new customer segment that brands active in the luxury market should try to reach (Yeoman, 2011;Wiedmann et al., 2009). That change of the behaviour of a specific consumer audience and the subsequent need of the brands responsible for the supply side of luxury is known as democratization of luxury market (Dubois and Laurent, 1995).The step down extension strategy (when is implemented with caution) seems like a good technique for the luxury brands to reach the market trends and target groups discussed above.

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20 “Maastige” positioning strategy with the etymological explanation of it as: “prestige for the masses” is one of the most referenced term in the published articles of the past years which are related in one way or another with luxury.(Silverstein et al,2003; Truong et al,2009;Magnoni et al,2011).Basically “maastige” represents brands that score higher in prestige than the typical middle range brands(such as ZARA in the fashion sector) while in the same time they have price premiums smaller than the ones which traditional luxury brands(a.k.a the ones who equate high price with exclusivity).(Truong et al,2009).The prices of brands which follow that positioning fill a gap between middle range brands (functionally oriented) and the luxury brands with the higher price premiums.(the most expensive of luxury oriented).Consider that a luxury ladder exists on top are the luxury oriented brands and on the lowest part of the ladder are the functional oriented brands. The “new” category of brands which follow the maastige positioning strategy are in the middle of the scale.(look at the figure below)

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21 Think of a market in which brands represent both extremes of the luxury ladder lowest luxury score VS highest luxury score , such as the automobile industry(Riley D, ; Pina J; Bravo, R.(2013) or the fashion industry (Truong et al ,2009).A brand at the lowest luxury end, competes directly with other brands at the lowest luxury end, and indirectly with the luxury oriented brands which exist also in the same product category. It is beneficial for the functional oriented brand to act based on the “maastige strategy” of their indirect competitors(luxury oriented brands) to create an advantage over their direct competitors(functional oriented brands).To understand what is suggested here take into consideration the new market created by the bundle of all the step down extensions positioned via “maastige positioned” strategies ,created by luxury brands. The prices in that market are higher than the ones in the middle range market where functional brands are active so if functional brands enter this market via step up extensions they will be able to enjoy higher price premiums for their new step up extensions while in the same time create the base for stronger relationships with consumers.

To sum up step down extension give to the luxury oriented brands the opportunity to cater for the needs of large percentage of consumers more price sensitive than the usual consumers of the luxury brands but possibly more in number. On the other hand function oriented brands enjoy higher price premiums via the creation of step up extension. So the vertical extension strategy is fruitful for both kinds of brands that are of interest in this study this is why a technique will be suggested to limit the impact that the low fit usually exists when vertical extension strategy is applied.

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22 2.5. Distancing techniques to increase distance between the core brand and the

extension, as a remedy to the feedback effects of an incongruent extension

Feedback(or reciprocity effects) represent the mutations of the initial attitude of the consumer towards the brand introducing an extension. When a direct extension strategy is implemented while low fit exists between the core brand and the extension, negative feedback effects are expected (Roedder John, Loken, & Joiner(1998); Loken and Roedder John(1998); Kirmani et al(2001);Magnoni and Roux(2001) ).The increase of the distance between the core brand and the incongruent extension will most likely limit the dilution of the core brand equity. The mechanisms used to regulate the distance between the core brand and the brand extension are known as distancing techniques(Kim et al,2001).Distancing techniques is a term traditionally used to refer to techniques which increase the distance between core brand and extension and not to decrease.Simply put distancing techniques are used when low fit exists.The tools with which the core brand is distanced further away from the brand extension are of linguistic or graphic nature(Kim et al,2001).Although most studies suggest sub-branding and endorsement strategy as the branding strategies able to act as distancing techniques , the current study suggests that some important choices for the brand to regulate its distance from the extension are left out.

2.6 Inclusive Definitions of brand portfolio-Co-branding as part of the (inclusive defined) brand portfolio

Most likely the reason for that oversight of some other positioning strategies which can protect the core brand from dilution is the way in which brand portfolio is defined. Brand portfolio can be defined in two different ways in literature. On the one hand, there is the exclusive definition Uggla(2006) of brand portfolio is taken into consideration then the organizational boundaries are identified as the boundaries of the portfolio.On the other hand the inclusive definition views brand portfolio as a“the

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23 set not only of the brand and categories owned, but also the brand and categories borrowed, licensed and aligned with the organization including co-brands, ingredient brands and endorsed brands”(Uggla,2006).

Most articles that conduct experiments and produce conclusions that are empirically tested in the context of brand or vertical extensions use exclusive definitions of brand portfolio. These articles have produce several suggestions to deal with possible negative consequences of brand extension strategies. However ,some problems as the dilution that takes place in the brand equity of the core brand after an incongruent(on the basis of brand concept fit of product category fit) have been resolved only to a certain extent.

There is a possibility that if one changes the perspective from which she/he examines the problem a different solution ,even more effective than traditional ones can be found. With that in mind the current study suggests that one might “stumble” across a different way to deal with the dilution expected from incongruent extensions via studying the relationships that exist inside the brands of a brand portfolio ,as it is viewed in the inclusive definition. In the inclusive definition co-brands are also part of the brand portfolio as well as ingredient brands and other types of strategies which leverage the equity of the core brand.

2.7 Co-branding as a brand extension

According to Helmig et al(2008) co-branding is the branding strategy which results to a product that is branded by two separate brands .Levin et al(1996),Park et al(1996),Washburn et al(2000), Leuthesser et al(2002) also viewed co-branding as the combination of two or more well-known brands into a single product. Previous studies have made salient the connection between brand extensions and co-branding. In fact Hadjicharalabous et al(2006) , Leuthesser et al(2002) (Park, Jun, & Shocker, 1996). stated that co-branding is a special case of brand extension. In literature two different lines of reasoning exist in regard of co-branding. Other studies such as Rao and Ruekert (1994) view co-branding as a strategic alliance, their logic being based on the fact that both strategic alliances and co-branding involve more than one entity. The logic of co-branding being a case of brand extensions is that the two brands which are collaborating in a co-branding situation has as utter purpose to launch a new product.

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24 The focus of the current study is the way in which the attitude of the consumers towards an extension is formed and how the value of the core brand is changing(or not changing ) in the eyes of the consumers after that extension. The decision to have as direction the customer brand equity came from a review in existing literature in section of branding that refers to leveraging techniques. The importance of the custumer was apparent in several articles ,an indicative example is the article of Hadjicharalambous( 2006) who suggested that consumer is the main source of the value of the brands to be exploited (Aaker 1991; Keller 1993) and for that reason co-branding should be studied from the consumer's point of view which is not captured by the strategic alliance‟s framework.

2.8.Brand portfolio and brand architecture

Aaker and Joachimstahler (2001) view the traditional alternative branding strategies(House of brands, sub-brand,endorsed brands and branded house) as components of a straight line.The order in which branding strategies appear to what is known in the brand relationship spectrum(Aaker and Joachimstahler(2001) is not random rather it is determined by the salience of certain effects or behaviors in each strategy. For example the synergistic effect a.k.a the transfer of brand equity from one brand to the other take higher values in endorsed branding and brand house strategy while take lower values in sub-branding and house of brands strategy. The main fallback of that rather popular model is the fact that co-branding is still not studied in parallel with the other potential branding strategies. Asberg and Uggla(2009) cover that weakness of the Brand relationship Spectrum and created the Brand relationship cycle.What they did was basically to add another route between the two extreme branding strategies House of brands and Branded house. A route made by Primary co-branding and secondary co-branding and have as staring point house of brands and as end point branded house. Thus, the new model resulted from this addition resembled most a cycle and for that reason was named Brand Relationship Cycle by its “inventors” Asberg and Uggla.(2009).The figure 2 presented below is a graphical representation of the Brand relationship cycle.

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25 The brand relationship circle has not yet been empirically tested but combined with the view that defines co-branding as a special case of brand extensions creates a need to compare family branded extension with co-branding instances to find how the latter can be positioned In regard to family branded extensions. The current study suggests that in case of a low fit in terms of brand concept consistency is introduced the choice of a co-branded extension is more beneficial compared to a family branded extension. In order to prove the superiority of a co-branding strategy from family branded strategy two are the prerequisites: (a) the post-extension evaluation of the core brand when an incongruent extension is introduced via a co-branded strategy should be higher than the post extension evaluation of a core brand after a family branded extension.(b)the evaluation of the extension introduced via a co-branding strategy should be at least of the same level(if not of higher level) than the evaluation of an extension introduced via a family branded extension.

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26 2.9.The “right” pair of brands

Helmig et al suggested that it is more important to focus on the fit between the brands cause it is a new evaluation dimension(one that did not exists in one brand extensions) . The current study research goal as mentioned before is to check whether co-branding strategy can mitigate the negative effects that are expected when a vertical extension which have low brand concept consistency fit with the core brand (based on the definitions which appear in literature when a core brand of luxury concept introduces a step down extension brand concept consistency fit is low.Same goes for the occasion when a function oriented brand introduces a step up extension.).

The selection of partners in the co-branding instances that this study will explore is of paramount importance. The choice of a wrong partner not only can result to an unfavourable extension attitude and perceived value but also can affect the core brand itself negatively. A thoroughly review of the articles already written about co-branding was the base for the justification of the choice of the partner brand in the co-branded instances of the the current study. The process that took place is broken down in steps below:

Step 1-choice of whether the partner brand will come from the same product category as the core brand or not.

Step 2 –Specification of the concept of the partner brand Step 3-Fit between the brands that form the brand alliance

Step 4:Fit between the partners in the alliance VS fit between the core and partner brand and the extension

Each and every one of theses steps are analyzed below in separate sub-chapters .

2.9.1 Choice of whether the partner brand will come from the same product category as the core brand or not.

At the point when partner brand was chosen two were the choices available either partner brand from the same product category or partner brand from different category . The current study had chosen for the partner brand to be from the same product category of the extension since that choice deemed to be the most beneficial for the aim of the current study (this will be elaborated below)

2.9.2 Specification of the concept of the partner brand

Lanseng and Olsen(2012) find evidence that the existence of high product category fit plays a positive role only in case of functional and mixed-brand concept brand collaborations. The authors find that the there is no impact of product category fit in case of expressive(luxury) concept co-branding alliances. (Lanseng and Olsen,2012)If the current study had chosen to go

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27 with alliances between brands of the same concept ,then for the functional core brand the partner brand would have also had functional concept and product category fit would deemed important. On the other hand the brand of luxury concept would have to collaborate with a partner brand again of luxury concept and product category fit would not have deemed important. The characteristics for the co-branding strategy for the introduction of a vertical extension should be the same for both the core brand of luxury concept that and for the other core brand that has functional concept that this study is interested so in the pairs that will be chosen product category fit should have the same importance, if it matters it should matter to both. If it does not matter ,it should not matter to both also. Keeping that in mind is obvious why in the current study mixed brand concept alliances will be studied.

2.9.3 Fit between the brands that form the brand alliance

From the discussion above it is obvious that the core brand concept is different from the parents brand‟s concept, which means that strictly theoretical speaking fit in the dimension of brand concept consistency does not exist between the brands who form the alliance. However, the fact that two brands do not have similar brand concept does not mean that they will not necessarily fit with one another since fit has several other dimensions which can provide a “meeting point” for the two participating brands in the alliance. The findings of the article of Park et al(1996) which suggest that the combination of a core brand with attributes which are complementary to the attributes of its partner brand results to a co-branded product that has a more favourable attribute profile compared to the attribute profile that a family branded extension of the core brand would have resulted to. More favourable attribute profile usually is translated to better quality and better perceived quality of a co-branded extension than the perceived quality of a family branded extension will most likely lead to a more favourable evaluation of the former in regard of the latter. In the paragraphs above several information for the pairs that will represent the co-branding strategy were given. To sum up a core brand of luxury (functional) concept will co-operate with a partner brand active in the same product category(product category fit high) but with functional(luxury concept).What is more the attributes of the core brand will be considered as complementary to the attitudes of the partner brand

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28 2.9.4 Fit between the partners in the alliance VS fit between the core and partner brand and the extension

The luxury(function) oriented core brand in the current study consider the use of co-branding as a (possible better) alternative to family co-branding to introduce a step down/step up extension which most likely will be perceived as having low fit by consumers because of the difference in price/quality positioning. Thompson and Strutton(2012) highlighted that in cases like this the “fit” that the partner brand has with the extension category is more important than the fit that brands have between them.

2.10 Co-branding extension forward effects

Thompson and Strutton(2012) find evidence that the application of a co-branding strategy can better the evaluation of a brand extension.The current study was influenced in several parts by Thompson and Strutton(2012).They were the only ones who illustrated the importance of fit of the partner brand with the extension.In more detail they found evidence that when a core brand aims to penetrate a target market in which the brand has no previous representation and also has low fit ,the set of associations that the partner brand holds can act as a ticket of entrance. It is suggested that the findings of Thompson and Strutton(2012) that were produce in the context of brand extensions still hold in the context of of vertical line.This suggestion is based mainly on the way in which Thompson and Strutton(2012) operationalized fit via a measure that was not especially developed to measure the product category dimension of fit but also not the brand concept dimension of fit also.So the following hypotheses are proposed:

H7(a): The attitude towards a family branded step down extension is less favourable than a co-branded step down extension of the same luxury oriented brand.

H7(b): The value of a family branded step down extension is less favourable than a co-branded step down extension of the same luxury oriented brand.

H8(a): The attitude towards a family branded step up extension is less favourable than a co-branded step down extension of the same function oriented brand.

H8(b):The value of a family branded step up extension is less favourable than a co-branded step up extension of the same function oriented brand

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29 2.11.Co-branding extension Feedback effects

Every extension is expected to stand for a specific group of associations.(Boush and Loken,1991; Joiner and Loken B(1998) which may be congruent or not with the already formed family brand “category” (a.k.a set of associations) of the core brand.By definition a step down or step up vertical extension , launched by the core brand, is attached to a different price point/quality level(Kim et al,2001).According to the categorization theory‟s “bookkeeping model”(Weber and Crocker,1983;Loken and Roedder John,1993) new information that needs to be assessed in the minds of the consumers and subsequently organized with the already formed set of associations of the core brand clouds the latter. The loss of clarity of the brand‟s image(a.k.a) set of associations according to Fishbein and Ajzen(1975) attitude theory reduces the favorability of the evaluation of the core brand. Milberg et al(1997),Kim et al(2001),Magnoni and Roux(2011) prove that the way that a vertical extension is evaluated by consumers(forward effect)and the impact that a vertical extension has on the core brand‟s evaluation(reciprocity or feedback effect) is in line with the prediction made by the “bookkeeping” model of categorization theory. Sood and Keller(2012) claim that the fact that consumers have only one clue in their disposal to draw their conclusions is the main reason why family branding stimulates the “bookkeeping” model. When the core brand launches an extension in the market via the use of a co-branding strategy ,two cues are available for processing to the consumer.

The first cue is the name of the core brand and the second cue is the name of the partner brand. So the new extension does is not only associated with the brand identity of the core brand but also with the brand identity of the partner brand. The uniqueness of the composite identity of the brand extension makes it undoubtedly different from the “category” of the core brand. Weber and Crocker(1983) claim that when an extension is notably distinct from the set of associations(a.k.a category)which consumers have assigned to the core brand ,the “sub typing model” or “the typicality based model” of categorization theory is more relevant than the “bookkeeping” model which is more appropriate for family branded extensions.

According to the “typicality-based model” (Rothbart and Lewis,1988;Loken and Roedder John,1993) typical is a member-brand which compared to the not typical

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30 brands shares a larger number of identical associations with the set of associations which form cognitive “category” of the core brand in the minds of the consumer.(Kim et al,2001).In current study it is proposed that a vertical extension introduced to the market via the use of a co-branding strategy will be considered atypical by the consumers,and as a result incongruent information that the price and/or quality of the vertical extension will induce ,will have a small effect on the consumer attitude towards the core brand and the perceived value of the core brand.

H5(a):The post-extension attitude towards a luxury oriented brand is expected to be more favourable when the extension is launched via a co-branding strategy than when it is launched via a family branding strategy

H5(b):The post –extension value of a luxury oriented brand is expected to be more favourable when the extension is launched via a co-branding strategy than when the extension is launched via a family branding strategy

H6(a):The post-extension attitude towards a functional oriented brand is expected to be more favourable when the extension is launched via a co-branding strategy than when it is launched via a family branding strategy

H6(b):The post-extension value of a functional oriented brand is expected to be more favourable when the extension is launched via a co-branding strategy than when it is launched via a family branding strategy

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3.Methodology

To be in position to examine whether the hypotheses which have been presented above are supported or rejected. Two studies were conducted. In study 1 had a 2(type of brand extension: step-down/horizontal) x 2(branding strategy: family branded extension/co-branded extension) between subjects design while Saint Laurent Paris acted as a core brand .Study similar was also a 2(type of brand extension: step-up/horizontal x 2((branding strategy: family branded extension/co-branded extension) with ZARA as the core brand.

Few words are given for the pretests from the results of which the Saint Laurent Paris and ZARA were chosen.

3.1.Pretest 1

Pretest 1 was distributed to 26 subjects .The purpose of the first pretest was to find the core brand of functional oriented brand that later was used in the main experiment. The subjects were presented with the following brands: Topshop,J.Crew, American Apparel,Sisley,ZARA,H‟n‟M,Forever21 and Primark. They were then asked to indicated their level of familiarity with the brands and also their attitude towards these brands.

Since people are more likely to evaluate brand extensions of brands with which they are familiar with ,a high familiarity was a prerequisite for the functional oriented brand to be applicable for extension. By previous studies the cut-off point of 4,5 is acceptable level for familiarity, so the brands: All SAINTS(M=2,64 , SD=1,89) , Primark(M=3,42,SD=2,28) ,J Crew(M=2,51,SD=2,09),American Apparel(M=3,53, SD=2,32)and FOREVER21(M=4,12,SD=2,36). were rejected since they failed to surpass the cut-off point Sisley was also rejected since it scored only slightly above the cut off point M=4,74 and its standard deviation was (SD=2,38) which means that the data were highly spread around the mean(and that was not something in line with the needs of the study).Since In the pretest a sample that represents only a small percentage of the number of subjects that would be used in the main experiment it

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32 was of interest the distribution for the “familiarity” of the chosen functional oriented to be as centered around the mean as possible Topshop scored M=5 but that mean was accompanied with a relatively high standard deviation SD=2,1,which means the data were quite spread around the mean. So in the end the choice was between ZARA(M=6,58 , SD=0,53)and H‟n M (M=6,59,SD=0,61).To make the final choice between ZARA and H‟n‟M the criterion was the attitude level towards the brands :ZARA(M=5,40,SD=1,38) and H‟n‟M(M=5,47,SD=1,50).The differences between the two brands were small enough for both the criterion variables “familiarity and “attitude” that gave me the opportunity to take either ZARA or H‟n‟M as core functional brand. So I choose to go with ZARA.

3.2.Pretest 2 and Pretest 3

The similarities in the content of the three pretests allow us to present them all together.The presentation of the structure of them all together saves the reader from the discomfort of repetition and also later in the interpretation of the findings of the pretest is easier to answer the questions which were meant to be answered by the conduct of these experiments.

The main commonality between the pretests is the fact that consumers are given same questionnaires to react and the main difference between the pretests is the statements that follow the scenarios.

3.2.1.Structure of pretests 2 and 3

Pretest 2 was answered by 27 people and pretest 3 was answered also by 26.

In all the pretests after the participants, were welcomed in the survey they were given a brief description for each one of the three brands-candidates to act as the luxury oriented brand. Again in all pretests the same statements aiming to the measurement of the familiarity (Simonin and Ruth,1998) towards each one of the me SAINT LAURENT Paris, PRADA and Vivienne Westwood.Also all respondents at that point were asked to state the level of attitude towards the brand.In pretest 2 at that point respondents were also asked to judge some brand combinations on the base of brand image fit

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33 In the figure below it is shown the possible set of scenarios that could be given to the participants of pretest 2 and pretest 3

Table 1- Set of scenarios for pretest 2 and pretest 3 Set of scenarios

Set A 3 scenarios of upward co-branded

extension(cheaper brand as core;1st co-brand:Saint Laurent by Zara,2nd co-brand:Prada by Zara,3rd co-brand:Vivienne Westwood by Zara) +3 possible family branded step down scenarios.(core brand Saint Laurent,core brand:Prada,core brand:Vivienne Westwood).

Set B three downward co-branded scenarios

were also presented with the three possible family branded step up scenarios

The content of the scenarios can be found later in the current study.This happens because the text presenting the candidates to the participants in the pretests was actually the same as the text that was later presented in the participants of the main study. So to avoid repetition the scenarios in the current text are only presented once later in the text.

Each one of the 26 respondents of pretest 2 was exposed to either set A or set B of questions . Since the survey design qualtrics programme was used for creation of the questionnaires via choosing the randomization process it was made sure that each respondent was indeed exposed either to A or to B set of questions. Each one of the 27 respondents of pretest 3 was exposed to either set A or set B of questions also. The following paragraph explains why it was deemed so important for each consumer to be exposed only to one set of questions. It was judged that exposing a

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34 subject both in a scenario were the core brand of luxury launches a step down extension with the aid of a partner of function concept and then presenting to the same subject also in the scenario where the functional brand mentioned before takes the lead position in a collaboration with the luxury brand, the results would not have been unbiased.

That judgement was based on the fact that when exposed to the first co-branded extension the subject is going to form an opinion about it via considering the aspects of the collaboration that the questions that he/she is exposed to made him/her do so and also merely because of the exposal to two different cues, brand names.At any case by the time that person reaches the second co-branding scenario in which again the same brands as before are participating an opinion will have been formed about the collaboration between the two brands and for that reason most likely the consumer is going to start comparing into his/her mind the two scenarios.The result of this comparison is going to be shown at the answers that he/she is going to give for the second branded extension. However when the subject was exposed at the first co-branded extension there was no impact of comparisons cause apart from the core brand there was no other co-branded extension to be compared with.

Although the respondents of pretest 2 and pretest 3 were exposed to the same scenarios(information) what was different between the respondents of pretest 2 and pretest 3 was the reason for which the respondents use the given information.Simple put respondents of pretest 2 were asked questions about the brand concept of the co-branded extensions and the level of fit between the core brand and extension for the family branded extensions.On the other hand respondents of pretest 3 were asked questions about the quality of the co-branded extnesions and about the quality of the family branded extensions.

Finally both,pretest 2 and pretest 3 included questions that concern the customer expertise of the consumers and questions which measure the characteristics.

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35 3.2.2.Purpose of Pretest 2

Several articles have been written about the asymmetric effects that different types of vertical extensions have on the evaluation of the core brand post extension. The core expensive brand was chosen in pretest 1 based on familiarity and attitude but the core expensive brand cannot been chosen only based on this criteria since the decision was made here that the pairs that will be used in the current study will result from the chase of functional oriented brand and luxury oriented brand in core and partner position. That happened mainly for two reasons first the use of the same brands make the in-between fit the same. In pretest 2 the composite scale which resulted from the average of the items of the measures: “Market Position” and “Luxury” with “quallux” helped me check whether the positioning of the co-branded extension differed at an equal distance from the core brand as the other positioning from the other core brand. That comparison took place to understand whether indeed the respondents exposed to the luxury brand extension and its step down extension perceive the difference between the two positions equal to the difference between the positioning of a functional brand and its step up extension positioning.Despite that test,it was clearly indicated from the price stimulus that the one extension makes twice the average price and the other half.Apart from this in pretest 2 it was checked whether that specific brand pair gives me is appropriate to manipulate in the intended way ,the step down extension should have a lower positioning that the core brand and the step up higher positioning than the core brand.I checked that manipulation for the core extension and then I also check for the step down extension.

3.2.3.Results pretest 2

Based on which set of scenarios the respondents were exposed to group 1 or group 2.

Group 1 is defined the group which was exposed to the set A of scenarios(step_down_co_branded extension,step up family branded extension) and group 2 is defined the group which was exposed to the set B of scenarios(step_up_co_branded extension and step down family branded extension).Since some questions were answered by both groups a dummy variable with values 1 for group 1 and 2 for group 2 was created.The necessity of the creation of the dummy variable can be illustrated easily with an example the brand concept of

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36 of the upward co-branded extension(cheaper brand as core) Saint Laurent Paris by ZARA in order to conclude a result tha makes sense should be compared with the brand concept of ZARA,but only the mean scores of brand concept of ZARA that were assigned to the co-branded extension could be taken into consideration

Table 2 Means and standard deviations for brand concept in the pretest Name of the brand group numbe r Number of respondent s of the group Intended position of the brand Means of brand concept Standard deviation of Brand Concept

ZARA 1 10 Core brand 3,55 1,26

PRADA 1 10 Partner brand 6,20 0,79

Vivienne Westwood 1 10 Partner brand 5,50 1,17 SAINT LAURENT Paris 1 10 Partner brand 6,35 0,91 PRADA by ZARA 1 10 Step up extension of the core brand ZARA 5,17 1,03 Vivienne Westwood by ZARA 1 10 Step up extension of core brand ZARA 5,50 1,06 Saint Laurent Paris by ZARA 1 10 Step up extension of core brand ZARA 5,15 1,27

In group 1 , ZARA(M=3,55 SD=1,26) is the core brand.In order to check whether the step up extension strategy (in all three possible forms-pairs) was done correctly, the mean of the likert scale measure(number of items,n=2) “brand concept” was

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37 compared with each of the means of “brand concept”of the co-branded step up instances.As can be see in the table above for all 3 possible co-branded step up extensions of ZARA (zara acts as core,the partner differs each time) score higher in “brand concept” measure than the initial measure for ZARA, which is what would one expect for a step up extension so “brand concept” variable was manipulated correctly in all 3 cases of the co-branding instance of ZARA.

ZARA was decided as the core brand from the pretest 1.As earlier in the theoretical framework is discussed, another core brand ,one of luxury concept, needs to be selected with the pretest. The reason that both brands were not simultaneously selected in pretest 1 is that the use of the brand alliance technique complicates a bit the criteria of the selection. Specifically, one of the assumptions that the should is that the step down extension strategy is of same strength as the step up strategy. In the case of the family branding extension this is ensured via the fact that the percentage in which the price of the core line is increased for the introduction of a step up extension is the same as the percentage by which the core line price range is reduced in case of a step down extension.

In case of the co-branding situations other factors affect strength of an extension. And these factors-or at least some of them the pretest aims at controlling.

First,there is a need for the participating brands in the pair of the step down extension the “overall fit” to be equal with the „overall fit‟. The use of the same combination brands seemed a good solution to make sure that overall fit is the same. That means that the luxury brand will take the lead in the step down co-branded extension where the brand of functional concept act as partner and in the step up co-branded extension the functional concept brand will be the core and the luxury will be partner. The fact that for these brands it has been tested the level of familiarity and attitude already is also very important. Since at earlier stage it was made sure that the familiarity of both brands is at the same level it is made sure that the brand awareness of both brands is the same so no spill over effects from the partners in the alliance is expected

The respondents in group 2 were exposed to three possible core brands.That happened because of the double purpose of each brand that will appear in the main experiment. The different types of fit which complicate the effect of co-branding