How to mitigate parent brand dilution caused by step-down line extentions of luxury brands, while enhancing extentions success : a comparison between brand prominence and the sub-brand strategy

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MSc. in Business Studies – Marketing Track

HOW TO MITIGATE PARENT BRAND DILUTION CAUSED BY

STEP-DOWN LINE EXTENSIONS OF LUXURY BRANDS, WHILE

ENHANCING EXTENSION SUCCESS:

A comparison between brand prominence and the sub-brand strategy

Student: Simona Balducci

Student Number: 10602844

Date: June 29

th

, 2014

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Acknowledgements

First and foremost, I would like to express my deepest gratitude to my thesis supervisor, Dr. Karin Venetis, from the University of Amsterdam, for her valuable feedbacks, for her dedication, for being an exceptional source of knowledge, and for having believed in me since the beginning of this Master’s programme. I could not have wished for better guidance and inspiration.

I would also like to thank Drs. Roger Pruppers, from the University of Amsterdam, for the constructive discussions and for sharing his experience, and Dr. Salvatore Testa, from Università Bocconi in Milan, for having helped me to gain responses to the questionnaire by granting me access to the network of Fashion and Luxury Alumni from Università Bocconi.

There will never be enough words to thank my best friend and dear love, Paul. Thank you for reviewing this thesis, for your love, patience and support, for your strength when I was giving up. You are the best part of me.

Special thanks go also to my parents, Pina and Michele, for their unconditional love and support, for working hard to give me all the opportunities they did not have, for giving me the freedom to achieve my dreams, and never interfering with my choices. My gratitude goes also to my sister, Adriana, for being always there for me, and never making me feel alone. I feel extremely lucky for being part of this family.

Last but not least, I would like to thank all my wonderful relatives, for having always believed in me, and my great friends, for being there not only in happy moments, but also through tough times.

Without you all, I would not have been able to complete this thesis.

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Abstract

Step-down line extensions introduced by luxury brands are expected to cause parent brand dilution. This study aimed at analyzing how to reduce this detrimental effect, while enhancing the likelihood of extension success. Previous research showed that, despite mitigating dilution, sub-brands negatively affected extension acceptance. Increasing brand prominence (i.e. conspicuousness of brand logo displayed on the extension) was proposed by this study as an alternative approach to potentially reduce brand dilution, while solving the sub-brand shortcomings. The two strategies were compared through an experiment conducted among 157 Italian female respondents. Prada handbags were analyzed in the main study, since luxury brands and product categories entailing visible consumption are supposed to be the perimeter of application of this research. Step-down line extensions of luxury brands were proven to be significantly detrimental for the parent brand in terms of overall attitude and quality. This relationship seemed to be mediated by the perception of parent brand prestige. However, brand dilution was not only reduced, but completely eliminated by introducing the extension using either a sub-brand or a more conspicuous logo. This research failed to support the beliefs that increasing brand prominence would improve extension evaluation, and that a sub-brand would reduce it. Both strategies showed a neutral effect on extension attitude. Yet, while a sub-brand significantly tarnished the perception of extension prestige, increasing brand prominence was found to preserve this dimension. Since status is expected to be an important component of success for extensions introduced by luxury brands, in the boundaries of the research perimeter, increasing brand prominence should be preferred to a sub-brand strategy.

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1. Introduction

1.1 Preface

Luxury brands represent “one of the purest examples of branding” (Keller, 2009, p. 290), with the brand itself being the pivotal driver of value (Keller, 2009). Literature concerning the conceptualization of luxury brands is flourishing. Miller and Mills (2012) offer a powerful review of relevant extant research in this area, from which a set of associations often attributed by scholars to luxury brands can be derived. Prestige, uniqueness, exclusivity, premium prices, quality, status, hedonic pleasure, and conspicuous consumption depict the most recurring terms typifying luxury brands.

Besides attracting substantial academic research, the luxury industry is very appealing to practitioners as well, given its considerable size. The market for personal luxury goods was evaluated €212 billion in 2012. Moreover, the industry has experienced an attractive double-digit growth in the last years and is still expected to grow in the future (Bain & Company, 2013).

Despite working in an attractive industry in terms of growth potential, luxury brand managers are constantly confronted with the strategic trade-off between exclusivity and accessibility. The need for uniqueness clashes with the shareholders’ request to ensure a successful financial performance by attracting a significant customer base (Keller, 2009; Kastanakis and Balabanis, 2012). Step-down line extensions represent an important tool in lessening this tension (Keller and Aaker, 1992) and will constitute the focus of this study.

Brand extensions describe the use of an existing brand to gain acceptance in a totally different product category (Aaker and Keller, 1990). Conversely, line extensions describe the use of an existing brand to access a different market segment in the same product category (Aaker and Keller, 1990), by introducing a moderately modified version of a product (Shocker et al., 1994). Specifically, step-down line extensions involve the introduction of a

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new product within the same category, at a lower price/quality level (Pitta and Katsanis, 1995). Along with representing a potential solution to the luxury trade-off between exclusivity and accessibility, step-down line extensions are also a way of attracting less affluent customers, who might be able to afford more expensive products of the brand in the future (Kirmani et al., 1999). These extensions are very common in the marketplace. Popular examples include Mercedes A-Class (Dall’Olmo Riley et al., 2013), Armani Jeans (Keller, 2009), and Courtyard Inn by Marriott (Lei et al., 2008a). Despite the broad adoption, so far scholars have mostly focused on brand extensions, while the research on line extensions, particularly vertical ones, is still limited (Kirmani et al., 1999; Kim et al., 2001; Dall’Olmo Riley et al., 2013).

Brand and line extensions denote a very significant marketing phenomenon, whose managerial relevance is clearly underlined in academic research. In the last decades, many companies have preferred to introduce new products using an existing brand, rather than developing a completely new name. The main rationale rests on the extremely high costs entailed by a new brand (Tauber, 1981; Kirmani et al., 1999; Pitta and Katsanis, 1995). Researchers state that the costs of bringing a new brand to market exceed $50 million. As a consequence, most companies prefer to capitalize on existing brand equity (Aaker and Keller, 1990; Pitta and Katsanis, 1995). An extension strategy has the potential to lower the marketing costs associated to the introduction of a new product or service, due to the stronger customer acceptance resulting from a renowned brand (Keller and Aaker, 1992; Aaker, 1990).

Yet, despite reducing the costs of new product introduction, brand extensions can also have severe potential downsides. The most critical one is the dilution of existing brand equity (Aaker, 1990), meaning that the core brand associations are weakened or damaged by the introduction of the extension (Keller, 1993). Hence, many studies have focused on the

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outcomes of extensions in terms of core brand and extension evaluation. In general, an extension can be considered successful when the core brand gives a positive contribution to the extension, and vice versa (Aaker, 1990). On account of this, scholars tend to be mostly negative about the introduction of vertical extensions, because of their demonstrated dilution effect on the parent brand (Kim et al., 2001). Several researchers share the belief that step-down extensions introduced by luxury brands are particularly detrimental, given the distinctive parent brand image, characterized by prestige and exclusivity (Pitta and Katsanis, 1995; Kim and Lavack, 1996; Kim et al., 2001; Kirmani et al., 1999; Keller, 1993). However, academic literature is conflicting about this matter. A recent study conducted by Dall’Olmo Riley et al. (2013) finds that luxury brands do not necessarily suffer from downward line extensions. The controversy in this area shows the urgency for further investigation, in order to clarify the effect of step-down line extensions on parent brand equity.

Given the widespread opinion that step-down line extensions are generally harmful, especially for luxury brands, one of the potential approaches to prevent brand dilution is the organization of brand architecture. Many scholars have focused on the sub-brand strategy (e.g. Kirmani et al., 1999; Kim et al., 2001; Keller, 2009), which combines the parent brand name with an extension identification name, e.g. Courtyard Inn by Marriott. The extension name distances the new product from the existing brand both linguistically and graphically, preventing dilution (Kim and Lavack, 1996). This approach rests on the typicality-based model, according to which inconsistent information of the extension might be accommodated in a sub-typed position, in this case the sub-brand, to prevent their assimilation in the existing brand schema (Sujan and Bettman, 1989; Loken and Roedder John, 1993).

However, while it has been proven that a sub-brand strategy mitigates brand dilution in case of downscale extensions of luxury brands (Kim et al., 2001, Kirmani et al., 1999), sub-brands have also downsides. Kim et al. (2001) find that increasing the distance from the core

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brand negatively affects the evaluation of the extension, thus reducing its acceptance. Therefore, luxury brand managers face a trade-off between mitigating brand dilution and improving extension success. The optimal choice depends on the company’s strategic goals (Kim and Lavack, 1996). In this study, step-down line extensions are analyzed in the view of answering the shareholders’ pressure to increase market coverage and improve financial performance. As a result, enhancing extension evaluation gains importance (Kim and Lavack, 1996; Kim et al., 2001).

Notwithstanding the drawbacks of a sub-brand strategy, no previous research has investigated alternative approaches that might solve its intrinsic trade-off. This research aims at filling this gap by investigating the influence of brand prominence on step-down line extensions of luxury brands. Brand prominence mirrors the relative differences in conspicuousness of luxury goods and is defined as “the extent to which a product has visible markings that help ensure observers recognize the brand” (Han et al., 2010, p. 15). Keller (2009) argues that “the relative prominence of brand elements affect perceptions of product distance and the type of image created for new products” (p. 299). Specifically, reducing the graphical size of the parent brand is assumed to increase the perceived distance and prevent parent brand dilution. Yet, it also hampers extension acceptance by limiting associations transfer. Conversely, enlarging the relative size of the parent brand is expected to enhance extension acceptance, but increases the likelihood of parent brand dilution (Kim and Lavack, 1996; Keller, 2009). For the purpose of this study, Keller’s principle of prominence will be inversely applied when testing the effect of logo conspicuousness. Instead of enhancing the perception of distance by reducing parent brand graphical relevance, this research proposes to actually increase brand prominence displayed on a direct extension, in order to mitigate dilution caused by stretching down. This potentially improves extension evaluation and solves the sub-brand shortcomings, thus having important implications for practitioners.

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In detail, the purpose of this research is: a) confirming the presence of parent brand dilution when a step-down line extension is introduced by a luxury brand; b) investigating whether an increase of brand prominence and a sub-brand strategy mitigate dilution; c) investigating what is the effect of brand prominence and sub-brand strategy on step-down line extension evaluation; d) providing a comparison between the two approaches, in order to detect differences.

1.2 Research perimeter

Brand prominence is proposed as a substitute of the sub-brand strategy. It finds its roots in the concept of conspicuous consumption, originally formalized by Veblen (1899) as the “specialized consumption of goods as an evidence of pecuniary strength” (p. 49). Based on this definition, the consumption has to be evident and create associations with pecuniary strength. As a consequence, this research is applicable to luxury brands marketing products in highly visible categories, such as Mercedes cars, Gucci sunglasses, Louis Vuitton handbags, Rolex watches and Tiffany & Co. jewelry (Han et al., 2010).

This research will focus on luxury leather goods, specifically handbags. According to Bain & Company (2013), in 2012 accessories accounted for 28% of the total revenues in the personal luxury goods industry and they were the main driver for the 2011-12 10% growth rate. Among the accessories, leather goods, are expected to hold a leading role in steering the personal luxury goods industry size. Hence, this product category is deemed relevant for practitioners.

1.3 Research question and sub-questions

The main research question can be formulated as follows:

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How do brand prominence and the sub-brand strategy differently influence parent brand evaluation when a step-down line extension is introduced by a luxury brand, and what is their direct effect on extension evaluation?

The answer to the main question will be built by sequentially answering more specific sub-questions:

 What is customer-based brand equity?

 What are brand extensions and how many types of brand extensions are available?  How do step-down line extensions influence customer-based brand equity?

 What branding strategies are applicable to a step-down line extension?

 How does a sub-brand strategy influence: a) parent brand evaluation when a step-down line extension is introduced by a luxury brand; b) the evaluation of step-step-down line extensions introduced by luxury brands?

 What is brand prominence and how does it influence: a) parent brand evaluation when a step-down line extension is introduced by a luxury brand; b) the evaluation of step-down line extensions introduced by luxury brands?

1.4 Contribution

This study aims at bringing new insights in the thriving industry of personal luxury goods. Step-down line extensions are proposed as a potential tool to lessen the tension faced by luxury brand managers between ensuring exclusivity and satisfying shareholders pressure to achieve a strong financial performance. Indeed, step-down line extensions are extremely appealing to luxury brand managers, because of their intrinsic market potential of attracting a broader audience (Kim and Lavack, 1996). Nonetheless, research on step-down line extensions is very limited and this study attempts to provide further understanding in this area. This is also important given that extensions are a popular marketing phenomenon, especially relevant for practitioners, due to the high costs of new brand introduction (Aaker

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and Keller, 1990; Pitta and Katsanis, 1995). The topic is also academically interesting, given the conflicting results concerning the effect of step-down line extensions of luxury brands on post-extension parent brand evaluation (Kim et al., 2001; Kirmani et al., 1999; Dall’Olmo Riley et al., 2013). However, evidence exists about the potential dilution effect (Kim et al., 2001; Kirmani et al., 1999), therefore, it is very important to find ways of mitigating this effect. One of the tools commonly used to protect parent brand image is the sub-brand strategy. While it fulfills this objective by influencing the distance between the extension and the existing brand, it also has a negative influence on extension evaluation. This study will test brand prominence as an alternative sub-typing approach that might solve the sub-brand trade-off between limiting the damage to the existing brand image and increasing extension evaluation.

1.5 Research layout

The remainder of the study is organized as follows. Section 2 examines existing literature, with the purpose of outlining the conceptual framework and generating a set of hypotheses. Subsequently, Section 3 describes the methodology adopted by this research. In Section 4, hypotheses are tested by conducting statistical analyses. The findings are then discussed in Section 5, in the light of existing literature, and implications for practitioners are derived. Finally, conclusions are drawn in Section 6. In this part, recommendations for future research directly stem from the review of limitations and findings. Auxiliary information about the study are provided in appendix.

2. Literature review

2.1 Customer-based brand equity

Brand equity has been approached by scholars from different viewpoints. From a financial perspective, brand equity is seen as “the incremental cash flows which accrue to

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branded products over and above the cash flows which would result from the sale of unbranded products” (Simon and Sullivan, 1993, p. 29). However, this research will investigate brand equity from the consumer’s viewpoint. Customer-based brand equity is defined as “the differential effect of brand knowledge on consumer response to the marketing of the brand” (Keller, 1993, p. 2). In both definitions, brand equity arises when, ceteris paribus, the presence of the brand determines a stronger financial performance or a more positive response, when compared to an unbranded entity. Nonetheless, while financial-market-based brand equity could be tangibly measured as the differential impact on the market value of the firm (Simon and Sullivan, 1993), customer-based brand equity is a very subjective concept that lies in consumers’ minds (Keller, 2013).

The driver of customer-based brand equity is brand knowledge, described by Keller (1993, 2013) through an associative network model. The brand represents a node in memory, which is linked to other nodes to form a network of associations. This network of associations is highly personal and is based on the individual experience that each consumer has previously had with the brand. The prerequisite for establishing the associative network is brand awareness, which is one of the two main elements composing brand knowledge. Brand awareness implies the creation of the brand node in consumers’ mind and describes how easily this node can be activated. Only once the node is present, a network of associations can be linked to it, to form the brand image, that is the second component of brand knowledge. Brand image represents the individual perception that consumers hold about the brand and plays a fundamental role in evoking the desired responses to marketing initiatives, which are the cornerstone of customer-based brand equity. A cohesive network of strong, favorable, and unique brand associations facilitates the development of positive overall attitudes toward the brand, and strengthens its equity (Keller, 1993). In turn, customer-based brand equity

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increases the likelihood of brand purchase, as well as brand loyalty (Pitta and Katsanis, 1995), thus showing a direct link with financial-market based brand equity.

Customer-based brand equity is a primary asset for firms. It is very important to leverage it wisely, given the ease with which it can be tarnished. This study focuses on brand extensions, which are an important case of brand equity leverage. By establishing a link to the parent brand node, extensions benefit from the transfer of positive associations forming the parent brand image. However, when a company decides to introduce a brand extension, considering the feedback effect that this initiative might have on the existing brand image is of primary importance. An extension that is inconsistent with the parent brand might reduce the cohesiveness of the brand image, thus weakening brand equity (Keller, 1993).

The next sections provide a detailed explanation of brand extensions and their effect on brand equity from the consumer’s perspective.

2.2 Brand extensions

2.2.1. Types of brand extensions

Tauber (1981) considers brand extensions an important growth opportunity for firms. “A brand extension occurs when a firm uses an established brand name to introduce a new product” (Keller, 2013, p. 433). Therefore, a prerequisite for brand extensions is the exploitation of existing brand equity (Aaker and Keller, 1990). Several types of brand extensions exist. They can be differentiated in terms of two dimensions, i.e. product category (Ambler and Styles, 1997), and direction (Pitta and Katsanis, 1995).

When a new product is offered in the same product category currently served by the existing brand, a line extension is introduced. For instance, this occurred when Coca-Cola introduced the Diet Coke version, i.e. a soft drink for more health-conscious consumers. Conversely, a brand extension describes the introduction of a new product in a different

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category (Ambler and Styles, 1997), like snack bars from the brand Kellogg’s, well-known for breakfast cereals (Keller, 2013).

The second criterion for differentiating brand extensions is their direction. This can be identified by comparing the price and quality level of the new product, with the one of existing products currently marketed by the parent brand. An extension can be either horizontal, or vertical, depending on whether or not the new product is introduced at an approximately similar price/quality level of existing products. Differences in this level delineate the presence of a vertical extension (Pitta and Katsanis, 1995). Hence, a Mars ice cream bar can be considered an horizontal (brand) extension, while the cheaper carrier service introduced by US Airways, the US Airways Shuttle, is an example of vertical (line) extension (Keller, 2013).

In turn, vertical extensions can be classified into step-up or step-down. Step-down extensions target less affluent consumers, since they are introduced at a lower price and quality point. In contrast, step-up extensions are dedicated to market segments with lower price sensitivity and stronger preference for superior quality. Thus, while Armani Jeans can be considered a step-down (line) extension introduced by Armani, the parent brand also owns a premium line named Giorgio Armani Privé, i.e. a step-up (line) extension (Keller, 2013).

The focus of this study is on step-down line extensions.

2.2.2 The effect of step-down line extensions on parent brand equity

Extant research shows that vertical line extensions are detrimental for the parent brand, regardless of their direction. However, in case of step-down line extensions, this negative effect seems to be sharpened by the parent brand concept (Kim et al., 2001), i.e. the “brand-specific abstract meaning” (Bhat and Reddy, 1998, p.32). Traditionally, scholars differentiate between functional and luxury brand concepts. Functional brands are linked to product performance (Park et al., 1991; Kim and Lavack, 1996; Kim et al., 2001), while luxury

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brands are intertwined with exclusivity, prestige and status (Kim and Lavack, 1996; Kirmani et al., 1999; Kim et al., 2001). Thus, premium price represents a central association to luxury brands (Kirmani et al., 1999; Miller and Mills, 2012), while functional ones are mostly linked to utilitarian needs (Bhat and Reddy, 1998). Given these differences in the brand associative network, by attracting less affluent customers, step-down extensions would weaken a luxury brand image much more than a functional one (Kim and Lavack, 1996; Kim et al., 2001; Kirmani et al., 1999; Keller, 1993).

Yet, academic literature shows conflicting results about the effect of step-down line extensions introduced by luxury brands. In line with the reasoning above, most authors consider them harmful for the parent brand (Pitta and Katsanis, 1995; Kim and Lavack, 1996; Kim et al., 2001; Kirmani et al., 1999; Keller, 1993). The studies conducted by Kim and Lavack (1996), Kirmani et al. (1999), and Kim et al. (2001) empirically support this notion. Conversely, Dall’Olmo Riley et al. (2013) find that luxury brands do not always suffer from the introduction of step-down line extensions, and that it might depend on the product category. They find that, while luxury shoes producers do not suffer brand dilution, the image of luxury car brands is significantly tarnished.

In general, the brand dilution effect resulting from step-down line extensions can be explained using the bookkeeping model in categorization theory. According to this model, brands hold a specific schema in consumers’ mind, i.e. the brand image. The introduction of a coherent extension fits in the schema without requiring an update (Sujan and Bettman, 1989). However, when an extension that is discrepant with the existing schema is launched, the parent brand’s set of attributes is modified to assimilate the new inconsistent information (Sujan and Bettman, 1989). Incongruent associations may weaken or damage existing favorable beliefs (Fishbein and Ajzen, 1975) and incrementally change the parent brand image, thus causing its dilution (Kim and Lavack, 1996; Loken and Roedder John, 1993).

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As described earlier, scholars tend to focus on associations like premium prices and exclusivity to typify luxury brands (Miller and Mills, 2012). Introducing a step-down line extension implies a lower price level, and greater accessibility to less wealthy customers. These attributes clash with the quintessential associations held by luxury brands and are likely to require an update of the brand schema that would weaken the initial associations (Kim et al., 2001) and reduce parent brand image clarity (Kim and Lavack, 1996). Hence, this study hypothesizes that the introduction of an extension at a lower price than the existing products marketed by the parent brand causes brand dilution. Inconsistent price information is expected to reduce the coherence of parent brand associations, thus negatively impacting parent brand evaluation. In order to attribute the negative feedback effect to the introduction of a step-down line extension, all other things need to be kept equal. That is, the extension should not bear major changes, compared to the existing products of the parent brand in the same category, except for the price difference. This step-down line extension will be defined as neutral. Changes in other variables might mitigate or enhance dilution, and would not allow to isolate the effect of a neutral step-down line extension.

Extant literature investigating the feedback effect of brand and line extensions on parent brand image has conceptualized brand evaluation in different ways. Two mainstreams can be identified. In one case, authors delineate brand evaluation in terms of overall attitudes toward the parent brand (e.g. Musante, 2007; Dall’Olmo Riley et al., 2013). Other researchers focus on a quality-oriented evaluation of the parent brand (e.g. Keller and Aaker, 1992; Kim et al., 2001). For the purpose of this research, both constructs will be analyzed, representing two different facets of brand evaluation. The following is hypothesized:

H1a. When a neutral step-down line extension is introduced, the post-evaluation of the

parent brand in terms of overall attitude will be significantly lower than its initial evaluation, in absence of the extension.

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H1b. When a neutral step-down line extension is introduced, the post-evaluation of the

parent brand in terms of quality will be significantly lower than its initial evaluation, in absence of the extension.

2.3 The effects of sub-brand strategy and brand prominence on parent brand post-extension evaluation and post-extension evaluation

This research analyzes the effectiveness of two alternative strategies to prevent parent brand dilution, when a step-down line extension is introduced by a luxury brand: a) the sub-brand strategy; and b) the manipulation of sub-brand prominence displayed on a direct extension. Both the proposed approaches rest on the typicality-based model in categorization theory. According to this model, atypical extensions, i.e. extensions holding associations which are inconsistent with the existing brand beliefs, might show lower brand dilution when a sub-type is created to accommodate discrepant information (Sujan and Bettman, 1989; Loken and Roedder John, 1993).

Avoiding parent brand dilution in case of step-down line extensions is a primary concern for luxury brand managers. However, once the step-down line extension has been introduced, marketers also want to maximize its success (Aaker, 1990). Besides reducing parent brand dilution, brand prominence and the sub-brand strategy have also a direct effect on step-down line extension evaluation.

The hypothesized effects of brand prominence and sub-brand strategy on parent brand post-extension evaluation and step-down line extension evaluation are described in the following sections.

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2.3.1 Sub-brand strategy

2.3.1.1 Types of branding strategies

When introducing new products, one of the main challenges faced by marketers is the choice of branding strategy. A wrong branding choice might not only affect the success of the product itself, but also the image of the brands in the portfolio related to it, as a consequence of potential negative spillovers (Lei et al., 2008b). The term coined by researchers to define the relationship among brands in a portfolio is brand architecture, given that it refers to a real structural frame (Aaker and Joachimsthaler, 2000). An appropriate brand architecture help marketers “maximize coverage and minimize overlap of the target market” (Keller, 2009, p. 299), thus enabling the achievement of financial growth (Keller, 2009), while avoiding brand dilution (Kirmani et al., 1999). The organization of brand architecture is facilitated by an effective tool introduced by Aaker and Joachimsthaler (2000), i.e. the brand relationship spectrum. According to the authors, a new product can be introduced not only using either an existing brand or a completely new name, but also hybrid forms combining both. Essentially, potential branding strategies range in a continuum, whose ends are represented by the house of brands and the branded house strategies.

The house of brands strategy entails the introduction of stand-alone brands (Petromilli et al., 2002), for each of the different market segments served by the parent company. This strategy has the advantage to enhance clarity of positioning in each target and avoid confusion in consumers’ minds. However, it precludes the achievement of economies of scale and the possibility to create synergies (Aaker and Joachimsthaler, 2000). The house of brands strategy is not included in the perimeter of brand extensions. This strategy impedes the transfer of associations between brands belonging to a same company (Aaker and Joachimsthaler, 2000), while the introduction of an extension requires the capitalization on existing equity (Keller, 2013).

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The other end of the continuum, i.e. the branded house strategy, perfectly fulfills this function. A branded house strategy implies the use of the same parent brand for providing a variegated mix of products and/or services. The branded house strategy shows diametrically opposite advantages and disadvantages than those of the house of brands, i.e. blurrier positioning, but stronger brand equity leverage (Aaker and Joachimsthaler, 2000).

Moving away from the branded house strategy, in the direction of the house of brands, represents what Kim and Lavack (1996) describe as linguistic distancing. Between the two ends of the spectrum, companies encounter two other branding options, i.e. the sub-brand and the brand endorsement strategies. These options combine an existing brand name, with a new identifier. The difference between the two strategies is represented by the distance from the parent brand. The role of the parent brand is weakened when moving from the sub-brand toward the brand endorsement strategy. The main advantage of these hybrid forms is the possibility to leverage parent brand equity across different segments, while signaling at the same time innovation and separation from the parent brand. Examples of sub-brands are Microsoft Office, or Sony Walkman. Instead, Polo by Ralph Lauren or Courtyard Inn by Marriott represent cases of endorsement strategy (Aaker and Joachimsthaler, 2000).

Authors investigating the sub-brand strategy in the area of brand extensions do not make a distinction between brand endorsement and sub-brand. Between a direct extension and a new product introduced using a stand-alone name, Milberg et al. (1997) identify a “compromise strategy that associates a new brand name with an existing one” (p. 125). When looking in depth at the study, it emerges that the authors mean by sub-brand what Aaker and Joachimsthaler (2000) describe as brand endorsement (i.e., Caliber by Polaroid). The same happens with Kirmani et al. (1999), who test Indigo by Calvin Klein or Ultra by BMW as sub-brands. For the purpose of this research, the main literature stream on brand extensions undertaken by Milberg et al. (1997) and Kirmani et al. (1999) will be followed. Hence, the

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term sub-brand will be used to describe what Aaker and Joachimsthaler (2000) more subtly define as brand endorsement.

2.3.1.2 Effect on the evaluation of the parent brand

The organisation of brand architecture is the main tool on which extant literature focuses for preventing parent brand dilution in case of vertical line extensions. The most straightforward way to avoid dilution while serving customers with different price sensitivity is the house of brands strategy. However, as described earlier, introducing new brands is extremely expensive. Moreover, the extension would not benefit from existing brand equity and it would be more problematic moving less affluent customers to more expensive brands within the same family, when a higher income becomes available (Keller, 2009). The sub-brand strategy addresses these issues and is proposed by many scholars to mitigate sub-brand dilution (Kirmani et al., 1999; Kim and Lavack, 1996; Kim et al., 2001; Keller, 2009; Pitta and Katsanis, 1995). While preserving the connection with the core brand, the sub-brand allows for the creation of product specific associations. This enables customers to understand the differences among products within a same brand family (Keller, 2009).

The mitigating effect of the sub-brand strategy rests on the typicality-based model. The use of a sub-brand, compared to a direct extension, leads to a sub-typing process that limits the transfer of associations. The sub-brand provides a different set of associations in which consumers can allocate inconsistent information deriving from the extension, thus protecting the parent brand from dilution (Milberg et al., 1997). Therefore, the hypotheses below are formulated. As discussed in section 2.2.2, two different facets of parent brand evaluation will be taken into account, i.e. overall attitude and quality.

H2a. The use of a sub-brand mitigates dilution of the parent brand in terms of overall

attitude, when a step-down line extension is introduced. In particular, the use of a

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sub-brand will lead to a significantly higher post-evaluation of the parent brand in terms of overall attitude, compared to a direct extension.

H2b. The use of a sub-brand mitigates dilution of the parent brand in terms of quality,

when a step-down line extension is introduced. In particular, the use of a sub-brand will lead to a significantly higher post-evaluation of the parent brand in terms of quality, compared to a direct extension.

2.3.1.3 Effect on the evaluation of the step-down line extension

One of the main rationales for introducing a step-down line extension is leveraging parent brand equity to enter new market segments (Aaker and Keller, 1990). A sub-brand strategy reduces the link to the parent brand by creating a new set of specific beliefs, through the use of an extension identifier (Keller, 2009). This limits the transfer of parent brand attitudes to the extension (Boisvert and Burton, 2011), thus hampering the possibility to capitalize on existing equity and enhancing extension liking (Pitta and Katsanis, 1995). Till and Priluck (2000) apply the theory of classical conditioning to line extensions. According to the authors, being exposed to the stimulus “brand” activates a process of stimulus generalization that transfers the attitudes toward the brand also to the extensions. However, this effect is stronger for highly similar extensions, i.e. extensions that are close to the parent brand. A sub-brand is likely to reduce the stimulus generalization, as it increases the distance from the parent brand. As a consequence, this diminished transfer of brand equity negatively impacts the favorability toward the extension (Kim and Lavack, 1996; Kim et al., 2001). The following hypothesis can be developed:

H3. A step-down line extension introduced using a sub-brand strategy will be evaluated significantly less favorably, compared to a direct step-down line extension.

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2.3.2 Brand prominence

2.3.2.1 Effect on the evaluation of the parent brand

Based on a study conducted by Han et al. (2010) in the automotive and fashion industry, it seems reasonable to think that by making the product “louder”, i.e. enlarging the brand identification signs displayed on it, a luxury brand might be able to stretch down while preventing dilution. The authors observe that, when analyzing the product line of a single luxury brand, an increase of brand prominence is related to a price decrease, i.e. the louder the product, the lower the price. For example, a one centimeter increase in the Mercedes logo is found to be related to a price decrease of about $5,000 (Han et al., 2010). Likewise, the subtle version of the Louis Vuitton handbag model “Neverfull MM” is priced €1,390, while its loud version costs €855, i.e. 38.5% less (Louis Vuitton online shopping website). According to Han et al. (2010), marketing the right mix of loud and subtle products is very important for luxury brands. The authors endorse the idea that this has enabled fashion houses like Louis Vuitton to be positioned among the best global brands. The notion is supported by Forbes 2013 World’s Most Valuable Brands ranking, that places Louis Vuitton as the world’s largest luxury fashion brand, with a value of $28.4 billion. This number is considerably higher when compared to a more discreet brand like Hermès (Nunes et al. 2011), evaluated $9.3 billion (Forbes, 2013).

Essentially, different levels of brand prominence, and the related variation of prices within a product line, enable luxury brands to satisfy segments with different price and logo sensitivity (Kapferer, 2010; Han et al., 2010). This rests on distinctive signaling goals of consumers, led by their cultural capital in the product class domain (Berger and Ward, 2010).

Commonly, luxury goods are considered a costly signal of status (Bird and Smith, 2005). However, the cost of a signal is only one of the two factors influencing the signal effectiveness. The second factor is signal visibility (Connelly et al., 2011). Consequently, the

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explicit presence of a brand name on a luxury product should enhance its signaling value. This idea is supported by Berger and Ward (2010), who find that luxury products without a clear brand identification sign are more likely to be misidentified in terms of value. Notwithstanding, luxury products are not always loudly marked. Actually, they often lack of any clear identification sign. This is explained by the fact that some consumers prefer a brand strategy that cloaks information about its products, as it preserves the signaling value of the products themselves (Yoganarasimhan, 2012). Subtly marked products allow consumers to send signals of taste and sophistication only to people “in the know”, who have the right cultural capital to decipher the signal value, by simply observing the design or other characteristics of the luxury good (Berger and Ward, 2010; Han et al., 2010). In this case, the product serves value-expressive goals (Wilcox et al., 2009). Conversely, conspicuously marked goods send signals of status to observers that do not have the right cultural capital to interpret them, thus enhancing recognition (Berger and Ward, 2010; Han et al., 2010). Hence, the product serves social-adjustive goals (Wilcox et al., 2009). In addition, Han et al. (2010) find that customers with a lower income tend to prefer more explicitly marked luxury products, which would provide a rationale for stretching down by increasing brand prominence.

The existence of customers with different cultural capital leads to a sub-categorization process. Different sub-categories are likely to hold different networks of associations about the brand. In accordance to the typicality-based model described earlier, when a brand introduces a product that holds distinctive attributes which are atypical for the parent brand, dilution might be prevented by providing a sub-type (Loken and Roedder John, 1993). Consumers with a preference for subtle products aim at communicating self-identity through the consumption of inconspicuous luxury goods (Wilcox et al., 2009). When a new loud product is introduced, it targets consumers looking for social acceptance. This is inconsistent

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with the goals of high cultural capital customers. Yet, the more conspicuous logo creates a sub-type in which accommodating discrepant information, and prevents dilution. The opposite happens for consumers with low cultural capital. The increased brand prominence of the extension is consistent with the purpose of gaining social approval (Wilcox et al., 2009) and does not affect the cohesiveness of the brand image, thus avoiding parent brand dilution.

The following hypotheses have been developed to test the idea that an increase of brand prominence reduces dilution of the parent brand caused by the introduction of a step-down line extension. As discussed in section 2.2.2, two different facets of brand evaluation will be analyzed, namely parent brand evaluation in terms of overall attitude and quality.

H4a. Increasing brand prominence mitigates dilution of the parent brand in terms of overall

attitude, when a step-down line extension is introduced. In particular, an increase of brand prominence will lead to a significantly higher post-evaluation of the parent brand in terms of overall attitude, compared to the neutral brand prominence condition.

H4b. Increasing brand prominence mitigates dilution of the parent brand in terms of quality,

when a step-down line extension is introduced. In particular, an increase of brand prominence will lead to a significantly higher post-evaluation of the parent brand in terms of quality, compared to the neutral brand prominence condition.

2.3.2.2 Effect on the evaluation of the step-down line extension

Step-down line extensions of luxury brands allow companies to increase market coverage by appealing consumers that otherwise would not be able to access the brand (Keller, 2013). The biggest concern of marketers is to achieve this goal while avoiding brand dilution and sales cannibalization (Kim and Lavack, 1996).

Luxury brand managers tend to be predominantly concerned about the evaluation of new products expressed by wealthy consumers (Han et al., 2010), given that individuals with

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a higher income are more inclined to purchase luxury goods (Dubois and Duquesne, 1993). Wealthy consumers want to preserve the luxury brand image based on prestige and high quality, therefore they do not hold a favorable evaluation of step-down line extensions, which are deemed inconsistent with the luxury brand concept. Indeed, according to Park et al. (1991), a brand extension is evaluated more favorably when both product similarity and brand concept consistency are high. The lower price of a step-down extension is considered a conflicting attribute that diminishes the hedonic potential associated with luxury brands (Hagtvedt and Patrick, 2009). The fact that this specific segment evaluates the extension less favorably should not be perceived as negative, as it avoids sales cannibalization and trading-down of customers. On the other hand, it is important that the extension appeals the segment that marketers are trying to enter, i.e. less affluent customers. Consumers with a lower income want to purchase luxury brands to be associated with wealthier people, and tend to prefer louder products because of their social-adjustive goals (Han et al., 2010). A step-down line extension has the potential to serve these associative needs, particularly when displaying a more conspicuous logo. Compared to the neutral brand prominence condition, an increase of brand prominence is expected to reinforce the transfer of positive attitudes by increasing the graphical link to the parent brand. In turn, this has the potential to improve extension acceptance.

The overall evaluation of the extension in the market is influenced by the evaluation of these different segments. While wealthy consumers will evaluate the step-down line extensions less favorably in any case, the target group of the extension is likely to be positively influenced by an increase of brand prominence. On average, the following can be hypothesized:

H5. A step-down line extension displaying increased brand prominence will be evaluated

significantly more favorably, compared to the neutral brand prominence condition.

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2.3.3 A comparison between brand prominence and sub-brand strategy

The main purpose of this research is to investigate the role of brand prominence in step-down line extensions and compare it against the sub-brand strategy. Both approaches are hypothesized to mitigate brand dilution when step-down line extensions are introduced by a luxury brand, as discussed earlier when presenting H4 and H5. No significant difference is expected between the two approaches, which are proposed as alternative solutions to protect the parent brand image. However, the use of a sub-brand strategy seems to force luxury brand managers to choose between protecting parent brand image and improving extension acceptance (Kim et al., 2001). Brand prominence has the potential to solve this trade-off. As described earlier, in general, wealthy customers will perceive a step-down line extension less favorably under any condition, given its inconsistency with the luxury brand concept (Park et al., 1991). In addition, compared to direct extension and increased brand prominence conditions, a sub-brand strategy is expected to reduce the extension evaluation, as it limits the possibility to fully leverage existing brand equity (Kim and Lavack, 1996; Kim et al., 2001). Moreover, a sub-brand strategy provides less support to less affluent consumers who want to be associated to the wealthier ones. Consequently, on a market average, the following hypothesis can be formulated:

H6. A step-down line extension displaying increased brand prominence will be evaluated

significantly more favorably, compared to a step-down line extension introduced using a sub-brand.

2.4 Conceptual framework

2.4.1 Post-extension evaluation of the parent brand

The first step of the analysis consists of testing whether the introduction of a neutral step-down line extension causes parent brand dilution. Afterwards, two variables are analyzed, i.e. the branding strategy and brand prominence, in order to understand whether

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parent brand dilution can be prevented when a step-down line extension is introduced (Figure 2.1).

Figure 2.1: Conceptual framework: parent brand evaluation

H1a [H1b]. When a neutral step-down line extension is introduced, the post-evaluation

of the parent brand in terms of overall attitude [quality] will be significantly lower than its initial evaluation, in absence of the extension.

H2a [H2b]. The use of a sub-brand mitigates dilution of the parent brand in terms of

overall attitude [quality], when a step-down line extension is introduced. In particular, the use of a sub-brand will lead to a significantly higher post-evaluation of the parent brand in terms of overall attitude [quality], compared to a direct extension.

H4a [H4b]. Increasing brand prominence mitigates dilution of the parent brand in

terms of overall attitude [quality], when a step-down line extension is introduced. In particular, an increase of brand prominence will lead to a significantly higher post-evaluation of the parent brand in terms of overall attitude [quality], compared to the neutral brand prominence condition.

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2.4.2. Evaluation of the step-down line extension

The effects of brand prominence and branding strategy on the evaluation of step-down line extensions are also analyzed and compared (Figure 2.2).

Figure 2.2: Conceptual framework: extension evaluation

H3. A step-down line extension introduced using a sub-brand strategy will be evaluated

significantly less favorably, compared to a direct step-down line extension.

H5. A step-down line extension displaying increased brand prominence will be

evaluated significantly more favorably, compared to the neutral brand prominence condition.

H6. A step-down line extension displaying increased brand prominence will be

evaluated significantly more favorably, compared to a step-down line extension introduced using a sub-brand.

3. Methodology

In order to test the hypotheses, this research analyzed the introduction of fictitious step-down line extensions by an existing parent brand. The use of a fictitious parent brand might have enhanced control over the manipulations in the experiment (Kirmani et al., 1999), removed the effect of pre-existing attitudes (Kim et al., 2001), and ensured consistent levels of brand knowledge among respondents (Lei et al., 2008a). However, using an existing parent brand and fictitious extensions was deemed preferable as consistent with extant literature on

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vertical line extensions (Kirmani et al., 1999; Kim et al., 2001; Dall’Olmo Riley et al., 2013). Capitalizing on existing brand equity is the rationale of extensions (Aaker and Keller, 1990; Pitta and Katsanis, 1995). According to Dwivedi et al. (2010), fictitious brands lack established brand knowledge and attitudes, which represent the precondition to extend. In addition, considering a real brand improves ecological validity (Till and Priluck, 2000).

3.1 Pretesting

The pretesting process necessary as a preparation for the main study was composed of several stages, as described below.

3.1.1 Pretest 1: brand selection

The first pretest was conducted to select the brand for the main study. As stated in the introduction, this research focuses on luxury leather goods, in particular handbags, given the relevance of this category in driving growth in the personal luxury goods industry (Bain & Company, 2013). Handbags have already been successfully used in similar studies to test consumer preferences for either subtly marked or conspicuous luxury goods (Berger and Ward, 2010; Wilcox et al., 2009), or to analyze the relationship between brand prominence and price (Han et al. 2010), because of their visible consumption. Moreover, handbags with different levels of conspicuousness truly exist, therefore the manipulation of brand prominence is credible (Wilcox et al., 2009).

An analysis of fashion luxury brands offering handbags for women was performed, in order to select the brands to include in the first pretest. The handbags of these brands needed to display a small logo to allow for brand prominence manipulation. Moreover, the brands should not present a mix of loud and subtle products, already satisfying consumers with different price and logo sensitivity. The analysis was conducted by analyzing the brands official and online shopping websites, and is based on existing collections, since data on

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previous collections were not available. Appendix A shows a list of the brands taken into account, including reasons for possible exclusion from the pretest.

Six brands were selected for the first pretest: Tod’s, Prada, Lanvin, Dolce & Gabbana, Givenchy, and Miu Miu. Among these brands, it was necessary to identify one that was perceived as luxurious, highly familiar, and held positive attitudes. As described earlier, luxury brands represent the perimeter of this research. In addition, familiarity is necessary to leverage existing brand equity (Kim and Lavack, 1996), whose presence is proven by positive parent brand attitudes (Dwivedi et al., 2010).

The first pretest was completed by 30 female Italian respondents, aged between 18 and 64, mostly employees or students. Demographic information are summarized in tables 3.1 and 3.2.

Table 3.1: Age of respondents in Pretest 1

Table 3.2: Profession of respondents in Pretest 1

As a filter question, respondents were first asked whether they knew the brands. Tod’s, Prada and Dolce & Gabbana were known by all respondents. Not everyone was aware of the other three brands. Lanvin and Givenchy were excluded from the analysis because respectively 60% and 16.7% of respondents had no awareness. Miu Miu was included as 96.7% of respondents knew the brand.

The first pretest consisted of comparing the mean scores of familiarity, luxury, and attitudes gained by the four brands included in the analysis. The choice between parametric

Age: 18-24 25-34 35-44 45-54 55-64 Total

n 8 7 7 5 3 30

% of total 26.7% 23.3% 23.3% 16.7% 10.0% 100%

Profession: Student Employee Self-employed Unemployed Total

n 9 17 2 2 30

% of total 30.0% 56.7% 6.7% 6.7% 100.0%

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or non-parametric tests depended on whether the assumption of normality of the three variables could be considered tenable for each of the pretested brand names (Dall’Olmo Riley et al., 2013). According to Pallant (2005), parametric tests like an ANOVA could be considered robust to violations of normality. Yet, a sample size bigger than 30 is necessary to minimize problems related to these violations. Given the sample size of the first pretest, it was deemed more appropriate to select the type of analysis only based on normality. The shape of the distribution was assessed by computing the ratios of skewness and kurtosis to their respective standard errors. When both these ratios fell between ±2, normality was assumed (Rovai et al., 2013), and a parametric test was performed (Dall’Olmo Riley et al., 2013). Conversely, when the ratios fell outside the stated range, the hypothesis of normal distribution was rejected (Rovai et al., 2013), and a non-parametric test was deemed more appropriate (Dall’Olmo Riley et al., 2013). The detailed results are provided in Appendix B (table B.1). Since for each dependent variable at least one non-normal distribution was identified, non-parametric tests were conducted.

Table 3.3 provides an overview of the pretest results. Afterwards, an in-depth analysis of the outcome is presented.

Table 3.3: Outcome of Pretest 1: mean scores (standard deviations in parentheses)

Familiarity was measured on a seven-point scale (1=very unfamiliar; 7=very familiar; Kim et al., 2001). Data were analyzed through a Friedman’s two-way ANOVA, given the presence of within-subject repeated measures across different brands. The test showed the presence of statistically significant differences in familiarity among brands, χ2(3) = 21.704, p = 0.0005. Miu Miu was significantly less familiar than Prada (p = 0.001) and Dolce &

Measure Tod's Prada Dolce &

Gabbana Miu Miu Familiarity 5.55 (1.35) 6.23 (0.77) 6.00 (1.39) 4.97 (1.50) Perceived luxury 5.34 (0.84) 6.72 (0.75) 5.81 (1.04) 5.57 (0.80) Attitude 4.73 (1.36) 5.90 (1.13) 5.10 (1.27) 4.86 (1.46)

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Gabbana (p = 0.001). No statistically significant differences in familiarity existed between Prada, Dolce & Gabbana and Tod’s.

Perceived luxury was measured on a two-item scale validated by Lei et al. (2008a), composed of: luxury (1=budget; 7=luxury) and prestige (1=functional; 7=prestige). The scale was reliable, with a Cronbach’s Alpha greater than 0.7 (Keller and Aaker, 1992), and the two items were significantly correlated (p < 0.05) for all brands. Therefore, perceived luxury was computed by averaging the two items. A Friedman’s two-way ANOVA was also chosen for comparing this dimension, showing a statistically significant difference in perceived luxury among brands, χ2(3) = 33.776, p = 0.0005. Prada resulted the only brand perceived as significantly more luxurious than all the other ones (p < 0.005).

Brand attitudes were measured on a seven-point scale (1=not very favorable; 7=very favorable; Kim et al., 2001). The Friedman’s two-way ANOVA showed the presence of statistically significant differences among brands, χ2(3) = 16.846, p = 0.001. Attitudes toward Prada were significantly more positive than attitudes toward Tod’s, Dolce & Gabbana, and Miu Miu (p < 0.05). No significant difference in terms of brand attitudes between all the other brands existed at a 0.05 p-level.

Based on the first pretest, Prada was selected as the brand for the main study given the high familiarity, the positive brand attitudes, and the highest score on perceived luxury.

3.1.2 Pretest 2: extension name and brand prominence manipulation

The second pretest was administered to 42 female Italian respondents, aged between 18 and 64, mostly employees or students. Demographic information are summarized in tables 3.4 and 3.5.

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Table 3.4: Age of respondents in Pretest 2

Table 3.5: Profession of respondents in Pretest 2

The descriptive information of participants to the second pretest were compared to characteristics of respondents in the first pretest, in order to understand whether differences between the two samples existed. A Pearson Chi-Square test was conducted with this purpose (Calmorin, 2006). Since only 3 respondents in the first pretest were aged between 55 and 64 years old, this age bracket was grouped with the 45-54 years old one, as in presence of cells with a count lower than 5, the Chi-square test is no longer applicable (Rubin, 2010). The outcome of the Pearson Chi-Square showed that respondents were homogeneous in terms of age, χ2

(3) = 3.133, p = 0.372.

Small frequency counts were also present when considering respondents’ professions. However, in this case, grouping was less intuitive given that categories were not progressive, therefore, a Fisher’s Exact Test was conducted (Howell, 2012). Despite the possibility to conduct this test, a Pearson Chi-Square was always preferred when grouping was possible, given that a Fisher’s Exact Test is “conditional on the fixed marginals” (Howell, 2012, p. 148). The samples of both pretests resulted comparable also in terms of profession, p = 0.763.

The second pretest was articulated in three sections, described below.

Age: 18-24 25-34 35-44 45-54 55-64 Total

n 8 16 5 7 6 42

% of total 19.0% 38.1% 11.9% 16.7% 14.3% 100%

Profession: Student Employee

Self-employed Unemployed Total

n 9 26 5 2 42

% of total 21.4% 61.9% 11.9% 4.8% 100.0%

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3.1.2.1 Perceived prominence of current Prada logo

This section of the pretest aimed at controlling that consumers actually considered Prada as a discreet brand in terms of graphical size of the logo displayed on the handbags. A low perceived graphical size would indicate that there was room for brand prominence manipulation. As a filter question, respondents were asked if they could recall to have seen a Prada handbag. 88% of respondents gave an affirmative answer to this question. Then, they were asked to indicate the size of the logo on Prada handbags on a seven-point scale, ranging from small (=1) to large (=7), without providing visual stimuli. A mean score of 2.76 was obtained, confirming that there was room for brand prominence manipulation.

3.1.2.2 Selection of the extension name

According to Milberg et al. (1997), the extension name selected to test the sub-brand strategy is likely to affect the effectiveness of the strategy itself. Therefore, the pretest described in this section was required to select an extension name which was unfamiliar and neutral on likability. Familiarity was measured on a seven-point scale (1=not at all familiar; 7=extremely familiar; Milberg et al., 1997), as well as likability (1=not at all likable; 7=extremely likable; Milberg et al., 1997).

Seven English names were generated. Despite the brand is Italian, English names were chosen for two reasons. Other Italian fashion brands already market cheaper product lines using English names, e.g. Just Cavalli, Love Moschino, Red Valentino (company websites). In addition, for the sunglasses lines, Prada uses names like: Minimal Baroque, Poeme, Voice, or Ornate. No specific names were found for Prada handbag lines, except for descriptive ones like Bucket Bag (Prada e-store). The extension names pretested were: Sense, Rock Rose, Love Affair, Minimal, Liaison, Impression, and Temptation.

The sub-brand selection required an analysis of variance. One of the assumptions of the ANOVA is the approximately normal distribution of the data in each group being compared

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(in this case, for each name). The sample size of was big enough (> 30) to tolerate some violations of normality (Pallant, 2005). Yet, the choice between parametric and non-parametric was based on the extent of normality violation. Normality was assessed by calculating the ratios of skewness and kurtosis to their respective standard errors (Rovai et al., 2013). Results are shown in Appendix B (table B.2). Familiarity never showed a normal distribution, while only two out of seven fictitious sub-brands exhibited a normal distribution of likability. Therefore, a Friedman’s two-way ANOVA was deemed preferable to analyze the data in both cases. Mean scores and standard deviations are summarized in table 3.6.

Table 3.6: Sub-brand selection: mean scores (standard deviations in parentheses)

The first test showed that there was a statistically significant difference in familiarity, χ2(6) = 22.907, p = 0.001. Temptation was significantly more familiar then Sense, Liaison, and Impression (p < 0.05). As a consequence, Temptation was excluded as a potential sub-brand.

The test conducted on likability also showed the existence of statistically significant differences among names, χ2(3) = 12.993, p = 0.043. Respondents liked significantly less Love Affair, when compared to Temptation (p = 0.043), therefore Love Affair was excluded as a potential option. Nonetheless, no statistically significant differences were found in the likability mean scores of all the other pretested sub-brand names.

The most neutral brand on likability, which had also a low familiarity mean score, was selected to test the sub-brand strategy in the main study, i.e. Impression.

Measure Sense Rock Rose Love Affair Minimal Liaison Impression Temptation

Familiarity 1.31 (0.75) 1.33 (0.72) 1.64 (1.17) 1.55 (0.89) 1.26 (0.80) 1.29 (0.84) 1.86 (1.28)

Likability 3.55 (1.11) 3.50 (1.19) 3.43 (1.11) 3.71 (0.86) 3.83 (0.88) 3.86 (0.93) 3.93 (1.11)

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3.1.2.3 Brand prominence manipulation

The purpose of the last part of the second pretest was: a) assessing whether brand prominence was manipulated correctly in the visual stimuli produced for the main survey; b) establishing the price reduction of the step-down line extension.

A new bag model coherent with the design of existing Prada handbags was developed using an image editing software. For the neutral brand prominence condition, the existing Prada logo was applied on the new bag model, respecting the current bag-logo proportions. In the increased brand prominence condition, the logo was considerably enlarged (Appendix C).

The presentation of the visual stimuli was randomized. 21 respondents saw the neutral stimulus and 21 respondents saw the more conspicuous stimulus. The choice to randomize visual stimuli prevented a within-subject direct comparison between the two bags, thus allowing to establish whether the manipulation of brand prominence was correct. After observing the visual stimulus, respondents read a brief definition of brand prominence stating: “Brand prominence represents the relative conspicuousness and graphical size of the brand logo displayed on a product”. Respondents were then asked to provide an evaluation of brand prominence on a seven-point scale (1=quiet; 7=loud; Han et al., 2010).

Since each group had a limited sample size that would not allow to tolerate violations of normality (Pallant, 2005), the choice between parametric and non-parametric tests was only based on whether normality could be assumed. The distribution of brand prominence in the two different treatments was analyzed by computing the ratios of skewness and kurtosis to their respective standard errors. Since all ratios ranged between ±2 (Appendix B, table B.3), normality was assumed (Rovai et al., 2013) and results where compared through an independent-samples T-test (Dall’Olmo Riley et al., 2013). Levene’s test showed that the assumption of equality of variances required by this test was tenable, p = 0.110 (Martin and Bridgmon, 2012). The T-test confirmed that brand prominence in the neutral stimulus (M =

How to mitigate parent brand dilution caused by step-down line extentions of luxury brands, while enhancing extentions success : a comparison between brand prominence and the sub-brand strategy

MSc. in Business Studies – Marketing Track