Step-down brand extensions for luxury and prestige brands

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Topic:

Step-down brand extensions for luxury and prestige brands

Author: Pepijn Ernst

Student number: 11143630

Date of submission: June 24

Master’s thesis M.Sc. in Business Administration – Marketing track

University of Amsterdam,

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Statement of originality

This document is written by Pepijn Ernst, who declares to take full responsibility for the content 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 its 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 content.

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Acknowledgements

Without any help, accomplishing this study would not have been possible. I am especially grateful to my thesis supervisor, Dr. Karin Venetis, for all her guiding advice, patience, and expertise, which she offered in great amounts during the supervision period. Moreover, I should thank all the participants in the experiment for collectively providing me with the data needed to empirically test my propositions.

Best regards,

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Abstract

This thesis aims to clarify how step-down extensions differently impact luxury and prestige brands. It estimates the effect of step-down extensions with varying visibility status

consumption levels on the post-evaluation of the core luxury and prestige brands. This study employs a 2 (condition: treatment/ control) x 2 (brand concept: luxury, prestige) x 2

(visibility: high/low) x 2 (status consumption: high/low) between subject factorial experimental design. The effects of the step-down extension of four fashion brands are compared to a control group that also evaluate these brands, but without undergoing the treatment. The sample consisted out of 191 highly educated women, living in the Netherlands and aged between 18-26. The results indicate that step-down extensions have significantly more negative effects on luxury brands compared to prestige brands. The findings do not suggest that visibility plays a significant role in the evaluation process. There is some

evidence that suggests that status consumption moderates the relation between the effect of an extension, and brand concepts. However, status-seeking consumers seem to be attracted to the extension, and evaluate both the extension and brand more positively as compared to non-status seekers. The study’s findings do not indicate that varying levels of non-status consumption significantly affects the post-evaluation of luxury and prestige brands. Even though this study indicates that visibility and status consumption do not affect the evaluation process of step-down extensions from luxury and prestige brands, the possibility exist that these variables play a role for consumers in higher social classes.

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1) Introduction

There is no denying that step-down extensions present great potential. A step-down extension refers to a strategy that firms use to enter a lower segment (Kim & Lavack, 1996), while leveraging existing brand associations from the parent brand (Lei, de Ruyter, & Wetzels, 2008) . A vast part of the luxury market is changing into a mass market that also reaches a middle class (Truong, McColl, & Kitchen, 2009) . This strategy mainly addresses the social economic trend of a growing middle class, making step-down extensions an

attractive vehicle for growth (Dall’olmo Riley, Pina, & Bravo, 2015) . A case study about the downward extensions of Rolls Royce and Mercedes Benz shows some interesting findings. Rolls-Royce introduced the Ghost, whereas Mercedes announced a cheap A-class car (Stankeviciute & Hoffmann, 2011). What makes the case about Rolls Royce and Mercedes Benz so appealing is that even though the intentions of both car brands are relatively the same, the impact is rather different. As with most strategies, step-down extensions require a trade-off between benefits and risks. Despite these growth opportunities, the introduction of a brand into a middle-class or low-class segment may negatively alter existing associations of the parent brand to an extent that they can never be changed back (Aaker & Keller, 1990). Furthermore, it could cannibalize existing revenues (C. K. Kim, Lavack, & Smith, 2001; Dall’olmo Riley et al., 2015) . Rolls-Royce successfully introduced the Ghost car to a new segment, without enduring barely much cannibalization (80% of its buyers was new consumers), and their image remained unharmed. The Cheap Mercedes A-class was also a great hit, reaching a larger target group. However, this extension critically diluted the core brand, weakening Mercedes’ position (Stankeviciute & Hoffmann, 2011). How is it possible that one brand suffers lots of harm, while the other remains relatively immune? It is evident that step-down extensions provide great potential. However, they also present enormous risks for the parent brand. It is, therefore, essential for firms to understand the process of how

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consumers evaluate step-down extensions and how these extensions can affect the parent brand.

Empirical studies have described how high-quality perceptions of the parent brand are a dominant driver of successful extensions (Aaker & Keller, 1990; Czellar, 2003). In addition to functional benefits (high quality perceptions), more recent studies suggest to also include emotional benefit (Albrecht, Backhaus, Gurzki, & Woisetschläger, 2013; Dall’olmo Riley et al., 2015; Dall'Olmo Riley, Pina, & Bravo, 2013; Kleijnen, De Ruyter, & Wetzels, 2007; Lei et al., 2008) . These associations of a parent brand may transfer only to an extension when the two product classes in some way fit together (Aaker & Keller, 1990; Dall'olmo Riley et al., 2015). Poor fit can stimulate the transfer of undesirable beliefs and associations (Aaker & Keller, 1990). Research suggests that fit and positive associations with the parent brand are a requirement for a successful extension. As a rule, vertical extensions operate in a similar product class. A step-down extension presents a lower quality and price. Consumers may perceive this as inconsistent with the parent brand's luxury or prestige concept (Kim & Lavack, 1996). For these types of extensions, it is thus not product-category fit but brand-concept fit, which may be problematic. This inconsistency is the critical factor that can jeopardize the firm's reputation. Stankeviciute and Hofmann (2011) suggest that the main reason for the Ghost being such a success was its price; the Ghost was priced around $290.000 (as compared to $469.000), and therefore the car remained exclusive. For these reasons, the perceived fit between the parent brand and the extension remains high. However, the Mercedes A-class was priced $27.000 and dropped down a lot regarding quality

(Stankeviciute & Hoffmann, 2011) . Therefore, the Mercedes brand became more accessible to consumers, who also perceived the extension as unfitting (Stankeviciute & Hoffmann, 2011) .

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The studies that have looked into the topic of vertical extension find empirical

evidence that the feedback effects of a luxury brand are more harmful than a functional brand (Kim & Lavack, 1996; Magnoni & Roux, 2012; Kirmani et al., 1999). The reason for this is that step-down extensions of functional brand concepts show more similarity, which indicates that perceived fit is more important for luxury brands (Park et al., 1991). Proposed is that a traditional split between functional and luxury is insufficient. Consumers view luxury brands as the most premium brands, whereas prestige brands are in the middle, and functional brands are competing on the lowest level (Dall'olmo Riley et al., 2013). Luxury brands are different, as they offer higher benefits in terms of uniqueness, pleasure, and quality, which can in addition to the functional use, also aid individuals enhancing their social representation and identity (Kapferer, 1997; Vigneron & Johnson, 2004).

Traditionally, it is expected that luxury brands are harmed more by step-down extensions, as these strategies have adverse influences on the perceived status, exclusivity, and quality of the parent brand (Kim & Laback, 1996; Magnoni & Roux, 2012) as compared to prestige brands, which are more function oriented. Surprisingly, Dall'olmo Riley et al. (2013) find that the prestigious brands suffer a lot more than the luxury brands. The authors explain this non-traditional result by a floor effect (Kim et al., 2001). Consequently, the extension of a prestige brand could not expand downwards without losing prestigious

associations and entering a functional level (Dall'olmo Riley et al., 2013). This lack of brand concept fit is potentially the reason why the extension critically harms the core prestige brand.

Another explanation of the findings of Dall’olmo Riley et al. (2013) is a possible bias in their sample. A definition of a luxury brand contains aspects of human involvement, a scarce supply, and recognition by others (Cornell, 2002, as cited in Vigneron & Johson, 2004). Consumer's perception of a brand's luxury status depends on the context and the people perceiving (Vigneron & Johson, 2004). It could be that the participants of the

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Dall'olmo Riley et al. (2013) showed higher levels of involvement. People that are more involved, knowledgeable, and show a greater liking tend to care more about maintaining the core associations of the parent brand (Kirmani et al., 1999). This high involvement can be due to ownership of the brands, or due to consumptions with a status-seeking motivation. People interested in status-objects purchase these for the image, which they may use to enhance their identity and, or, to gain social approval of significant others (Eastman, Goldsmith, & Flynn, 1999) . By lowering the overall status, conspicuousness and exclusivity of a brand extension, status seekers could evaluate the brand negatively, since they are more interested in these aspects. However, the possibility also exists that step-down extensions of luxury and prestige brands attract status seekers from a lower class, which previously could not afford the

product. In that scenario, this could also have a positive effect on the parent brand. It thus remains uncertain whether the interesting findings of Dall'olmo Riley et al. (2013) are generalizable. This study tests their assumption that prestige brands are harmed more as a result of entering a perceived functional tier. The study also tests how brand extensions are evaluated by prestige and luxury brands. However, the feedback effect of a step-down extension on a luxury or prestige brand is the primary focus. Some factors are critical in determining the impact of the brand extension on the parent brand. First, the perceived distance from the parent brand, which can be manipulated by price-relevant

(Dall'olmo Riley et al., 2013; Kirmani et al., 1999), graphical and linguistic positioning (Kim et al., 2001), can minimize the impact. Second, brand portfolios that vary enormously

regarding price and products are harmed less, as it is harder to identify similar aspects with the extension and original brands. (Dall'olmo Riley et al., 2015). Third, especially for luxury brands, the visibility of the brands in consumption should enhance the social risk (Delvecchio & Smith, 2005; Liu & Choi, 2009, as cited in Dall'olmo Riley et al., 2015), making it more attractive for status-seekers. If visible brands have a greater social risk due to step-down

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extensions, then these people will perceive the parent brand as less positive. This finally results in the following research questions:

“How do step-down extensions affect the post-brand evaluations of equally

differentiated luxury and prestige brands? What is the moderating impact of varying levels of visibility and status consumption on the effect of a step-down extension on the post-evaluation of luxury and prestige brands?”

2) Literature review

This section first describes the different types of brand extensions and critically examines the current research on brand concepts. This part also taps into insights of studies done in the field of luxury branding. The third part of this literature review describes how consumers evaluate vertical extensions. After that, a theoretical framework is presented. It combines the underpinning factors found in the brand extension literature with contextual settings to hypothesize how consumers evaluate luxury and prestige brands after a step-down extension. The theoretical framework also makes assumptions regarding the evaluation of the extension of luxury and prestige brands. This is a sub-part of the thesis that determines whether

extensions of luxury and prestige brands are evaluated differently and is included for two primary reasons. First, it is interesting to perceive whether there is indeed a difference

between the evaluations of the step-down extensions of luxury and prestige brands. Second, it is especially important to discover whether a difference in feedback effects between prestige and luxury brands is also represented in the evaluation of the extensions of both types of brand concepts. For instance, if prestige brands indeed suffer the most, it would make sense that luxury extensions are evaluated more positive. In the end, a theoretical model is presented that includes contextual factors that each should impact the evaluation and post-evaluations of luxury and prestige brands.

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Types of brand extensions

Making some distinctions between the types of extensions is possible. First, one can distinguish between line- and category extensions. A line extension is an expansion "Whereby a current brand name is used to enter a new market segment into its products class" (Aaker & Keller, 1990, p. 27) . In contrast, a brand extension (also referred to as a category extension) is an expansion whereby “a current brand name is used to enter a completely different product class” (Aaker & Keller, 1990, p. 27) . Second, extensions of a brand are either horizontal or vertical. A horizontal extension of a brand introduces a new product in a related or unrelated product category while using a known and recognized brand (Sheinin and Schmitt, 1994, as cited in Kim & Lavack, 1996). In contrast, a vertical extension extends the brand in a related product category but includes depending on the direction a different price quality (Keller and Aaker, 1992; Sullivan, 1990, as cited in Kim & Lavack, 1996). Third, Kim and Lavack (1996) note that a brand extension either goes upwards (step-up) or downwards (step-down).

Downwards expansion appears to be most useful for firms that want to leverage brand associations from the parent brand (Lei et al., 2008). In contrast, step-up extensions are less suitable for creating value for the consumer, nevertheless, can be very useful for giving the parent brand's associations a positive boost (Lei et al., 2008).

Evaluation process of step-down extensions

Aaker and Keller (1990) find that positive associations already existing in memory form the basis for the formation of future positive associations toward a brand extension. These existing associations consist of both affective and cognitive aspects (Eagly, 1992; Fishbein & Ajzen, 1975; Fishbein & Middlestadt, 1995, as cited in Czellar, 2003). Cognitive aspects refer to specific functional and experiential product characteristics and live in memory due to the existing products in the brand and category (Czellar, 2003). Symbolic benefits and

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feelings characterized with a brand or product category are also recognized by consumers and refer to the aspects that are not related to the product associations (Boush & Loken, 1991; Loken & John, 1993, as cited in Czellar, 2003). According to Keller and Aaker (1992), the evaluation of a downward expansion depends on how easy brand associations in memory are retrieved, and on how relevant and positive these are perceived for the brand extension.

The mainstream of studies suggests that perceived quality of the brand extension influences the evaluation process (Aaker & Keller, 1990) . More recent studies (Albrecht et al., 2013; Dall’olmo Riley et al., 2015; Dall'Olmo Riley et al., 2013; Kleijnen et al., 2007; Lei et al., 2008) use perceived value as a driver of extension success. Value is more abstract from quality, and is different in being more personal, on a higher level, and in involving a trade-off between costs (sacrifices) and benefits (Zeithaml, 1988). Moreover, value perceptions are always depending on contextual factors (Zeithaml, 1988). As perceived value includes a compromise between both symbolic/ functional benefits and both financial/ non-financial risks (Zeithaml, 1988; Martinez & Pisa, 2003), it seems more appropriate for a study looking into step-down extensions. With a step-down extension, functional value is associated with assured quality (cognitive aspects), whereas symbolic value such as prestige, affiliation, and uniqueness may generate feelings, stimulate affect, and can be seen as an emotional benefit (Albrecht et al., 2013). The findings of Albrecht et al. (2013) on horizontal extensions suggest that functional value is important for non-luxury brands, whereas for luxury brands, this is also important, but also depends on the non-functional aspects. Some risks may also be associated with a step-down extension. For instance, by purchasing a brand at a lower price, it may lose quality, status, and exclusivity.

In both vertical and horizontal extensions, extensive research suggests that a brand's perceived quality and positive associations transfer only to the extension when two product classes in some way fit together (Aaker & Keller, 1990; Dall’olmo Riley et al., 2015) .

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Brands and extensions should fit together regarding brand concepts, and product categories (Bhat & Reddy, 2001; Grime, Diamantopoulos, & Smith, 2002; Park, Milberg, & Lawson, 1991). As a rule, vertical extensions operate in a similar product group. For this reason, studies assume that fit is relatively stable within vertical line extensions (Dall'olmo Riley et al., 2015). However, in a vertical brand extension context, a similar type of product is offered for a different price and quality (Kim et al., 2001). A vertical extension can lead to different perceptions of the brand concept (Dall’olmo Riley et al., 2015). For instance, after a step-down extension of a luxury brand, consumers may start to perceive a product as functional, as it becomes cheaper, more accessible, and lowers its quality. This lack of brand concept fit may result in critical re-evaluations of the core brand (Kim et al., 2001; Bhat & Rheddy, 2001). Park et al. (1991) find that a similar brand concept is of greater importance for a luxury brand (Rolex) than a functional-oriented (Timex). The underlying reason is that unique

aspects (referring to status/luxury) in memory represent the luxury brand concepts, making them easier to access (Park et al., 1991) . However, other studies indicate that fit is not always necessary for the evaluation to transfer (Bottomley & Holden, 2001). The dominant concept theory suggests that: "core brand associations are independent of context and therefore always transfer to the extension to improve its evaluation" (Desay & Hoyer, 1993; Michel & Salha, 2005; as cited in Dall'Olmo Riley et al., 2015, p. 903). The notion that fit is not always a requirement has been backed up by some studies (Stankeviciute & Hoffmann, 2011; Kim & Chung; Dall'olmo Riley et al. 2015). According to Bhat and Rheddy (2011), fit should be considered as an important determinant for the extension evaluation, but at the same time it is of no consequence for an extension evaluation. A mother brand’s firmly positive attitude is can thus also transfer to the extension when fit is absent. Moreover, this affect for the parent brand is more detrimental for luxury brands as compared to functional brands (Bhat & Reddy, 2001).

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2.1) Theoretical framework

Brand concepts

It is thus suggested that vertical extension evaluations rely heavily on a similarity between brand concept similarities (Park et al., 1991). Park et al. (1991) define brand concepts as “brand-unique abstract meanings that typically originate from a particular configuration of product features and a firm’s efforts to create meanings from these arrangements” (Park et al., 1991, p. 186). Prior research suggests a split between luxury-oriented brands associated with luxury, status, and quality (Park et al., 1991; Kim & Lavack, 1996) and function-oriented brands focusing on performance (Kim & Lavack, 1996), reliability, and durability (Park et al., 1991). Dall’olmo Riley et al. (2013) suggest that a split between functional and luxury brands is not sufficient, and stress the need to deal with more dimensions (prestige, status, and conspicuousness) of the brand concept (Dall'olmo Riley et al., 2013). Looking at the Albrecht et al. (2004) horizontal extension study, it appears that prior studies have not taken into account all necessary dimensions of a luxury brand. Perhaps they have failed to define luxury correctly.

Vigneron and Johnson (2004) note that this may be tricky. Luxury is derived from the Latin word 'luxus', which according to the Latin Oxford Dictionary signifies ‘soft or

extravagant living, (over-)indulgence' and ‘sumptuousness, luxuriousness, opulence'

(Christodoulides, Michaelidou, & Li, 2009, p. 397) . Products cannot just be categorized into luxury and non-luxury based on their appearance and intrinsic characteristics (Christodoulides et al., 2009). Cornell (2002) suggests that a definition should contain aspects of human

involvement, a scarce supply, and recognition by others (as cited in Vigneron & Johson, 2004). It is, therefore, that socio-economic external environmental factors require consideration (Christodoulides et al., 2009). The use of a luxury brand should elevate a person's self-esteem, apart from any functional use (Kapferer, 1997, as cited in Vigneron &

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Johnson, 2004). People purchase, utilize, and showcase products and services to improve their identity, to display an image of who they are and what they feel, and to improve relations with significant others. (Golfman, 1959; Belk, 1988; Ewen 1988; Braun & Wicklund, 1989, as cited in Eastman et al., 1999). Kemp (1998) for instance illustrates that for some water could be preserved as a luxury object, whereas for others, it is a necessity (as cited in Vigneron & Johnson, 2004). In other words, whether a brand is perceived as luxury depends on the context within which the people perceive it (Vigneron & Johson, 2004). At the bottom of the pyramid, people observe products accessible by the middle socio-economic class as luxurious (Christodoulides et al., 2009). Moving up to the hierarchy, the products that are accessible by the professional socio-economic class is perceived as luxury (Christodoulides et al., 2009). On top of the pyramid, are the luxury products that are inaccessible and associated with the elite (Christodoulides et al., 2009). If there is a difference between the evaluation of

extensions of luxury and prestige brands, it should be presented in the right context, taking into account the people evaluating.

Vigneron and Johnson (2004) suggest separating a luxury brand from a non-luxury brand based using the following aspects. First, Individuals who seek to enhance their social representation, position, and who perceive price, as a signal of luxury should value

conspicuous brands. These types of brands are associated with "for the wealthy" and "extremely expensive" (Lichtenstein, Ridgway, & Netemeyer, 1993, as cited in Vigneron & Johnson, 2004, p. 489). The value derived from the purchase is not from the product but from the response of a particular audience to the wealth displayed by the consumer (Mason, 1984, as cited in Christodoulies et al., 2008). Second, luxury brands are unique. Individuals search for objects that are hard to obtain (Vigneron & Johnson, 2004). Moreover, they have a desire for something that is unique (Snyder & Fromkin, 1977, as cited in Vigneron & Johnson, 2004), exclusive, and perceived expensive (Groth & Mcdaniel, 1993, Verhallen & Robben,

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1994, as cited in Vigneron & Johnson, 2004). Third, luxury-seekers use the brand's symbolic association to construct one's self, (Holt, 1995, as cited in Vigneron & Johnson, 2004) which results in possessions becoming part of the identity (Belk, 1988, as cited in Vigneron & Johnson, 2004). Fourth, based on the perceived hedonic benefits or pleasuring aspects, consumers of luxury brands search for personal rewards or fulfillment (Sheth, Newman, & Gross, 1991; Westbrook & Oliver, 1995, as cited in Vigneron & Johnson, 2004). Fifth, luxury brands have offerings that include exceptional quality and performance (Vigneron & Johnson, 2004). Vigneron and Johnson's brand luxury index scale was developed using a sample of students from Australia. Christodoulides et al. (2009) find that when using a sample of actual consumers of luxury brands, conspicuousness and hedonism are below the recommended threshold. The luxury scale should thus be taken with caution when used in different contexts. However, the authors of this replication study are not sure whether these results are derived from cultural differences (they conducted the study in Taiwan) or demographic differences (student or actual luxury consumers) (Christodoulides et al., 2009).

Ultimately, it all depends on how we perceive luxury and prestige brands. For both prestige and luxury brands, high quality is of the greatest essence. It is not likely that the image of a luxurious brand can be maintained when the perceived quality is not kept on a high level (Christodoulides et al., 2009). In the case of a prestige brand, high quality is required to ensure reliability, trustworthiness, but above all to confer a particular image and status. For luxury brands, it is expected that these brands offer the highest quality. The question that is central in this part is how are these brand concepts different. Reddy et al.'s (2009) use a categorization where they associate luxury brands with a high price, exclusivity, and quality, whereas prestige brands are perceived as less exclusive and lower priced in comparison with luxury brands (as cited in Dall'olmo Riley et al., 2015). Luxury brands should thus score high

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on all levels of Vigneron and Johnson scale whereas prestige brands should have significantly lower levels of uniqueness, hedonic, status, and self-identity factors.

In conclusion, consumers perceive some brands as luxury, and others as prestige, depending on a brand's conspicuous image, uniqueness, quality, hedonic benefits, and its ability to construct one's identity. Whether consumers perceive a brand as unique, hedonic, and conspicuous depends on its accessibility, quality, and its price. These aspects can also influence the degree to which consumers can utilize brands to enhance their self (identity). This study bases all its hypotheses on the assumption that perceptions of high-segmented brand concepts are contextual. Perceptions of price, quality, and accessibility may vary among countries, social classes, age, gender, education levels, etc., what in turn lead to different evaluations of a brand's uniqueness, conspicuous, hedonic benefits, quality, identity benefits. Altogether, these dimensions determine for a given group, that they perceive some brands as luxury, and others (lower-segmented in price and quality) as prestige. To prevent alternative views between groups, the study presents all of the remaining hypotheses and the constructed conceptual model from the viewpoint of one group.

2.1.1 Main feedback effect

Empirical evidence suggests that under certain circumstances a consumer’s positive attitude concerning a brand is diluted by a brand extension (Loken & John, 1993; Milberg, Park, & McCarthy, 1994; Sullivan, 1990, as cited in John, Loken, & Joiner, 1998). Keller and Aaker (1992) find that when there is low fit between the extension product and the current products of the parent brand, consumers may question the firm's motives to an extent that they would suspect the company to unjustifiable take advantage of their brand. Suggested is that this can further weaken the consumer's confidence in the firm (Keller & Aaker, 1992) . This effect is later replicated and validated by the study of Bottomley and Holden (2001). Poor fit

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can thus stimulate the transfer of undesirable beliefs and associations (Aaker & Keller, 1990) . This general transfer effect of knowledge and affection is also validated by John et al. (1998), Loken and John (1993, Milberg, Patrick, and McCarthy (1997) (as cited in Czellar, 2003). Assuming that the core brand is evaluated favorable, step-down extensions lead to significantly lower evaluations of the mother brand as compared to step-up brand extensions (Kim et al., 2001).

Fit seems to play a major role in this process. However, in the context of vertical extensions, brand concept fit is especially important. Kim and Lavack (1996) find that step-down extensions are far more hurtful for a luxury-oriented brand (Rolex) as a function

oriented brand (Timex). According to the authors, this is the result of the adverse influences a brand extension may have on the perceived status and quality of a luxury core brand (Kim & Lavack, 1996), which are considered inconsistent and therefore should affect its associations (Magnoni & Roux, 2012) . Step down extensions for function-oriented brands are often perceived more similar to the core brand (Magnoni & Roux, 2012), as both the extension and the brand are associated with characteristics such as reliability and durability (Kim & Lavack, 1996). Magnoni and Roux (2012) also suggest that luxury brands may be harmed more by step-down extensions due to the trust in, commitment, and attachment to the parent brand. Their findings indicate that extensions negatively impact the attachment and commitment to, and the trust in luxury brands (BMW, Armani), whereas the functional brands (Peugeot, Levi’s) are only harmed a little, or not at all (Magnoni & Roux, 2012). Empirical evidence thus indicates that step-down extensions for high-segmented luxury brands have a more negative impact, when compared to lower-segmented functional brands.

As noted in the previous paragraph, the distinction between luxury and functional brands is considered too simplistic (Dall'Olmo Riley et al., 2013). Regarding the high-end brands, Dall'olmo Riley et al. (2013) find that prestigious brands (Audi and Diesel) are more harmed

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than luxury brands (Porsche and Prada). The case study about Mercedes and Rolls-Royce finds similar findings (Stankeviciute & Hoffmann, 2011). Both brands introduced an

extension; the ghost (Rolls-Royce) could remain exclusive while moving to a new segment, without harming their image a lot (Stankeviciute & Hoffmann, 2011). The result of the extension was different for Mercedes. The Mercedes A-class extension diluted the parent brand (Stankeviciute & Hoffmann, 2011). This contradicts the finding of traditional studies (Kim & Lavack, 1996; Magnoni & Roux, 2012) that suggest that luxury brands should be harmed the most. As prestige brands are closer to being functional (Dall’olmo Riley et al., 2013), it would make more sense that these brands would remain immune. Previous studies have not used all the necessary dimensions to define luxury properly (Albrecht et al., 2004). Moreover, their findings are contradicting, one stream finds luxury to be most sensitive to the effect of a step-down extension, whereas the other proposes that prestige brands are harmed the most. It is thus too simplistic to divide the range of brand concepts into functional and luxury.

How is it possible that prestige brands are harmed by the extension? A possible floor effect can explain this; some brands cannot take a step-down without entering a functional level (Kim et al., 2001). This should lead to a lack of brand concept fit, which can lead to crucial re-evaluations of the core brand, leading to a lack of confidence from consumer’s in the core brand (Keller & Aaker, 1992). However, more factors can affect the consumer's post-extension brand evaluation. First, Keller and Aaker (1992) suggest that an intervening

extension can have an impact, depending if one already has happened (if not neutral), and is successful (positive) or not (negative). This effect may be moderated by the fit of the

successful extension, the number of extensions, and the quality of the core brand (Keller & Aaker, 1992). Second, another relevant factor is the perceived distance from the parent brand, which can be manipulated by price-relevant (Kirmani et al., 1999; Dall'olmo Riley et al.,

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2013), graphical and linguistic positioning (Kim et al., 2001). When the brand is more

distanced, this should lead to less negative evaluations (Kirmani et al., 1999; Kim et al., 2001; Dall'olmo riley et al., 2013). Ahluwalia & Gürhan-Canli (2000) also support this notion and suggest that negative transfer of knowledge and affect takes place only for close extensions, whereas positive transfer can happen for far extensions (as cited in Czellar, 2003). Fourth, brand portfolios that vary greatly concerning price and products are harmed less, as it is harder to identify similar aspects with the extension and original brands (Dall'olmo Riley et al., 2015).

John et al. (1998) further find that the dilution of a brand may also jeopardize the reputation of a firm's flagship products (the company's primary product of interest, associated with the brand's advertisements). Presumed is that a step-down extension inconsistent with the flagship product can dilute the image of such a product when incoming information stimulates evaluation and is stronger than prior beliefs (Alloy and Tabachnik, 1984, Feldman & Lynch, 1998; as cited in John et al., 1998). The authors have empirically confirmed their propositions using Johnson and Johnson's baby shampoo (John et al., 1998). In conclusion, this section reviews what factors can impact the feedback effects of an extension. Imagine that we select brands that are equally differentiated and distanced, the proposed expansion focuses on the flagship product and consumers have equal levels of initial preference toward the parent brand. In that scenario, this study suggests that step-down extensions should be more harmful to prestige brands as the brand's consumers may perceive it as functional, meaning that it has to deal with the suggested floor-effect.

H1: Luxury core brands are harmed less by step-down extensions than prestigious core brands.

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2.1.2 Main effect extension

Looking at the difference between the evaluations of brand extensions of both prestige and luxury brands, expected is that this result is rather similar. Of course, how positive consumers perceive a step-down extension depends primarily on their initial preference for the brand, and the product specific value presented within the extension. Bhat and Rheddy (2001) suggest that for brands with a symbolical meaning, thus with an impressive status and image, an initial brand attitude is more detrimental for the evaluation of an extension. This could be applicable to both prestige and luxury brands. However, in their study, they have only tested this assumption using the luxury brand Rolex. If we may expect these initial brand attitudes to be roughly the same for both types of brands, one could argue that consumers may perceive luxury brand extensions as more positive as these kinds of brands have a greater potential for attracting a particular type of customers, namely status seekers (Eastman et al., 1999). Hagtveld and Patrick (2009) note that luxury brands may extend further due to the hedonic potential that these brands embody. In addition, it is also possible that consumers perceive the step-down extension of a prestige brand as functional (Dall’olmo Riley et al., 2013). Following the research of Park et al. (1991), this should lead to less positive evaluations as compared to a brand extension that has a similar concept. To clarify these statements, it is suggested that luxury extensions are also perceived as less luxury. However, luxury brands are positioned at a higher level. The step-down extension of a prestige brand becomes accessible to a far greater crowd, whereas the step-down extension of a luxury brand also becomes more accessible, but remains relatively more exclusive. Therefore, the

perceived fit with step-down extensions of prestige brands could be lower. As mentioned earlier, the dominant concept theory suggest that even with a lack of brand concept fit, positive associations may transfer to the extension, leading to positive evaluations

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thesis proposes that the requirement is contextual. It should depend on the consumer's involvement in the product category, the consumer's existing attitude toward the brand, and the degree to which the brand's product range is differentiated. If we may expect this be roughly equal, it seems more likely that consumers react more positive to step-down extensions of luxury brands. In the evaluation process of step-down extensions, a customer makes a trade-off between benefits and risks. Acquiring a exclusive status product at a lower price, hedonic potential, and product-specific utilitarian factors represent the positive side of the equation. Potential hazards are the actual financial costs and the resulting loss in status and uniqueness of the branded product. When perceived fit is absent, this resulting loss in brand image is larger. Due to the greater hedonic potential luxury brands can offer, the ability of these brands to attract status seekers, and since prestige brands are more likely to be seen as functional, it is expected that consumers respond more positively to step-down extensions of luxury brands.

H2: Consumers react more favorably to the equally differentiated step-down extensions of luxury brands as compared to prestige brands

2.1.3 Impact of visibility on brands

As mentioned in the literature review, luxury brand consumers deem status and exclusivity as more important. We know that people use branded products to enhance their identity. Therefore, the more visible the brand in consumption, the greater is the associated social risk that peers respond negatively to the purchases somebody makes (DelVecchio & Smith, 2005) . Some studies find that social risk influences brand evaluations (Bearden & Etzel, 1982; Childres & Rao, 1992, as cited in DelVecchio & Smith, 2005). This does not only contain the aspect of a particular brand name but also the extent to which the brand is visibly displayed (DelVecchio & Smith, 2005). Especially for prestige and luxury brands, where status is of importance, the social risk is high. Bearden and Etzel (1982) identify the

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influence of reference groups, those who can significantly influence the behavior of a person. Bearden and Etzel (1982) distinguish between public necessities (e.g. automobile), public luxuries (e.g. golf clubs), private necessities (e.g. was machines), and private luxuries (e.g. icemaker) (Bearden & Etzel, 1982) . Because others observe the consumption of public necessities and luxuries, the reference group can exert more influence into the purchases and use (Bearden & Etzel, 1982). Public luxuries are those products for which status can be acquired through ownership (Bearden & Etzel, 1982). For private necessities, the brand is more important, because it can be used to distinguish oneself from others, and can give a signal of richness (Bearden & Etzel, 1982).

The characteristic brand visibility was not yet tested in brand extension studies. This study suggests that visibility works as a moderator; both highly visible in consumption prestige and luxury core brands should be harmed more by a step-down extension. Due to an extension, a luxury or prestige brand become more accessible, while the price and quality are lower. This should have adverse consequences on the brand's status and image. Due to the greater visibility of the brand in consumption the social risk of the extension is greater (DelVecchio & Smith, 2005). The greater the social risk, the more sensitive the purchase is too critical evaluations from a consumer's significant others (DelVecchio & Smith, 2005). This thesis suggests that visibility moderates the effect of step-down extensions on both the re-evaluation of the brand and the assessment of the extension product. Proposed is that evaluations of luxury and prestige extensions are more positive for highly visible products. Again, it is important to note that these perceptions of luxury are contextual. This product carries an impressive image but is priced much lower. The visible characteristic makes the use of this brand image greater for the consumer. However, for the mother brand, the social risk is the greatest. The extensions may critically dilute its image, which should lead to more

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H3 Visibility moderates the effect of a step-down extension, leading to more negative evaluations of the parent brand.

The primary purpose of this thesis is to determine how consumers evaluate luxury and prestige brands. The findings of Dall'olmo Riley et al. (2013) indicate that visible prestige brands may be harmed the most. After a step-down extension, the respondents of that study evaluate Audi's brand image (prestige- highly visible) most negatively (Dall'olmo riley et al., 2013) Diesel (prestige-less visible) is also harmed, but evaluated less negative than its visible counterpart (Dall'olmo Riley et al., 2013). The visible luxury brand (Porsche) is harmed a bit, but not as much as prestige brands, whereas the visible luxury brand (Prada) remains immune. Even though both cars and clothing are relatively visible products, cars are far more visible in consumption than clothing (Dall'olmo Riley et al., 2015). If visibility really affects the effect of step-down extensions on luxury and prestige mother brands, than this effect of visibility should be far greater when two product groups are chosen that are truly visible and non-visible. The major issue in this research design of Dall’olmo Riley et al. (2015) is that Prada and Diesel (less visible products) have introduced numerous brand extensions, have an extremely differentiated product range, and for these reasons also could be immune to the extensions. In case brands are selected that mainly focus on one flagship product, and that have not gone through many brand extensions, in that situation the effects of the extension and visibility are proposed to be greater and more negative for prestige core brands as luxury core brands. As previously mentioned, prestige brands may enter a functional tier. Due to possible peer influence, the visibility characteristic should call for critical re-evaluations of the core brand. This could result in consumers perceiving the prestige brand as more accessible, and more functional. Even though luxury brands images are built on status, and uniqueness, and thus carry a greater social risk, the perceived step from a prestige brand concept to a functional brand concept is expected to be more negative.

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H3.1: (a) After a step-down extension, highly visible prestige brands are evaluated more negatively than highly visible luxury brands and less visible prestige brands.

Concerning the evaluation of the extension, this product carries an impressive image but is priced much lower. The visible characteristic makes the use of this brand image greater for the consumer, especially for luxury brands, as these have higher levels of associations regarding brand image. Moreover, consumers may perceive step-down extensions of prestige brands as functional. Therefore, the study proposes that visibility moderates the effect of a brand extension on a brand's evaluation, leading to more positive evaluations of highly visible luxury brands, compared to highly visible prestige brands.

H3.1 (b) A step-down extension has a more positive effect on the highly visible luxury brands compared to the highly visible prestige brands and less visible luxury brands.

2.1.4 Impact of status consumption

In all parts of the world, status consumption exists where the value of a product or service is partly measured through the social benefits offered. Status can be defined as "an expression of evaluative judgment that conveys high or low prestige, regard, or esteem" (Donnenwerth & Foal, as cited in Eastman et al., 1999, p. 42). Current research distinguishes between status by assignment, by achievement, and by consumption (Hayakawa, 1963; Brown, 1991, as cited in Eastman et al., 1999). Status consumption is especially relevant for this study, as consumers can acquire this kind of status by possession. There is thus a type of product that expresses a greater status value, using these products as signals of status has been defined as conscious consumption (Mason 1981, Braun and Wicklund, 1989, as cited in Eastman et al., 1999). Those persons surrounding themselves with visible prove of their superiority are "status seekers" (Eastman et al., 1999, p. 42). An essential part of status consumption is the group aspect. People strive to belong in groups; they seek for recognition

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and to distinct themselves from groups. This aspect is added in the final definition of status consumption: "the motivational process by which individuals strive to improve their social standing through the conspicuous consumption of consumer products that confer and

symbolize status both for the individual and surrounding significant others" (p. 42). A desire for status thus includes the purchase of a product to inflate one's ego (conspicuous

consumption) but also includes surrounding significant others, the combination of both is called status consumption (Eastman et al., 1999). The more an individual seeks for status, the more he engages in status-seeking behavior (Eastman et al., 1999).

Status seekers use a luxury or prestige brand to display one's self, to show status (Eastman et al., 1999), which makes the downward expansion of a brand less appealing and less useful. A step-down extension results in a loss of status, exclusivity, price, and often quality. Therefore, it is arguable that status-seekers react more negatively towards a step-down extension. However, it is important to keep in mind that perceptions of luxury are also contextual. By lowering the price of a luxury product, it becomes more accessible and moves toward a new target group. It is very likely that from this target group, a high amount of status seekers is attracted to the extension. To clarify, status consumption is not something that only exists in the upper class. In each social class, groups of individuals purchase status-products to showcase who they are and to impress peers. Truong et al. (2008) suggest that status-seekers are rising in lower segmented markets and that they have a lust to imitate the behavior of wealthier social classes above them.

Even though status consumption can explain an important aspect of the value of luxury and prestige brand extensions, it was only tested by the study of Kim and Chung (2012). In this study on luxury fashion brands, both brand familiarity, and status

consciousness have a positive effect on the evaluation of step-down extension (S. Kim & Chung, 2012) . Hence, we may expect status-conscious consumers to be attracted by

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downscale expansions of luxury and prestige brands (Kim & Chung, 2012). Theoretically, one would assume that status seekers are not attracted by step-down extensions, as these extensions can damage the parent brand. In contrast to the expectations of Kim and Chung (2012), fit being low or high, status-seekers evaluate luxury brands favorably.

To the author's knowledge, no study has yet looked into the influence of status-consumption on the post-evaluation of brands after a step-down extension. If we may expect status consumption to have a positive effect on the evaluations of step-down extensions of prestige and luxury brands, the opposite can be expected for the post-evaluations. The effect of status consumption on the post-evaluation of a brand works in a similar manner as for the actual evaluation. Due to a step-down extension, luxury and prestige brands become more accessible and lose valuable brand image associations such as perceived status,

conspicuousness, and hedonic benefits. It is expected that a potential loss of these associations should harm the evaluation of a core brand. Even though status seekers are attracted to these extensions, this thesis proposes that their sensitivity to status should lead to negative re-evaluations of the core brand.

H4: Status-seeking behavior moderates the effect of a step-down extension, leading to more negative evaluations of the parent brand.

This thesis' primary goal is to find out what the differences are between the

assessments of prestige and luxury brands. Concerning the reciprocal effects of step-down extension, this study expects that the impact of status-consumption on post-extension evaluations is more negative for luxury brands in comparison to prestige brands. As previously mentioned, luxury brands have higher levels of conspicuousness, uniqueness, hedonic benefits, and enhancing self-benefits. The value that an extension can tarnish is simply greater for luxury brands, as compared to prestige brands. Kim and Chung (2012) find

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that status-seekers evaluate brand extensions positively, also when there is low product category or brand concept fit. However, the lack of importance of brand concept fit among status-seekers has only been studied in the context of extension evaluations (Kim & Chung, 2012). In a step-down extension context, it is more likely that brand concept fit is crucial for the feedback effects of a step-down extension, and that the perceived step from a prestige brand to a functional brand is evaluated even more negatively by status-seekers. Bearing in mind that prestige brands are closer to the functional level, and can potentially lose its prestige brand image, the study expects that status-seekers evaluate prestige brands more negatively than luxury brands.

H4.1 (a) Status-seeking behavior moderates the effect of a step-down extension, leading to more negative evaluations from status-seekers of the prestige brand as compared to status seekers of the luxury brand and non-status seekers of the prestige brand.

For both luxury and prestige brands, it is possible to reward consumers with higher perceptions of status, uniqueness, conspicuousness, and hedonic factors. H2 notes that consumers react more favorably to the equally differentiated step-down extensions of luxury brands as compared to prestige brands. This proposed positive reaction to luxury brands is caused by the brand concept inconsistency of the prestige brand and the extendibility of the luxury brand. As mentioned in the previous paragraph, Kim & Chung (2012) suggest that concept consistency is not of importance to status seekers. It may be very likely that also the evaluations from status-seekers in the context of prestige brands are more positive.

Nevertheless, due the greater inherited value that luxury brands may offer to status seekers, it is expected they are more attracted to luxury brands. Therefore, the study proposes that status-seekers evaluate luxury brand extensions more positively than prestige brands. Moreover,

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non-status seekers should be less attracted to the extensions; these types of consumers should evaluate luxury and prestige brands less positively than status seekers.

H4.1 (b) Status-seeking behavior moderates the effect of a step-down extension on the customer's evaluation, leading to more positive evaluations from status seekers of the luxury brand as compared to status-seekers from the prestige brand and non-status seekers of the luxury brand.

2.1.5 Proposed impact of visibility and status consumption

A brand's popularity is strongly dependent on the people perceiving (Eastman, Goldsmith, & Flynn, 1999). For public necessities, necessary goods that are highly visible in consumption, brands can be used to distinguish the product from others, and to give a signal of status (Bearden & Etzel, 1982). As status-seekers are particularly motivated to purchase products that symbolize status for both the individual and significant others (Eastman et al., 1999), it seems that highly visible products should be more valuable to them. Simply said, these more visible products in consumption can be easier used to give signals of status to significant others, as they are more easily and often perceived. Highly visible products thus have a greater social potential. Therefore, the study expects that status-seekers react favorably to the extension of luxury and prestige brands. These brands are thus better used to display one's self, to show status, and this is the main reason why status seekers purchase products (Eastman et al., 1999).

However, while highly visible products have a greater social potential, they also carry higher social risk (DellVecchio & Smith, 2005). Consumers perceive step-down extensions as less superior than the mother brand, as explained in the previous parts, this is due to lower pricing, lower quality, and greater access. This study suggests that status seekers evaluate highly visible brands more negatively after a brand extension than less visible brands. The social risk is higher here, which would mean that the perceived loss of a luxury or a prestige

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brand's image also should be greater here, and so is the damage of a step-down extension on the core brand.

H5: Status-seeking behavior moderates the moderating effect of visibility on the effect of a step-down extension, leading to more negative evaluations of the parent brand

Debunking the effects of step-down extensions on luxury and prestige brands is this study's primary purpose. As previously argued, if prestige brands indeed deal with a floor effect, than status-seekers should evaluate prestige brands even more negatively after an extension. These effects should be most negative for highly visible prestige brands as the perceived loss is more apparent, especially for status-seekers. However, this study expects the perceived step to be more negative for the highly visible luxury brand as for the highly visible prestige brand. The reasoning is accordingly; status seekers view the step down of a highly visible luxury brand extension as greater and more negative, resulting in an increased loss of associations of image and status. This does not imply that a luxury brand is suddenly

perceived as a functional brand. On the contrary, for these types of consumers (status

seekers), the perceived step down has a greater impact, as it can hurt their identity. Moreover, it should significantly decrease the value of the brand image for status seekers, which is the primary motivation for them to purchase the product in the first place. In the end, this may be even greater than the loss a prestige brand suffers. Therefore, the thesis suggests that after a step-down extension, status-seekers perceive a highly visible luxury brand as more harmful than a highly visible prestige brand.

H5.1: After a step-down extension, status seekers perceive a highly visible luxury brand more negative than a highly visible prestige brand.

In the context of the evaluations of step-down extensions, the effect on a consumer's attitude should be even greater for highly visible brands as the status, uniqueness,

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conspicuousness, a luxury brand offers can be better utilized to enhance one's identity. This increased value of the extension should lead to even more positive evaluations of the luxury brand extensions as compared to the prestige brand extensions. Status-seekers of highly visible luxury brands should thus give the most positive evaluations. It is likely that status-seekers of highly visible prestige brands provide perhaps less positive evaluations. The reason for this is that the visibility enhances the floor-effect, meaning that the status and image of the brand head even more in the direction of a functional brand, making it less valuable for one's identity. What we should bear in mind is that whether consumers perceive as luxury or prestige is contextual. For a group that regards some brands as luxury, and others as prestige, the extension can make a luxury brand more attractive, as it moves toward the reality of the consumer, whereas a prestige brand becomes available for a much greater crowd.

H5.2: Status-seekers perceive the step-down extensions of highly visible luxury brands more positively than the extensions of highly visible prestige brands and less visible luxury brands.

Figure 2.1 The conceptual framework visually represents the combined set of hypotheses

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3) Methodology

This study conducts an experiment that attempts to isolate some contextual factors while measuring the effects of a step-down extension on luxury and prestige brands.

3.1 Research design

Type of experiment

This study employs a 2 (condition: treatment/ control) x 2 (brand concept: luxury, prestige) x 2 (visibility: high/low) x 2 (status consumption: high/low) between subject

factorial experimental design. This type of experiment is preferred as it can deal with multiple treatments at once. This design is also known as vignette research and is combined with a survey approach, which is distributed online via the use of Qualtrics. Looking at the

timeframe, a pre-test of all the treatments is too ambitious. Therefore, this is a post-test-only control group design. However, a pre-test will ensure and determine that consumers perceive the brands as prestige and luxury, and product categories as visible and non-visible in

consumption.

The primary study includes eight survey versions, which differ in brand concept, extension, and visibility conditions. During this experiment, participants will only enter one treatment, and will not be aware of any other treatments. In total, there are four main

categories, which have different levels of visibility (low and high) and brand concept (prestige or luxury). For the experiment, four survey versions function as treatment conditions

(Questionnaire 1), whereas the other four versions function as control conditions

(Questionnaire 2). Appendix 8.4 includes both versions of the questionnaire. The experiment thus compares these evaluations of the control brands to the brand evaluations after a brand extension. This is a well-known method for the analysis of feedback effects of vertical and horizontal extensions (Dall'olmo Riley et al., 2013; Loken & Roedder John, 1993; Roedder, John et al., 1998). Both questionnaire 1 and 2 have a similar opening block, which is used to

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verify with what brands respondents are familiar. These verification questions ensure that participants do not answer question blocks concerning brands they do not know. Additionally, the first block measures some specific demographic variables. Allocation of the participants to the control group and the treatments is entirely random. Purposive sampling is used to gather participants. Respondents are approached using forums, direct mail, and social media channels. The Qualtric's survey flow ensures that each respondent only evaluates brands that he or she is familiar with, and allocates to each of the eight categories a similar amount of status- and non-status seekers.

Manipulation of variables

This experiment presents a hypothetical step-down extension, the independent variable, to half of the participants, whereas the other half evaluates a brand without experiencing an extension. The brands in question either are a luxury or prestige brand. A third treatment distinguishes two product groups, one high in visibility during consumption, and another low. In addition to the type of brand extensions, a different evaluation may arise for individuals with varying characteristics. One of these features that may have a significant effect is status consumption (to what extent do consumers purchase items to enhance their status). This characteristic is measured with the use of the scale developed by (Eastman et al., 1999). All scales and their sources are presented in Table 3.1. For status consumption the question ‘I would pay more for a product if it had status’ is used to divide participants into two groups, status-seekers, and non-status seekers. The remaining questions are used to verify how reliable the scales have been in measuring status consumption levels. All these

independent variables are suggested to impact two dependent variables. The first dependent variable that the independent variables affect is the post-evaluation of the core brand. This study is mainly interested in how the extension affects the brand images of the luxury and

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prestige brands. The design uses the scale as mentioned earlier of Vigneron and Johnson (2004) to estimate the brand's luxury image. However, it also looks at the consumer's preference (like and appeal) toward the core brand. The second dependent variable that is affected is the evaluation of the actual product extensions; operationalized into a scale that measures extension attitude (Kirmani et al., 1999) and value perceptions (Taylor & Bearden, 2002).

Measure - Variable Questionnaire 1 Questionnaire 2 Source

Status consumption (IV)

Expenditures fashion (CV)

Parent brand attitude (DV) Brand familiarity (CV) Extension attitude (DV) Extension value (DV) Prestige (DV) Luxury (DV)

STAT1– I would purchase just because it had status STAT2– I am interested in new products with status STAT3– I would pay more for a product if it had status STAT4– The status of a product is irrelevant to me EXP1 – Average total monthly spending on clothing EXP2 – Yearly expenditures shoes

BAT1 – Likeable/ Unlikeable BAT2 – Appealing/ unappealing FAM1 – Familiar/ unfamiliar

Eastman et al. (1999)

(Musante, 2007)

Kirmani et al. (1999)

Taylor and Bearden (2002)

Dall’olmo Riley et al. (2013)

Vigneron and Johnson (2004) EAT1 – Likeable/ Unlikeable

EAT2 – Appealing/ unappealing VAL1 – Good value for money VAL2 – Good buy

PRE1 – The brand is very prestigious

LUX1 – The brand is conspicuous, it is perceived as expensive and for the wealthy

LUX2 – The brand is unique and very exclusive, I would perceive this brand as rare

LUX3 – The brand offers the best quality, is superior in its sort

LUX4 – The brand offers pleasuring (hedonic) benefits, it is glamour

LUX5 – People perceive brand owners as successful. Brand owners use these possessions to showcase who they are, to construct their identity.

Table 3.1 Scales

For the selected scales, a five-point Likert scale is used for the majority of the questions. Recent studies show that there is not much difference in the reliability of five (α = 0.717) - and seven-point scales (α = 0.716) (Revilla, Saris, & Krosnick, 2013) Revilla et al. (2013) tested both five and seven-point scales and find that five-point scales yield better quality data, especially when more categories are used. Within a five-point scale, respondents are more

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likely to use all response options of the five-point scale. When scales become bigger, so does the expected degree of skew in the distribution of responses. For these reasons, and because a higher Likert point scale makes the questionnaire more time consuming, a five-point scale is preferred. However, prestige, familiarity and initial brand attitude (covered in questionnaire 2) are designed with a seven-point scale, so that resulting findings are readily comparable to the results of Dall'olmo Riley et al. (2013).

3.2 selection of brands and respondents

The selection of brands

This thesis uses a pre-test to confirm whether the selected brands indeed can be perceived as prestige and luxury. This present study bases its theoretical model and

hypotheses on the assumption that an ordinal division exists within the positioning of three different types of brands. Some studies (e.g. Dall'olmo Riley et al., 2013; Vigneron &

Johnson, 2004) indicate that luxury brands should be perceived as the brands with the greatest quality, prestige or status, exclusivity, uniqueness, hedonic factors, but also price. So far, only Dall'olmo Riley et al. (2013) use the suggested distinction between luxury and prestige

brands, which means that there is no baseline available other than what this study has used. Even though the study of Dall'olmo Riley et al. (2013) explicitly calls for the utilization of a more comprehensive scale to measure aspects of luxury, it selects their test brands in quite a simplistic manner. Dall'olmo Rile et al. (2013) limit their pre-test to simple scales of

perceived luxury and prestige and do not take into account all dimensions available, and perhaps necessary, to distinguish luxury and prestige brands. As mentioned in the literature review, extensive research has developed a scale to distinguish between luxury and non-luxury brands. Therefore, this pre-test and the following experiment uses the scale of Vigneron and Johnson (2004), to distinguish between the high segmented luxury brand concept, and the more accessible and in the middle segmented prestige brand concept.

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To be able to explain the difference caused by the moderating effect of visibility of the brands, it is of the greatest importance to select brands with highly visible product groups and less visible counterparts. As mentioned earlier, Bearden and Etzel (1982) distinguish between public necessities (e.g. automobile), public luxuries (e.g. golf clubs), private necessities (e.g. was machines), and private luxuries (e.g. icemaker). Because peers are able to observe the consumption of public necessities and luxuries, the reference group is able to exert more influence into the purchases and consumption (Bearden & Etzel, 1982) . By simply owning public luxuries, such as a swimming pool, an individual can send signals of luxury. This is not the case for public necessities. For these products, the actual brand is more important, because consumers can use a logo or a particular name to distinguish themselves from others, and can give a signal of richness (Bearden & Etzel, 1982). It is therefore that this study selects public (highly visible) and private necessities (less visible) for the selection of the test brands, as the branded labels, are of particular importance, and merely owning the product is not enough to signal their identity. Bearden and Etzel (1982) distinguish between numbers of products that fall into this category. This study dates back more than 40 years. It is

questionable whether their original division is still reliable. Fortunately, using a five-point scale, the more recent study of Mumel and Snoj (1999) has updated this segmentation. It finds that products such as woman's clothes (M=2.8, SD=1.63), cars (M=3.2, SD=1.4), visits to sports events (M=3.6, SD=1.33), and education (M=2.8, SD=1.56) are highly visible in consumption (Mumel & Snoj, 1999) . It also identifies underwear (M=1.1, SD=0.55),

cosmetics (M=1.8, SD=1.4), and at-home-electronics (M=1.9, SD=1.06) that are products that are less visible in consumption (Mumel & Snoj, 1999) . Appendix 8.2.2 presents a summary of the product's visibility scores.

For the selected brands, some characteristics should be relatively similar. Dissimilarities between the brands could be a source for alternative explanations. First,

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relevant product classes should have a similar price level as price also is an indicator of status and luxury and can lead to different evaluations. This equal price level is the main reason for the thesis to exclude the product category of cars (highly visible). Second, the selected brands and their relevant product groups should have a similar sort of product. The evaluation of a brand specialized in delivering an intangible service is different from that of a tangible

product ((Boisvert, 2012). For this reason, the experiment has to exclude luxury services, such as visits to sports events, from the selection of test brands. Third, another aspect that should be similar between the brands is a comparable amount of horizontal extensions. Previous research suggests that brands that differentiate themselves across various product categories are relatively immune to step-down extensions (Dall'olmo Riley et al., 2015) Take, for instance, Diesel, that uses its brands in many categories (e.g. Jeans, perfume, belts, bags, watches, shoes, etc.). This differentiation makes it difficult to categorize the brand, and its relevant products, into one price-class. The brands selected in this study, therefore, should not have such a broadly differentiated range, preventing the brands from being immune to the extension. The questionnaire, therefore, includes a question that verifies whether the respondents are aware of sales of other products for much lower prices.

The selection of respondents

Concerning the selection of those surveyed, it is important that the study selects a population that consists of a potentially large group of individuals sensitive to status consumption. Recent research shows that young adults (26-39 years) are more likely to purchase luxury brands for value intentions, to showcase their identity (Schade, Hegner, Horstmann, & Brinkmann, 2016). It also indicates that late adolescents (16-25) tend to make luxury brand purchases for hedonic motives like pleasure and social purposes such as to gain approval from reference groups (Schade, Hegner, Horstmann, & Brinkmann, 2016) . In

Step-down brand extensions for luxury and prestige brands

Topic: