Thesis – Final version
Step-down brand extensions and product visibility on consumer
evaluations of the brand extension and core brand.
Benthe Berger
10879935
June 29th 2015
MSc. in Business Administration – Marketing track
Supervisor thesis: K. Venetis
Statement of Originality
This document is written by Student Benthe Berger who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and 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 contents.
Contents
1. Introduction ... 6
1.1 Background ... 6
1.2 Research Gap ... 8
1.3 Problem statement and research questions ... 9
1.4 Research delimitations ... 10
1.5 Contributions ... 10
1.6 Outline ... 11
2. Literature review ... 12
2.1 Brand extensions ... 12
2.1.1 Horizontal brand extensions ... 12
2.1.2 Vertical brand extensions ... 13
2.2 Brand concept ... 15
2.2.1 Functional brands ... 15
2.2.2 Luxury brands ... 16
2.3 Brand extension effects ... 17
2.3.1 Associations transfer ... 17
2.3.2 Brand dilution ... 18
2.3.3 Branding strategies ... 19
3. Theoretical framework and hypotheses development ... 20
3.1 Evaluations of a step-down extension ... 20
3.1.1 Consumer evaluations of the brand extension ... 21
3.1.2 Consumer evaluations of the core brand ... 22
3.2 Product visibility ... 24
3.2.1 The effect of product visibility on consumer evaluations of the brand extension ... 25
3.2.2 The effect of product visibility on consumer evaluations of the core brand... 26
4. Methodology ... 29 4.1 Brand selection ... 29 4.2 Pre-test ... 29 4.2.1 Pretest results ... 31 4.3 Experimental design ... 32 4.4 Questionnaires ... 33 4.4.1 Scenarios ... 33
4.4.2 Measurement scales ... 34
5. Results ... 35
5.1 Sample ... 36
5.1.1 Response analysis ... 36
5.1.2 Data preparation ... 37
5.1.3 Descriptives of the total sample ... 37
5.2 Pre-analysis ... 39 5.2.1 Outlier analysis ... 39 5.2.2 Reliability check ... 40 5.2.3 Normality check ... 40 5.3 Condition similarity ... 41 5.4 Manipulation check ... 44 5.5 Experimental conditions ... 47
5.5.1 Means and standard deviations ... 47
5.5.2 Correlation analysis ... 48
5.5.3 Regression analysis ... 49
5.6 Hypotheses testing ... 50
5.6.1 Post-Hoc analysis ... 58
6. Discussion ... 60
6.1 Discussion of the results ... 60
6.2 Theoretical implications ... 65
6.3 Managerial implications ... 66
7. Conclusion ... 67
7.1 Summary ... 67
7.2 Limitations and suggestions for future research ... 68
8. References ... 70 9. Appendix ... 74 9.1 Pre-test results ... 74 9.2 Measurement scales ... 75 9.3 Questionnaires ... 77 9.4 Statistical analysis ... 79
Abstract
This research paper aims to study the effects of vertical step-down extensions on consumer evaluations of the brand extension and core brand with varying degrees of product visibility. The study focusses on luxury brands with product categories that have not been used in other studies. A two-by-two factor experiment on real brands was used to measure step-down extensions with a 50% price reduction and neutral extensions on consumer evaluations. Results were gathered from 203 respondents. The results indicate that step-down extensions result in favorable extension evaluations and purchase intentions, while causing negative core brand evaluations in comparison to initial core brand evaluations. Higher product visibility results in increased perceived social risk, but this does not result in lower extension evaluations. The core brand evaluations are negatively affected by product visibility both for step-down extensions and neutral extensions. The results show that conspicuous consumption of lower-priced products results in social risk and peer pressure, indicating a need for managers to consider social risk as a factor in their step-down extension decisions. Future research needs to explore the concept of social risk with brand extensions further and focus these efforts on various product categories.
1. Introduction
1.1 Background
With growing international competition and increasing pressures for companies to survive, entering a market with a new brand or product is becoming more difficult. Companies increasingly recognize that brand extensions represent an important strategic move. Introducing new products under existing brands helps brand confidence and purchase intentions (Albrecht, Backhaus, Gurzki and Woisetschläger, 2013). Vertical step-down brand extensions have become increasingly popular to diminish the risks of introducing new products and to attract a broader audience (Heath, DelVecchio and McCarthy, 2011). In times of recession, vertical brand extensions are used in order to target the price-sensitive consumers. A vertical step-down brand extension is introduced as part of the mother brand to demonstrate the connection but at a lower price (Kim & Lavack, 1996; Hanslin & Rindell, 2013). The car industry is growing exponentially because of vertical brand extensions, although they do not always result in positive attitudes. When Cadillac introduced its lower-priced Cimarron to other targets, the company subsequently damaged the core brand and its sense of luxury (Kim & Lavack, 1996). Step-down extensions are also very popular in the apparel industry where brands such as Armani and Louis Vuitton have both used this strategy.
The motivating rationale behind an extension is that the core brand has positive associations that will be helpful to the extension. Although a growing body of research supports this notion, significant research shows downward effects of step-down brand extensions (Kim, Lavack and Smith, 2001; Aaker & Keller, 1990; Martinez & Pina, 2010). Core brand dilution is likely, while it is suggested that the positive attitude towards a step-down brand extension will eventually result in higher brand equity of the core brand (Hanslin & Rindell, 2013). Especially for premium and luxury brands, the risks of brand dilution are
high. The car and apparel industry has been a popular target for brand extensions, even though the general body of literature has found negative effects on the core brand image for step-down extensions in these industries (Kim et al., 2001; Riley, Pina & Bravo, 2013; Riley, Pina & Bravo, 2015). So why are step-down brand extensions so popular in the luxury brand market? Kim and Lavack (1996) explain that luxury brands have more room to move to lower quality levels; their core brand is of the highest price and quality. Nevertheless, sufficient reasons why step-down extensions for luxury brands are limited to the same product categories are unexplained. Since many other types of products and step-down brand extensions have been unexplored, it cannot be stated that step-down extensions result in negative consumer evaluations across all product categories for luxury brands.
The general consensus of current literature shows the potential backward effects of brand extensions, due to inconsistent associations (Kim et al., 2001; Aaker & Keller, 1990; Martinez & Pina, 2010). However, it is unclear whether this is always the case for luxury brands that are known for high quality, premium prices and exclusivity. Pandelaere and Vyncke (2013) show that luxury brands need to take three important facets into account when positioning their brand: Emotional value, high quality and perceived exclusivity. With luxury brands, consumers may perceive that the purchase of a down-scale extension carries a high degree of social risk because quality and status are lower for this new product. Fear of rejection by peers increases once the extended products are visible, and highly evident to peers (Riley et al., 2013). In their study on vertical extensions, Riley et al. (2015) found a different effect between cars and fashion brands in terms of conspicuousness and its effect on consumer evaluations. It was argued that cars, being more visible to others, held a high degree of social risk, and this subsequently resulted in more negative customer evaluations of the core brand after a step-down extension. Any form of risk as perceived by consumers, immediately lowers the value of the purchase and the brand, because risk is seen as a sacrifice
(Lei, De Ruyter & Wetzels, 2008). Nevertheless, social risk is likely to be lower when brand extensions are used for products that are less visible to others. As Piron (2000) explains, for consumption to be conspicuous, it has to be a social event, publicly witnessed by others. When step-down brand extensions are introduced in product categories which are used privately, lower priced products are likely to have a lesser effect on feelings of social pressure. This can subsequently affect the consumer evaluations of the core brand after an extension, resulting in less negative evaluations.
1.2 Research Gap
The existing research on step-down brand extensions and their effects on customer evaluations of the core brand and brand extension has been pertained to limited product categories and this results in several gaps. Current research is limited in variety, since research focusses solely on restricted product categories with high visibility, such as cars, clothing and watches, that are visible to peers (Albrecht et al., 2013; Riley et al., 2013; Kim et al., 2001; Riley et al., 2015). Brands used in studies are often highly visible to other consumers, while products used privately have not been considered, such as perfumes or wines. In order to truly understand the impact of brand extensions of luxury brands on consumer evaluations, the current research needs to move beyond this narrow scope of research. The urgent need for step-down extension research in other product categories has been communicated often (Riley et al., 2013; Hem, Iversen and Olsen, 2013; Völckner & Sattler, 2007).
Moreover, there is little research explaining why product categories can have a significant effect on customer evaluations of vertical brand extensions. It is possible that step-down extensions may not result in negative effects of the core brand when focusing on other products. But the narrow scope of current research does not allow for such conclusions to be
such a brand. When a product is consumed privately, the status and exclusivity of luxury brands are less relevant in the buying decision. Therefore, the social risk of buying an extension is much lower, and can alternate the negative evaluations of the core brand. Nevertheless, the degree of social risk is likely to vary between various products (Riley et al., 2015; Lei et al., 2008; Fischer, Völckner & Sattler, 2010). Research needs to consider a number of previously ignored moderating variables such as the conspicuousness of the product and the effect this has on the perceived social risks when buying these products. This provides a better understanding of the circumstantial factors that affect consumer evaluations of the core brand with vertical step-down extensions of luxury brands.
1.3 Problem statement and research questions
Because step-down extension research has been limited to certain product categories, we cannot form any assumptions about situational factors that determine whether such an a step-down extension always dilutes the core brand. To do so, current research needs to focus on other product categories. This research therefore aims to answer whether step-down extensions for luxury brands always have to result in negative evaluations. Are there variables that can lower the negative effects of a step-down extension on the brand? In order to fill the existing gaps in the current literature as explained above, and to provide a contribution to the existing research on step-down brand extensions, the research question of this study is as follows:
What is the impact of varying degrees of product visibility when introducing a step-down brand extension for luxury brands on consumer evaluations of the brand extension and the
core brand?
To provide answers to this research question, the literature review will discuss the following sub-questions:
1. What are brand extensions and what different types of brand extensions are there?
2. What are the consequences of a (vertical) brand extension?
3. What is a luxury brand and how does it differ from other brands?
4. How does a step-down extension affect the core brand and brand extension evaluations?
5. What is product visibility and how does it influence consumer evaluations of the core brand and brand extension after a step-down extension?
1.4 Research delimitations
This research focusses on step-down brand extensions of luxury brands. These brands are associated with high-quality, premium prices and exclusivity. It aims to measure the effect of step-down extensions on consumer evaluations of both the core brand, and the extension itself. Consumer evaluations are studied between neutral and step-down extensions, which both exhibit the direct branding strategy. Whereas step-down extensions exhibit a price reduction from the core brand, neutral extensions will represent no price change. Products used for this study will differ in product consumption: visible and private usage. The effect of product visibility will be measured on social risk, which is the degree of fear and anxiety consumers have about feelings of social rejection. Consumer evaluations are based on general attitudes towards the core brand and extension in terms of favorability, likability and appeal together with purchase intentions.
1.5 Contributions - Theoretical contributions
This research aims to find out whether step-down extensions of luxury brands always have to result in negative consumer evaluations. By extending current research beyond other
down extension research. It adds to the growing body of knowledge on vertical step-down brand extensions by studying consumer evaluations of luxury brands by focusing on products that have not been studied so far. It challenges current research which has found generally negative effects of step-down brand extensions, by adding previously ignored moderating variables. These variables aim to provide a more comprehensive view on step-down extensions and to detect any possible discrepancies in current research. Furthermore, explanations on the differentiating effect of product visibility on consumer evaluations can put step-down extension into a new perspective (Riley et al., 2015). This study therefore provides better understanding of the circumstantial factors that affect consumer evaluations.
- Managerial contributions
The current study touches upon the perceived social risk of consumers when buying step-down brand extensions of luxury brands. The study therefore allows managers to more effectively manage the trade-off between targeting a broader customer market or the risk of tarnishing the core brand. Furthermore, when comparing the social risk against the added value of a buying cheaper product, this study will inform managers of the trade-off consumers make when evaluating a step-down brand extension. For various products, managers are able to balance the losses of perceived social risk from the added value of their step-down extension. This in turn, gives marketers and brand managers the criteria needed to make an informed decision about future brand extensions.
1.6 Outline
The remainder of this study is organized as follows: This study will start by reviewing the existing literature on brand extensions and brand dilution risk, followed by discussing the luxury brand concept. This is followed by the conceptual framework and hypothesis development on consumer evaluations and product visibility. The fourth chapter will review
the research methods and design of this study, followed by the actual results of the study. The final chapters of this study will elaborate on these results, compare it to previous studies and discuss the implications and limitations of the study.
2. Literature review
2.1 Brand extensions
Brand extensions have been a popular strategy for decades, and new products are still being introduced under an existing brand name every day. Companies have come to recognize that brand extensions represent an important strategy, since using an established brand diminishes the risks and costs of introducing a new product (Albrecht et al., 2013). Brand extensions come in many different forms: Lay’s Chips brings new flavors under the existing brand to the market, while Nivea introduced their new product line for men with their established name Nivea Men. The main rationale behind a brand extension is that the investment on the brand equity is used for introducing new products that share the same name (Riley et al., 2013). Brand extensions have the advantage of preserving existing brand recognition and brand image and therefore, reduce the risk of market failure and low sales (Aaker & Keller, 1990). Using existing brand knowledge and beliefs as a way to introduce new products allows firms to capitalize on the core brand equity. While there are many different forms of brand extensions, they can be categorized as either horizontal extensions or vertical extensions, which will be discussed briefly.
2.1.1 Horizontal brand extensions
Brand extensions can be categorized among two primary forms: Horizontal and vertical brand extensions. A horizontal extension involves the use of an existing brand name for a new product introduction, either in a similar product class, or a completely different
extensions involve line stretching, whereby a new product feature is added to the existing products (Riley et al., 2015). The candy brand M&M’s has introduced many of these horizontal extensions, simply by introducing new chocolate flavors. Another horizontal brand extension strategy is to use a current brand name to enter a completely different product category (Aaker & Keller, 1990). Fashion labels such as Gucci and Armani began within the apparel industry, but have quickly extended into other product categories such as watches, perfumes and sunglasses. In the current research, the concept of category fit has been used to explain the various effects of horizontal extensions on consumer attitudes. When a brand introduces new products in a new product category, the perceived fit between core brand and brand extension is often low. As Milberg, Park and McCarthy (1997) explain, the degree of fit between a new product and the existing products under the brand affects how consumers assess the new brand extension. A low-fit brand extension is inconsistent with customers’ current brand knowledge about the image and product attributes. Hence, a horizontal brand extension in a different product category carries higher risk due to inconsistent attributes.
2.1.2 Vertical brand extensions
Consumers often evaluate a new horizontal brand extension on the perceived fit between the current product categories and the new one. Research on vertical extensions supports this notion; however, assuming product fit is a top requirement for the successfulness of a vertical extension may lead to believing that horizontal and vertical extensions are evaluated by consumers on similar criteria, while this is not the case (Riley et al., 2013). A vertical brand extension involves the introduction of a new product under an existing brand in the same product category (Kim et al., 2001; Kim & Lavack, 1996; Hanslin & Rindell, 2013). With vertical brand extensions, the inconsistency is not between product categories, but is determined by the difference in price and quality (Lei et al., 2008). Vertical brand extensions allow companies to use an established brand name to introduce a similar product, but at a
different price and quality level. An example of a vertical brand extension is the introduction of Lexus cars from the Toyota brand or the Marriott Hotel chain with new hotels under the name Courtyard by Marriott. Vertical extensions, have a strong degree of product feature similarity with the parent brands, but differentiate their new products by moving them to a new price category (Riley et al., 2015).
Price takes on special relevance when it comes to vertical extensions (Riley et al., 2013). In vertical extensions, the brand is extended to a product in the same category but at either a lower price or a higher price (Riley et al., 2015). A step-up vertical brand extension is introduced at a price point that is higher than the core brand, whereas a step-down brand extension is introduced at a lower price and quality level than the core brand (Kim & Lavack, 1996). The distinction between step-up or step-down vertical extensions represents a trade-off for companies contemplating vertical extensions: Companies can increase revenues by targeting a broader target market when introducing a step-down extension for the price-sensitive consumers. Higher quality brands can therefore attract various consumers for items ranging from the basics to the most exclusive (Heath et al., 2011). On the other hand, a step-up extension will allow the organization to focus on a smaller target market with a higher willingness-to-pay (Goetz, Fassnacht and Rumpf, 2014). A step-up extension at a higher price allows the core brand to signal greater expertise and can therefore target the upper customer segments. A neutral extension does not represent an extension that has moved to a different product category, nor does it imply a price change. Neutral extensions represent new branded products that have a high fit with the core brand on both price and product category, and do not differ from the current products under the mother brand. The current study uses vertical step-down extensions and neutral extensions and their effect on consumer evaluations, which will be discussed further with the development of the hypotheses.
2.2 Brand concept
An important factor determining the success of a brand extension is perceived fit, as discussed by current research on brand extensions. In horizontal extensions, fit is measured between the new product category and the core brand product category. In vertical extensions however, the product category remains the same, and so, category fit loses its explanatory power. Another type of fit that can explain the success of a vertical brand extension is brand concept fit or similarity (Riley et al., 2015). As Kim & Lavack (1996, p. 25) explain, “Brand concept refers to the image of a particular brand as it is commonly understood by consumers”. The most commonly known brand concepts are function-oriented brands or either prestige / luxury oriented brands. The brand concept, to a certain degree, affects how consumers value a brand extension (Völckner & Sattler, 2007). With vertical extensions, price and quality are altered, and this can affect the brand image of the core brand. Therefore, introducing a higher or lower priced brand extension can have an impact on how consumers evaluate the core brand (Kim & Lavack, 1996). Luxury and functional brand concepts are discussed below, from which onwards, luxury brands are used for the purposes of this research.
2.2.1 Functional brands
A functional brand is a brand that emphasizes attributes that consumers associate with durability and competence (Kim & Lavack, 1996). For example, the brand Black&Decker emphasizes strong performance and durability. Function-oriented brands position themselves with a focus on product features and rational aspects. Factors such as price, reliability and durability are most valuable (Goetz et al., 2014). Functional brands are not known for their status, prestige or exclusivity, which makes it more difficult to position, because price and quality are often the only differentiating factors (Aaker, 2013). Since brand aspects such as prestige are linked to price, extending a functional brand downward or upward is likely to be very different from other brand concepts. Exclusivity is a non-existent association of a
functional brand and therefore, a step-down extension will not change this. Reducing the exclusivity of a functional brand by introducing a step-down extension to the mass market, should have a much lesser effect on the core brand image (Goetz et al., 2014). Besides having an impact on consumer evaluations, a brand concept also determines the degree and direction of a vertical extension. A functional brand is often not high on the price-prestige continuum, and so it has more room to move upward, rather than downward on the price spectrum. For a luxury or prestige brand, there may be a so-called “ceiling effect” (Riley et al., (2015). Indeed, these brands have less room to move upward, and more room to move lower in price.
2.2.2 Luxury brands
While research has been consistent in defining functional brands, definitions of luxury brands have been rather inconclusive. Hanslin & Rindell (2013) state that luxury brands solely exist for the creation of expensive fashion and luxury goods, and are associated with exclusivity. However, not only status and high quality are characteristics of luxury brands, but also social and emotional value (Albrecht et al., 2013). Luxury brands have an emotional component, which differentiates them from functional brands. Luxury brands are often bought with the purpose to express one-self and to gain social approval. Therefore, luxury brands are symbols of social identity, which makes them more difficult to expand to other price categories, since a lower price product can change the identity of the brand and its meaning to consumers (Reddy, Terblanche, Pitt & Parent, 2009). A more complete definition of the luxury brand concept is given by Hudders, Pandelaere and Vyncke (2013), who define luxury brands with characteristics such as exclusivity, uniqueness, scarcity, premium price, high quality and social value. Because of the exclusivity and scarcity component of luxury brands, brand extensions are more difficult to realize. There is a trade-off between making a luxury brand more accessible to others by extending the brand, or maintaining its exclusivity status (Albrecht et al., 2013). Furthermore, as Riley et al. (2015) argue, the consistency of the brand
concept is more important with a step-down extension of a luxury brand than a functional brand, since it is higher on the prestige and price continuum. Indeed, changing the quality and price levels has much more impact for higher-priced brands, because the price change is often more pronounced.
2.3 Brand extension effects
Focusing on vertical step-down extensions, research shows that there are many advantages to such a strategy. Introducing an extension alongside the core brand name emphasizes the connection between the brand extension and the core brand (Kim & Lavack, 1996). This link gives customers the confidence to trust the new products introduced in the market. Furthermore, in times of financial recession, vertical extensions allow customers to buy products from well-known brands, but at a price range of their choosing. Customers have become more risk averse and price conscious, and companies use vertical extensions to use their core brand image and trust (Goetz et al., 2014). Companies often use brand extensions with the aim of benefiting from existing brand image and brand awareness which is established by the current brand (Martinez & Pina, 2010).
2.3.1 Associations transfer
The motivating rationale behind a vertical extension strategy not only has to do with existing brand equity, but also the brand associations of the core brand. Brand associations are those characteristics and attributes that customers link to existing brands (Kim et al., 2001). Goetz et al. (2014) explain that when customers become familiar with a family brand, they link associations to that brand. Core brands are associated with certain attributes based on those features associated with its products. Introducing a new product under the same name will likely cause a transfer between the core brand associations to the new product. When introducing new products under a vertical extension, it is assumed that the existing core brand associations are positive; otherwise the extension is futile (Aaker & Keller, 1990). The higher
the fit between the core brand and the new product, the higher the transfer of associations will be (Michel & Donthu, 2014). When a core brand is of high quality, a high fit would allow the quality associations to be transferred to the extension (Aaker & Keller, 1990). Therefore, a motivating rationale of a vertical brand extension is that existing brand associations will be helpful with the introduction of the new product. Nevertheless, vertical extensions can be harmful to current brand knowledge as well. As Meyvis & Janiszewski (2004) explain, a broader brand will often have more inconsistent associations which harms brand recall and recognition. Furthermore, vertical brand extensions may increase brand familiarity, but they can also damage existing core brand image (Albrecht et al., 2013).
2.3.2 Brand dilution
Vertical extensions are often introduced to help the introduction of the new product with the transfer of positive core brand associations. Nevertheless, the transfer of associations also takes place from the new product towards the core brand, and these so-called feedback effects are proven to be often harmful. When a vertical extension is not successful, this can harm existing brand associations (Milberg et al., 1997). Moreover, the reputation and equity of the parent brand can be diluted when the extended product is associated with negative attributes (Goetz et al., 2014). A vertical brand extension alters the price and quality of the core brand. This can lead to confusion about the quality and luxuriousness of the core brand and this will inevitably diminish positive feelings towards the core brand (Kim & Lavack, 1996). Categorization theory explains that when consumers are exposed to a new type of information from new product attributes, they assess the degree of similarity with the core brand (Milberg et al., 1997). With vertical brand extensions, the new price and quality level are distinctly different from the core brand and may be perceived as inconsistent attributes. This subsequently leads consumers to re-evaluate the initial evaluations of the core brand (Kim et al., 2001). Therefore, in a brand extension context, altering the core brand image by
introducing new products with different attributes increases risk of diluting the existing brand image and favorability. Therefore, the most successful brands posit a brand image that is transferable across categories without having the risk of brand image dilution (Keller & Lehman, 2009).
2.3.3 Branding strategies
The previous paragraphs discussed that vertical brand extensions can be thought of as a trade-off: On the one hand, associations transfer to the extension can optimize adaption and brand awareness among consumers. However, the transfer of associations from the extended product back to the core brand may result in brand dilution when these associations are inconsistent with, or harmful to the core brand. With vertical extensions, the perceived inconsistency is influenced by the perceived distance between the parent brand and extension product (Lei et al., 2008). This distance is mostly based on brand image, quality and price. Brands that willingly increase distance between extensions and the core brand may harm brand image through inconsistent associations. Nevertheless, this branding strategy can also prevent negative associations being transferred back to the core brand. Besides choosing the optimal distance between the extension and the core brand, another strategy that can be used to optimize associations transfer and minimize brand dilution is the brand architecture. The transfer of existing brand associations and image to the extension and vice versa, is influenced by the branding strategy (Goetz et al., 2014). When using a sub-branding strategy, the perceived distance is higher, because the new product is introduced under a dissimilar brand name, which is likely to weaken the risk of brand image dilution. A direct extension holds both products under a common brand name. Although this improves the transfer of positive associations to the extension, a direct branding strategy is not without risks. As Milberg et al. (1997) argue, inconsistent associations have a higher negative impact on the core brand when they are introduced under the same brand. The perceived distance is limited, and therefore,
consumers are better able to transfer associations from the extension to the core brand and vice versa.
This research focusses on vertical step-down extensions of luxury brands with the use of a direct extension strategy. The effects of introducing a lower priced product (step-down extension) will be studied in comparison to a neutral direct extension, where no existing brand attributes and associations will be altered. The direct branding strategy is likely improving the adoption and brand awareness of a step-down extension (Milewicz & Herbig, 1994). Nevertheless, research has suggested that the risk of negative associations transfer and brand image dilution are very high with this strategy, and will likely alter how consumers evaluate the extension and the core brand after a step-down extension (Goetz et al., 2014). The next section will discuss the theoretical framework and elaborate upon the following hypotheses that are studied in this paper.
3. Theoretical framework and hypotheses development
3.1 Evaluations of a step-down extension
Current research on step-down extensions has shown that there is a trade-off when introducing these extensions (Kim & Lavack, 1996). While a firm can choose to leverage existing associations for the better of the brand extension, core brand dilution is likely. For luxury brands, step-down extensions are likely to have more pronounced effects. Luxury brands are known for their high prices, exclusivity and social value. When a lower-priced product is introduced, consumers are very likely to have different evaluations of the core brand and the brand extension. A step-down extension is known to affect consumer evaluations in terms of likability, favorability, appeal and purchase intentions of the extended product (Riley et al., 2013; Albrecht et al., 2013; Martinez & Pina, 2010; Riley et al., 2015).
3.1.1 Consumer evaluations of the brand extension
Under normal circumstances, luxury brands are premium-priced and scarce, only available to the few who can afford it. A step-down extension that introduces a luxury brand at a lower price would reduce this exclusivity. This lowered perceived exclusivity does not fit with the initial image of the core brand, and may affect how consumers evaluate the extension (Martinez & Pina, 2010). Indeed, why buy a luxury brand when everybody can? Nevertheless, current research significantly supports the notion that luxury brand extensions are valued by customers, and this leads to positive consumer evaluations of the brand extension. Hanslin & Rindell (2013) studied the effects of step-down extensions on consumer evaluations and noted that the general public appreciates the ability to buy a luxury brand at a lower price. Indeed, great potential lies for prestige or luxury brands within the vertical extension context. Many income classes who normally cannot afford a luxury branded product are likely to enthusiastically welcome the lower priced extension (Kim & Lavack, 1996). Albrecht et al. (2013) argue that it is not the social and hedonic value of luxury brands that allows them to move into lower-priced categories. On the contrary, the social and exclusivity effect of luxury brands may even result in reduced extension value. It is however, the high-quality core offerings that reduces perceived risks when buying a lower-priced product. This subsequently will lead to improved evaluations of the brand extension, since customers still expect the value to be high, but at a more affordable price. Especially when the brand image fit is high and the strength of the core brand is high, evaluations of brand extensions are likely to be positive (Hem et al., 2013). The remainder of research supports the assumption that customers evaluate brand extensions positively, when the initial brand image is positive as well. Goetz et al. (2014) explain that any step-down extension can be positively evaluated because of a positive variety effect. Customers appreciate having more branded products to choose from and this positively influences how they evaluate a brand extension. It is therefore expected,
that either a neutral luxury brand extension with no changes from the core brand offerings, or a step-down extension, will be positively evaluated but that this will vary in degree.
H1: A step-down brand extension will result in less positive evaluations of the brand extension in comparison to a neutral brand extension, but both will have positive evaluations.
3.1.2 Consumer evaluations of the core brand
The research on vertical step-down extensions has mostly resulted in negative evaluations of the core brand. Nevertheless, there are some instances, where the core brand image improves after the introduction of a step-down extension. When the extended product is highly valued by customers, this will lead to more positive feedback effects to the core brand (Martinez & Pina, 2010). However, this is only possible when the fit between both products is high, especially brand image fit. Customers are more favorable of a step-down extension when the associations are consistent with the core brand (Riley et al., 2015). Several authors support this notion, but customer evaluations of the core brand are significantly affected when it is a luxury or prestige brand that is extended into a lower priced product (Health et al., 2011). Indeed, as Goetz et al. (2014) argue, step-down extensions result in positive evaluations of the core brand, but this is negatively influenced by the brand concept. Social Comparison Theory dictates that consumers evaluate themselves on the basis of comparing brands. Introducing a step-down extension, makes the core brand seem more superior, which results in positive evaluations. Nevertheless, this effect is significantly decreased when luxury brands are involved (Goetz et al., 2014).
Although some research suggests the positive effects of step-down extensions on the core brand, the brand concept negatively moderates this effect. Functional brands are often less hurt by a lower price, rather than brands positioned further on the price-prestige continuum (Kim & Lavack, 1996). The positive social comparison effect of vertical
step-down extensions is diminished once a luxury brand is involved, because exclusivity and status of the brand decrease (Goetz et al., 2014). This negative exclusivity effect, whereby the status and rareness of a brand decreases once a lower-priced product is introduced, is consistent amongst current research. Moreover, Kim et al. (2001) argue, that even the direction of a vertical extension is unimportant with luxury brands, because they always result in less positive evaluations of the core brand. Especially in the car and apparel industry, introducing a step-down extension dilutes the existing core brand image (Riley et al., 2013; Kim et al., 2001; Kim & Lavack, 1996). Even though consumer evaluations towards the extension are positive, the brand extension inconsistency leads to lower evaluations of the core brand (Milberg et al., 1997). When new attributes are inconsistent with the current brand image, and what consumers perceive as fitting, this ultimately leads to lower value of the parent brand (Michel & Donthu, 2014).
Inconsistent attributes between the new product and the core brand causes the negative evaluations of the core brand after introducing a step-down extension. Especially for luxury brands, the perceived inconsistency is likely to be very large. Since luxury brands are positioned high on the price-prestige continuum, a lower-priced product can be significantly distanced from the core brand (Kim & Lavack, 1996). There is more room for downward positioning, and this change is often very visible to consumers. Furthermore, luxury brands are likely to be diluted by step-down extensions due to their existing brand image of status and high quality. A lower price is distinctly different from the brand image, and this leads to consumers changing their initial brand evaluations. (Kim et al., 2001). Introducing a step-down extension will diminish the quality and exclusivity of the core brand image, making the brand available to the common customer. As Goetz et al. (2014) explain, it is the exclusivity dimension of luxury brands that negatively affects the core brand evaluation. With luxury brands, consumers expect to use products that will elicit status, superiority, exclusivity and
high quality. Consumers will only accept luxury brand extensions that are consistent with the associations of the core brand, in terms of price, quality and status positioning (Riley et al., 2015). When comparing the consumer evaluations of the core brand after the extension with initial brand evaluations, the following results are predicted:
H2a: A step-down brand extension will result in more negative consumer evaluations of the core brand compared to initial evaluations of the brand.
H2b: The core brand is more negatively evaluated when introducing a step-down extension in comparison with a neutral brand extension.
3.2 Product visibility
The brand concept continuum, which distinguishes between functional and luxury or prestige brands, is likely to have a large effect on how consumers evaluate step-down brand extensions. So far, the brand concept continuum has been defined by varying levels of price, quality and prestige. However, research has not acknowledged that the continuum can also vary in terms of status and conspicuousness (Riley et al., 2013; Riley et al., 2015). Luxury brands can vary in their degree of conspicuousness, depending on the visibility of the product and the visibility of product consumption. Product visibility comes in two extremes: Publicly consumed goods and privately consumed goods. Kulviwat, Bruner ІІ and Al-Shurida (2009, p. 707) state that “publicly consumed products are those that are seen by others when being used, and privately consumed products are ones that are not seen during the consumption process with the possible exception of the user”. Luxury brands are often used as a status symbol because of their exclusiveness, status and high quality. Nevertheless, in order to use brands as a status symbol, it is required that the product should be visible to others (Fischer et al., 2010). Status does not always have to be the main reason for conspicuous consumption (Kastanakis & Balabanis, 2014). In their study on the meaning of luxury brands, Hudders et
al. (2013) showed that luxury brands are often associated with elegance, exclusivity, premium quality and price, but not associated with conspicuousness. Since luxury products vary on a basis of conspicuousness and visibility to peers, consumer evaluations of step-down extensions with varying degrees of product visibility are likely to be different.
3.2.1 The effect of product visibility on consumer evaluations of the brand extension
As mentioned earlier, many companies use distancing techniques to reduce the risk of transferring negative associations back to the core brand with a brand extension. The more distance between a core brand and the extension, the less likely negative associations will transfer back to the core brand, while minimizing positive association transfer to the extension. Fit between the brand extension and the core brand varies in importance on the basis of product visibility. In their study on step-down brand extensions between cars and shoes, Riley et al. (2015), found out that brand concept fit is far more important for cars. Cars are very visible to peers, and recognizable when extended into a lower priced product category. Therefore, when brands extend lower-priced products that are very visible to other consumers, a customer using a lower-priced product becomes more evident. Visible consumption is a necessary part of the social demonstrance function of brands (Fischer et al., 2010). Social demonstrance allows consumers to show status, exclusivity and social esteem through brands. Luxury brands are bought because they convey status, prestige and confidence for the consumer. Nevertheless, a step-down extension diminishes this dimension of luxury brands, because they make a product more common and less prestigious. This in turn, can increase social risk when buying the new product. High visibility of luxury brands to peer evaluation likely increases social risk when introducing downscale extensions (Riley et al., 2015).
Although the perceived value in terms of costs and benefits of a step-down extension may be positive, this increased risk is likely to negatively affect how consumers evaluate the
brand extension (Lei et al., 2008). Kulviwat, Bruner ІІ and Al-Shurida (2009) in their study on technology adoptions, showed that perceived social influence with highly visible products affects purchase intentions as well. The public and private status of a product moderated the relationship between social influence and adoption intention. Step-down extensions alter the luxury brand image in terms of status, exclusivity, prestige and quality, which lowers these products significantly on the price-prestige continuum, bringing them closer to functional brands. These social factors would normally be appreciated in a visible consumption context. Nevertheless, lower-priced luxury products that are consumed privately, carry much less risk of social rejection. Indeed, branded products that are used privately are often not consumed for their status-conveying functions, and should therefore be more resilient to these dissimilar core brand associations. Luxury products used privately are likely to elicit more positive associations in a vertical extension context, due to less negative effects of social risk. Luxury products with high visibility are introduced as a symbol of wealth, social power and status, and having a step-down extension for these products, highlights the loss of that function. When comparing consumer evaluations of brand extensions between privately and publicly used products, it is assumed that:
H3a: Consumer evaluations of the brand extension with a step-down brand extension are more negative when product visibility is high compared to low product visibility.
H3b: Product visibility has a more negative effect on consumer evaluations of the brand extension with a step-down extension in comparison to a neutral extension.
3.2.2 The effect of product visibility on consumer evaluations of the core brand
Since it is predicted that step-down brand extensions can be evaluated differently on the basis of product visibility, this is also likely to be the case for the evaluations of the core brand. An already known factor that can negatively affect the core brand is the inconsistency
in brand associations (Kim et al., 2001, Kim & Lavack, 1996; Martinez & Pina, 2010). In order to gain positive consumer evaluations of the core brand, brand image fit is important. This is especially the case for visible products. Visible brands are more scrutinized by peers, and therefore a new brand extension with an inconsistent brand image is more conspicuous to others (Riley et al., 2015). Therefore, inconsistent brand associations are likely to affect visible products more than they do so for privately consumed goods.
In general, step-down extensions affect the exclusiveness and status dimension of luxury products. Luxury products are often used for conspicuous consumption in order to signal social capital and gain status. Nevertheless, for conspicuous consumption to qualify as a signal of power and wealth, a key criteria that needs to be met is that of product visibility (Nelissen & Meijers, 2011). When products are less visible, the loss of exclusivity and status due to a step-down extension is therefore less relevant. On the other hand, when brands are perceived as more relevant for either intrinsic values, such as self-expression or extrinsic values such as prestige, consumer are willing to pay a higher price (Völckner & Sattler, 2007). Because visible products create higher brand relevance, introducing a step-down extension therefore carries higher risks, because consumers are willing to pay premium prices for the social benefits that luxury brands offer them.
In line with social comparison theory, step-down extensions do not always have to be evaluated negatively, because the core brand is seen as superior to the new brand. Consumers compare new products to existing ones on a continuous basis. Nevertheless, a luxury brand negatively affects this positive effect due to lower perceived exclusivity (Goetz, 2014). However, privately consumed goods, do not exhibit this negative exclusivity effect to some degree, because they are not seen by others. Because lower visibility diminishes the status and exclusivity components of such a luxury brand, the positive extension effects for these goods is still likely to hold. The perceived social risk that consumers experience when they would
buy a step-down extension, in turn, is likely to be transferred to the core brand. Current research states that negative brand extension effects are likely to be linked to the core brand (Kim et al., 2001). Perceived social risk is especially high for visible products, where a step-down extension can increase fear of social rejection (Riley et al., 2015). This perceived risk can diminish a product’s value since it is seen as a sacrifice in order to gain a lower-priced product. This lower value can subsequently tarnish the core brand. Because high product visibility increases the importance of fit, highlights the loss of exclusivity and causes social risk perceptions which in turn transfer to the core brand, it is likely that core brand evaluations will vary between a privately and a publicly used good.
H4a: Consumer evaluations of the core brand with a step-down brand extension are more negative when product visibility is high compared to low product visibility.
H4b: Product visibility has a more negative effect on consumer evaluations of the core brand with a step-down extension in comparison to a neutral extension.
4. Methodology
The aim of this research is to study the effects of vertical step-down extensions on the evaluations of the core brand and the brand extension for luxury brands. In all aspects, the extension and core brand are very similar; products only differ on the basis of price. A step-down extension exhibits a 50% lower price, whilst a neutral extension remains unchanged. Evaluations are measured for two product groups which are either privately or publicly consumed goods, and one luxury brand. The methodology section will begin by discussing the brand and products used for the study, the pre-testing methods and the experimental design with the set-up of the questionnaires and measurement scales.
4.1 Brand selection
For the purpose of this study, three luxury brands were initially selected: Chanel, Prada and Dior. With the use of luxury blogs, these brands were selected based on their popularity, which likely results in high brand familiarity among the participants of this study (Bondoux, 2013). Furthermore, these brands are among the most valued brands in the luxury brand industry (Forbes, 2014). The three brands selected also offer a wide range in products, which allows them to be extended into various product categories they already exist in, which creates credibility to the extension scenarios discussed later in the methodology section.
4.2 Pre-test
There are several criteria that need to be established during the pre-test in order to carry out the main study in a successful and credible manner. These criteria are familiarity and likability of the branded products, perceived luxuriousness and quality of the core brand, product visibility and the perceived level of fit when introducing a step-down extension. The familiarity of each product is established in order to make sure that subjects can indicate their predispositions towards the brands used in the main study. Furthermore, general attitudes
towards the branded products were analyzed. The two branded products selected for the main study should be favored to an equal extend, in order for the predispositions towards the products not to affect the results of the main study. Four product groups were selected to test each of the criteria: Bags, perfumes, sunglasses and underwear. To test product familiarity, subjects were asked to indicate their level of familiarity with the branded product on a 7-point scale ( Kim et al., 2001; Riley et al., 2015; Milberg et al., 1997; Riley et al., 2013). The predispositions towards the products were measured on two 7-point scales, indicating the favorability of the branded product and the likability (Kim et al., 2001, Milberg et al., 1997). Finally, the perceived luxuriousness was measured on 7-point scales asking the perceived quality and luxuriousness of the three brands (Riley et al., 2015; Kim et al., 2011). Three questions were answered per product/brand and two items for each brand in general. Furthermore, an additional list of eight items established the perceived fit between the mother brand and hypothetical step-down extensions, to indicate whether such an extension is actually perceived as dissimilar from the mother brand (Aaker & Keller, 1990; Hem et al., 2013). Because this study uses real brands with existing product categories, it is necessary to confirm that either users of the brand and non-users both perceive a decrease in fit with a step-down extension.
The second part of the pre-testing stage involved the establishment of publicly and privately consumed goods. The measurement scales used where adapted from the study of Kulviwat, Bruner ІІ, and Al-Shurida (2009), on the role of product visibility on technology adoption. Five items where used to measure respondents attitude towards four types of products: Bags, perfumes, sunglasses and underwear. These four product categories are all marketed by the luxury brands used in the first pre-test. Therefore, the brand chosen does not have to affect both products selected for the experiment. Respondents were asked to indicate the degree to which they believed the products where consumed either privately or publicly.
4.2.1 Pretest results
Both pre-tests were distributed among 17 participants (Female = 11, Male = 6) with an average age of 29 years old. The final results of the pre-test can be found in appendix 9.1. First, the brand familiarity and perceived luxuriousness of each brand was established on 7-point scales. The brand Chanel was most familiar among the participants across all product categories. Furthermore, Chanel is perceived as highest on the luxury concept continuum with the highest scores in perceived quality and luxuriousness (M = 6.5). Therefore, the main study will use the Chanel brand to portray the neutral and step-down brand extension. Combining the results from both pre-tests, the selected product groups for the main study are fragrances and sunglasses. The first study tested the familiarity and likability of Chanel perfume and sunglasses, and these product groups had similar scores, which lowers the chances of the general predispositions towards these products to alter the results of the main study. Familiarity of both product groups of the Chanel brand was high (Sunglasses, M = 6.2; Perfume, M= 6.7) as well as the likability and favorability of the branded products (Combined scores of 2-item scale: Sunglasses, M = 5.9; Perfume, M = 6.5). The second pre-test showed that there is a clear distinction between the public or private usage of these products (7-point scales where 1= Private and 7 = public). The study showed that fragrances are perceived as a privately consumed goods (M = 2.51) and sunglasses as public consumed goods (M = 6.22). Sunglasses received the highest scores on public usage, while underwear received the lowest. Nevertheless, because the familiarity of luxury underwear was very low and received negative attitudes, perfume was chosen as the appropriate category in order to have highly familiar product categories for the study.
Finally, the pre-tests measured the perceived level of fit between the core brand and a step-down extension with a price reduction of 50%. Eight items in total measured the perceived dissimilarity between core brand and extended product, the image fit, and the
perceived relationship between quality and price (1 = High fit, 7 = Low fit). The results indicate that fit is very low between core brand and lower priced products and price is an important indicator of quality (Average 8-item score, M = 6.05). These results indicate that a luxury product with a 50% price reduction lowers the fit and is perceived as dissimilar in terms of quality and image.
4.3 Experimental design
The design of this study is a 2 (Type of extension: Neutral versus step-down) x 2 (Product visibility: High or low) factor experiment. The population of the experiment is represented by Dutch consumers. This design allows studying the relationship between the introduction of a step-down extension and whether this results in different evaluations of the core brand and brand extension. The proposed field experiment also allows the study to be conducted in a more natural environment. There is less control over extraneous variables, but the results of the study will be weighed against various control variables such as; age, gender and involvement.
The dependent variable of this study is the consumer evaluations of the core band and the brand extension. The independent variable that will be measured is the type of the extension, and moderating variable the degree of product visibility (high or low). The extension direction will be manipulated in this study. The neutral brand extension will have no changes from the core brand: Product attributes and price remain the same. The step-down brand extension will involve a price discount of 50% from the original core brand prices, as used in previous studies (Riley et al., 2015; Riley et al., 2013). Based on previous research, a price reduction of 50% has high impact on the perceived fit between an extension and the core brand. Furthermore, a control group is implemented to measure initial core brand evaluations. Hence, the initial brand evaluations can be compared to the core brand evaluations after
Table 1: Treatment groups main study.
4.4 Questionnaires
There will be five different questionnaires designed for this study, in line with the treatment groups. Each questionnaire begins with an acknowledgment of gratitude and ensuring the respondents that their privacy is protected. The next section continues with a scenario explaining the brand extension. After introducing the brand extension, the treatment group surveys asks the following questions: Attitude towards the extension, purchase intentions and attitude towards the core brand. Control variables such as social risk perceptions and brand or product involvement are added. Each questionnaire will end with demographic and income related questions.
4.4.1 Scenarios
Each questionnaire will begin with a scenario explaining the brand, its usual price class and features, and the introduction of the brand extension. Both step-down extension groups will show a new product with a 50% price reduction, and the neutral extension without a price reduction. Each brand will be accompanied by its core brand logo and product picture. The control group explains the brand in general and studies initial brand evaluations.
Representation of step-down extension scenario (high visibility):
In the autumn of 2015, just before the Christmas holidays, Chanel is planning on introducing a new range of sunglasses on the market. The products are designed for male and female consumers, and the price will be between 100 and 150 euros for each pair. The brand Chanel normally sells its sunglasses for an average price of 300 euros with prices up to 700
Product visibility: High Product visibility: Low
Step-down brand extension 1: SH 3: SL
euros, indicating at least a 50% lower price range for the new products to be sold. The new product range by Chanel will otherwise have no differences and will carry the same brand logo as the other products from Chanel Eye wear.
Representation of neutral extension scenario (low product visibility):
In the autumn of 2015, just before the holidays, the brand Chanel is planning on introducing a new range of fragrances on the market. The products are designed for male and female consumers, and the price will be between 80 and 100 euros for an Eau de Toilette / Eau de Perfume of 50 Ml with some fragrances reaching prices of 120 euros. The prices for the new products will not vary from the usual prices of Chanel fragrances. The new product range by Chanel will be in line with the character and image of the Chanel brand.
Control group scenario:
The brand Chanel is one of the most well-known and respected luxury brands in the market. Chanel products extend over various product categories such as jewelry, fragrances, clothing and accessories. Prices of Chanel products are in the upper to premium price classes, available to the consumers who can afford them.
4.4.2 Measurement scales
For each questionnaire, subjects rated their opinions on several item measurement scales (appendix 9.2). Consumer evaluations of the brand extension are measured with 3 items on 7-point scales. Higher numbers represent positive scores, while low numbers represent negative scores. The evaluations were measured on appeal (Very unappealing – very appealing), favorability (not at all favorable – extremely favorable) and attractiveness (very unattractive – very attractive) followed by 1 item to measure perceived quality (Riley et al., 2015; Riley et al., 2013; Martinez & Pina, 2010; Albrecht et al., 2013). These questions were
purchase on a 7-point scale (not at all likely – very likely) and consideration (I would not consider it – I would consider it) (Aaker & Keller, 1990; Riley et al., 2013; Riley et al., 2015).
The consumer evaluations of the core brand will be using the same scales as the brand extension questions, e.g. (Appeal, favorability, attractiveness, and perceived quality). Added to these questions are two more scales asking about the positivity (very negative – very positive) and likability (not at all likable – extremely likable) of the core brand, which gives a total of five items and 1 item to measure quality (Milberg et al., 1997; Lei et al., 2008). Not only will these items be used in each of the four treatment groups, these questions are also used to measure initial brand evaluations in the control group. Furthermore, several control and explanatory variables were added to the questionnaires. Perceived social risk from buying the brand extension was measured on a three-item scale adapted from Song, Hur and Kim (2012). The three items measure the perceived social risk when buying an extension product on a point Likert scale. Personal involvement in luxury products was measured on one 7-point Likert scale, asking subjects whether they often buy luxury products (Riley et al., 2013). Furthermore, subjects were asked to indicate their level of brand involvement and attachment with the Chanel brand on two items followed by two separate items to indicate their involvement with the product category, adapted from the study by Zaichkowsky (1985). The last section of each questionnaire will answer the subjects about their gender, age and an indication of their salary.
5. Results
The results section analyses the data from the experiment. First, it will study the generalizability of the sample and discuss the descriptives of the total sample. This chapter continues with analyzing possible errors in the data by means of outlier analysis, reliability and normality checks. The next section analyses the similarity between the conditions,
followed by checking the manipulated variables of the experiment. Correlation and regression analysis are performed, followed by the testing of the hypotheses.
5.1 Sample
The experiment consisted out of 5 different surveys. Each respondent was randomly assigned to a condition. The survey program Qualtrics was used to distribute the surveys with links that assigned each respondent to one of the conditions randomly. The link to the survey was posted on social media websites and through email chains at work. The survey was online for a total of seven days. Visual representations of the surveys can be found in appendix 9.3.
5.1.1 Response analysis
After a week of distribution, a total of 244 Dutch consumers had responded to the Qualtrics survey. The goal of the analysis was to gather approximately 50 respondents per treatment. Therefore, it can be concluded that there were enough respondents for the statistical analysis. There were however, missing data in the total sample. From the 244 surveys, 41 surveys had missing data, and these were excluded from the data set. These surveys had not received any answers but were only opened through the link. Therefore, the total sample that will be used for statistical analysis is 203 responses. The distribution of data among the 5 conditions is as follows: Control group: 44, Neutral extension / High visibility group: 38, Neutral extension / Low visibility: 40, Step-down extension / High visibility: 43 and the Step-down extension / Low visibility: 38.
Frequency Percent Valid Percent
Cumulative Percent Control group 44 21,7 21,7 21,7 Group NH 38 18,7 18,7 40,4 Group NL 40 19,7 19,7 60,1 Group SH 43 21,2 21,2 81,3 Group SL 38 18,7 18,7 100,0 Total 203 100,0 100,0 Valid
5.1.2 Data preparation
In order to analyze the data, several variables were encoded. All items for brand extension evaluation, core brand evaluation, purchase intention, and perceived risk were computed to a single variable representing the averages. The involvement scales were computed to represent 3 distinguishable variables: Luxury brand involvement, brand (Chanel) involvement and product category involvement. The variables perceived quality of the extension and core brand remained the same. Finally, two dummy variables were created in order to distinguish between the conditions. A dummy variable was developed for [Extension Type] with no extension coded as 0, neutral as 1, and step-down as 2. The variable [Visibility] was transformed into a dummy variable with 0 being low visibility and 1 as high visibility.
5.1.3 Descriptives of the total sample
The next section will discuss the descriptives of the sample. In order to assess the generalizability of the total sample, the frequencies of the demographic variables will be discussed briefly. The outcomes are compared between the 5 treatments groups to assess whether there are large differences in frequencies between groups.
Gender
The final data set consists of 80 men (39.4%) and 123 women (60.6%). The data sample was represented by a more favorable female to men ratio. An explanation for this could be that Chanel is perceived as a slightly more female brand, and female respondents were more attuned to participating. The division of men and women across 5 conditions is fairly even. The largest difference between all groups for females is 4 and males is five.
