Extend the Brand?
A study with regard to the impact of perceived quality, brand relationship and the Alsem/Zweegers model on the evaluation of brand extensions and
the feasibility of K-Swiss to introduce brand extensions
J.F.
Schultink
Extend the Brand?
A study with regard to the impact of perceived quality, brand relationship and the Alsem/Zweegers model on the evaluation of brand extensions and
the feasibility of K-Swiss to introduce brand extensions
Author: Jan-Frans Schultink, s1152017
Supervisors University of Groningen:
Dr. K.J. Alsem & Dr. G.B. Dijksterhuis
Haarlem, the Netherlands
18 January 2004
Preface
The document in front of you is the result of my research that I did in the period March to Oktober 2004 at K-Swiss to finalize my education at the faculty of Bedrijfskunde (Management and Organization) at the Rijksuniversiteit Groningen. That is why at this point I would like to thank those people around me that have made my education to a success.
For their help during my research I would like to thank my supervisors at the university and my supervisor at K-Swiss.
I would like to thank Dr. Alsem for his comments on my documents. A lot of thanks go out to Mark van der Wal, my supervisor at K-Swiss, who gave me the opportunity to do my research at K-Swiss. Not only did he review my work, but he also allowed me to be part of the European marketing team next to my research. This made my internship extra valuable and enjoyable. Together with the other colleagues, he quickly made me feel like part of the team.
Last but definitely not least, I would like to thank my parents, who gave me the opportunity to do my education. They always kept their confidence in me, and kept supporting me, morally and financially.
Jan-Frans Schultink, January 2004
Summary
This thesis contains a description of the research, that is executed at K-Swiss, with regard to the impact of perceived quality, brand relationship and the Alsem/Zweegers model on the consumer evaluation of brand extensions and the feasibility for K-Swiss to introduce the brand extensions apparel and bags in the Netherlands, Germany and the United Kingdom.
The objective of the research was:
“On the one hand to give recommendations to the management team of K-Swiss with regard to the feasibility to introduce brand extensions in the Netherlands, Germany and the United Kingdom and on the other hand to give a contribution to the brand extension literature.”
The thesis question was:
“How do consumers evaluate the brand extensions, apparel and bags, and what are the consequences for the feasibility for K-Swiss to introduce brand extensions in Europe, with a focus on the Netherlands, Germany and the United Kingdom?”
The following question emerged from the thesis question:
1. What are the brand extension candidates and their market definitions?
2. What is stated in the literature about brand extensions and the advantages and disadvantages with regard to brand extension introduction?
3. What is stated in the literature about the impact of perceived quality and brand relationship on the evaluation of brand extensions?
4. Which benefits do consumers seek in the brand extensions, apparel and bags?
5. What is the market attractiveness of the apparel and the bags market?
6. How do consumers evaluate the brand extensions?
7. What recommendations can be made with regard to suitability, acceptability and feasibility of the introduction of brand extensions?
Through managerial brainstorm sessions the following two brand extensions have been chosen:
• Casual apparel. That is apparel for everyday use, not for sport purposes.
• Casual Bags. That are bags for everyday use or fashion accessory, not for sport purposes
A market analysis had to determine whether the product markets apparel and bags were attractive enough to enter in the Netherlands, Germany and the United Kingdom. The market analysis shows that the product-market markets are attractive to enter. The product-markets are in their maturity phase, but the tendency toward individualization tendency implicates that consumers want to create their own world, their own style.
Consumers do not want products that everybody has. This differentiation in consumer needs implicates that product markets become much broader and create a chance for brands to choose a differentiated segmentation strategy and differentiate itself from other brands.
A consumer analysis had to determine, how consumers evaluated the products and what the impact of the factors perceived quality, brand relationship was on the evaluation of the products. The impact of the Alsem/Zweegers model on the evaluation of the products has also been studied. Alsem/Zweegers studied a lot of studies with regard to the
consumer evaluations of brand extensions, which had as result a model that shows an overview of the possible factors that can play a role in the brand extension evaluation.
With the help of a preliminary qualitative research three factors out of the
Alsem/Zweegers model were identified that play an important role in this specific situation of the evaluation of apparel and bags:
• Complement; complementarity of the original and the extension product classes in use
• Expectations with regard to the price of the brand extension
• Fit brand concept
The impact that these five factors (perceived quality, brand relationship, complement, price expectations and fit brand concept) had on the consumer evaluation of the products was quantified with a questionnaire to a sample of 308 consumers, divided over the Netherlands, Germany and the United Kingdom, in the next step, the quantitative research. Also the impact that direct product experience would have on the evaluation of the products was investigated.
The quantitative research had two sorts of results. On the one hand the research had theoretical results, emerged from testing the hypotheses that were formulated on the basis of the five factors, and on the other hand practical results for K-Swiss.
The following hypotheses were formulated:
H1: Higher quality perceptions toward the parent brand are associated with a more positive evaluation of the brand extensions
H2: The evaluation of the brand extension is more positive when the consumers have a strong relationship with the parent brand
H3: The higher the complement of the brand extension with regard to the original parent brand product, the more positive the evaluation of the brand extension.
H4: The higher the fit between the parent brand and the brand extension, the more positive the evaluation of the brand extensions
H5: Higher quality perceptions toward the brand extensions are associated with higher expected prices
Another aspect that has been investigated was the way of measuring. Whether measuring with direct product experience (evaluation with physical products) or indirect product experience (evaluation with photos of the products), influenced the evaluation of the products. The following hypothesis was formulated.
H6: Consumers evaluate brand extensions more positive when evaluated with direct product experience, then evaluated with indirect product experience via photos
The hypotheses H2, H3 and H4 can be supported by the results emerged from the quantitative research. Also hypothesis H6 can be supported
The following practical results emerged from the research. There were significant differences in the results between the three countries. The respondents in the United
Kingdom evaluated the products significantly the most positive. Especially the apparel was evaluated very positive. The respondents in Germany were significantly less positive than respondents in the United Kingdom, while in the Netherlands the respondents reacted the least positive, especially the respondents who evaluated the brand extensions with the help of photos. These results implicate that it is advisable for K-Swiss to introduce the products in the United Kingdom, while in Germany it is uncertain that the introduction will be a success and in the Netherlands it is advisable to wait with the introduction till consumers will be explicitly more positive.
INDEX
1 Introduction...9
1.1 Background ...9
1.2 Problem Definition...10
1.3 Rapport design ...12
2 Brand extensions...14
2.1 Definitions of brand extensions ...14
2.2 Advantages and disadvantages of brand extensions ...16
2.3 Extension evaluation process methods ...17
2.4 Brand extensions evaluation ...19
2.4.1 Brand extension evaluation: Choice factors based on theory ...20
2.4.2 Brand extension evaluation: Choice factors based on preliminary qualitative research ... 22
2.5 Conceptual Model ...25
3 Market analysis ...27
3.1 Macro environment factors ...27
3.2 Market factors ...28
3.2.1 Market Growth and product life cycle ...29
3.3 Industrial structure factors ...30
3.3.1 Threat of new entrants ...31
3.3.2 Bargaining power of suppliers ...31
3.3.3 Bargaining power of buyers...31
3.3.4 Threat of substitute products...32
3.3.5 Rivalry among existing competitors ...32
3.4 Conclusion market attractiveness ...33
4 Consumer Survey...34
4.1 Questionnaire ...34
4.2 Data collection method; questionnaires ...35
4.3 Hypotheses ...35
4.4 Methodology ...36
4.5 Representativity of the sample...38
4.6 Validity: Cronbach α...38
5 Results...39
5.1 General results ...39
5.2 Results apparel ...40
5.3 Results bags ...41
5.4 Results hypotheses ...42
5.5 Link between brand extension literature and research...45
6 Conclusion and recommendations ...46
6.1 Introduction...46
6.2 Conclusion ...46
6.3 Recommendations...49
6.4 Limitations and further research ...50
1 Introduction
This chapter first discusses the background and reason of the research. Based on this background the problem definition, including the thesis question, objectives, restrictions and the research methods will be given in paragraph 1.3. Finally, the rapport design will be outlined in paragraph 1.4.
1.1 Background
The story of K-Swiss begins in 1966, when two Swiss skiers develop the first leather tennis shoe, the Kalifornia-Swiss classic. The introduction of this shoe in the USA appeared to be a big success and till 1986 35 million pairs of the Kalifornia-Swiss classic were sold. Since the beginning of the 90’s K-Swiss is also active on the tennis footwear and apparel market in Europe. K-Swiss is very successful on this market and is even market leader in the Netherlands. Except the tennis market is stabilizing and there are no big growth possibilities for K-Swiss in the nearby future in this market. A couple of years ago K-Swiss entered the casual footwear market. After a rough start K-Swiss is now growing and growing and is becoming a solid player on the casual footwear market in Europe. Competitors of K-Swiss on this market, like e.g. Puma, Adidas and Nike, are not only active on the casual footwear market, but they also produce and sell a wide range of other products, like apparel, bags as an extension of their casual footwear and doing this successful. When K-Swiss wants to catch up with these brands on the long term, and wants to stay perceived as competitor, K-Swiss has to introduce brand extensions as well.
This wish to introduce brand extensions evolved also out of the vision:
At K-Swiss, we have a clear vision of what we want to be: A strongly branded athletic footwear and apparel company. Our actions reflect a long-term approach in all that we do. We create products with a unique simplicity that are recognized as K-Swiss.
Consistent with this long-term brand vision, our goal is to create profits year after year for our: associates, retailers and shareholders.
K-Swiss wants to grow through this introduction of brand extensions, in order to enlarge her brand exposure, to become the most profitable vendor at her retailers, and keep catering the trend setting consumer, who influences the mainstream public.
A selection of two brand extension candidates has been made through managerial brainstorm sessions. These two brand extensions have been chosen, because the brand believed that consumers would perceive it as logical and credible that a casual footwear brand would introduce apparel and bags. According to K-Swiss these two brand extensions have a high fit with the core product footwear. The following two brand extensions were selected:
• Casual apparel. That is apparel for everyday use, not for sport purposes.
• Casual Bags. That are bags for everyday use or fashion accessory, not for sport purposes
1.2 Problem Definition
The problem definition contains the following four components:
1. Thesis question 2. Research methods 3. Objectives
4. Restrictions
Thesis Question
How do consumers evaluate the brand extensions, apparel and bags, and what are the consequences for the feasibility to introduce brand extensions in Europe, with a focus on the Netherlands, Germany and the United Kingdom?
To answer this question the following research questions have to be answered first:
1. What are the brand extension candidates and their market definitions?
2. What is stated in the literature about brand extensions and the advantages and disadvantages with regard to brand extension introduction?
3. What is stated in the literature about the impact of perceived quality and brand relationship on the evaluation of brand extensions?
4. Which benefits do consumers seek in the brand extensions, apparel and bags?
External analysis
5. What is the market attractiveness of the apparel and the bags market?
Research
6. How do consumers evaluate the brand extensions?
Strategy selection
7. What recommendations can be made with regard to suitability, acceptability and feasibility (Johnson en Scholes, 1999) of the introduction of brand extensions?
The process model on the next page can be seen as the guideline for the research. This model is based on the strategic marketing management model of Aaker (2001) and the strategic marketing planning model by Alsem (2001):
Opportunities and threats
Fig. 1.1: Process model
Selection brand extension candidates
Mission and Vision
External analysis:
• Market attractiveness
External analysis:
• Consumer analysis
Identification factors for consumer evaluations brand
extensions
Evaluating brand extensions
Selection brand extension strategy
Research methods
First a literature study discusses the term brand extension, the advantages and disadvantages of brand extensions, brand extension evaluation and brand extension evaluation research methods.
The literature study will be followed by the review of the proposed brand extension candidates, which starts with an external analysis.
External analysis
The external analysis contains a market analysis and a consumer analysis. In the market analysis there will be a focus on market attractiveness. The possible factors that can influence the market attractiveness according to Alsem (2001) will be used to assess the market attractiveness.
In the consumer analysis, a qualitative research will be undertaken to find the needs of the consumers in the market. This will consist of informal interviews to identify which benefits in a product are sought in the market and the extent of differences in these expectations (Doyle, 1998). These differences will be quantified with a questionnaire to a large sample of consumers in the next step, the quantitative research.
Strategy selection
The analysis of the market attractiveness will determine first, whether the markets are attractive enough in general to introduce the products. The results of the consumer analysis will determine then whether it is feasible for K-Swiss specific to introduce the brand extensions, and if so which brand extensions then.
Objective
“On the one hand to give recommendations to the management team of K-Swiss with regard to the feasibility to introduce brand extensions in the Netherlands, Germany and the United Kingdom and on the other hand to give a contribution to the brand extension literature.”
Restrictions
The research contains the following restriction:
• The empirical research has been done for the Dutch, German and the British market, because these are the most important geographic markets for K-Swiss
1.3 Rapport design
In chapter two the following subjects will be discussed:
• The term brand extensions
• The advantages and disadvantages of brand extensions
• Literature study with regard to brand extension evaluation
• Literature study with regard to brand extension evaluation research methods Chapter three will discuss the market attractiveness of the apparel and the bags market. In chapter four the research methods and the data collection will be explained. Chapter five will discuss the results of the consumer research
Finally, in chapter six the conclusions and recommendations will be mentioned.
2 Brand extensions
In this chapter the term brand extension will be discussed. First an overview of the different definitions of brand extensions will be given that can be found in the literature.
Second, the advantages and the disadvantages that can appear with the introduction of brand extensions will be set out. Next, the relevant literature with regard to the consumer evaluation of brand extensions will be discussed. Finally, the literature with regard to brand extension decision process models will be discussed.
2.1 Definitions of brand extensions
Keller (2003) claims that there are three possibilities for a brand, when it wants to enlarge its product portfolio, to brand this new product:
1. It can develop a new brand, individually chosen for the new product 2. It can apply, in some way, one of its existing brands
3. It can use a combination of a new brand with an existing brand, what can also be called sub branding
This research is about brand extensions. When a firm uses an established name to introduce a new product (Keller, 2003), this product is a brand extension. This definition is congruent with options 2 or 3.
Another option is when a brand is combined with one or more brands into the production and/or marketing of a combined product, what is called co-branding, also known as brand bundling. (Keller, 2003) Also licensing can be mentioned. That is when it involves contractual agreements where one organisation can use the name, logo, symbol etc. of a brand to market his own product.
According to Keller (2003), brand extensions can be divided into two general categories:
1. Line extensions: the parent brand is used to brand a new product that targets a new market segment within a product category currently served by the parent brand. It often involves a different flavour or ingredient variety, a different form or size.
2. category extension: the parent brand is used to enter a different product category, from that currently served by the parent brand
Kotler (2003) and Alsem (2001) actually make the same distinction, but where Keller makes the distinction line and category extensions, they talk about line and brand extensions.
A problem with this distinction is that it is too general and in practice it is not that easy to define unambiguous product categories. (Loken et al. 1990, Ratneshwar et al. 1991) A good example can be found in the footwear market. Do all shoes belong to the same general product category ‘shoes’, or are sneakers, sport performance shoes and working shoes so different from each other that all three examples can be placed in three different product categories?
Franzen (2000) makes the same distinction as Kotler between line and brand extension, but Franzen also identifies a third extension alternative, i.e. brand diversification. Brand
diversification is an extreme form of a brand extension, when a brand differentiates to a complete different, unrelated product category.
Leeflang (1995) makes another distinction:
• Line extensions: an enlargement of the number of varieties of a product
• Brand extensions: here products are brought together under one brand, where their properties and central values exhibit strong resemblances.
• Image transfer: with this strategy non related products are brought together under one brand. The common thing of these brands has to do with their expressive values.
• Company brand: the new product in the portfolio gets the same name as the company
Leeflang makes here the distinction between brand extensions, image transfer and company brand, where Kotler and Keller give the same name to all three terms respectively brand extensions and category extensions
Aaker (1997) talks about vertical brand extension, also known as vertical brand stretching. A vertical brand extension is a brand extension just above (upscale, premium segment) or just below (downscale, price segment) the price and quality threshold of the current market.
Farquhar et al. (1992) identified four brand extension possibilities for master brands, where they define master brand as an established brand so dominant in customer’s minds that it owns a particular association:
• sub-branding: sub-branding introduces a new element into the brand hierarchy below the level of the master brand to refine or modify its meaning
• super branding: super branding adds new elements to an existing brand hierarchy above the level of the master brand, typically to suggest some product improvement
• brand bundling: brand bundling or “cross branding” fortifies a master brand through associations with other brands, including cooperative or co-branding
• Brand bridging: brand bridging uses the master brand to endorse a new brand as the company attempts to move to a more distant product category. Brand bridging is also known as brand endorsement (Keller, 2003)
The brand hierarchy, as mentioned above, is built up from the following four levels (Keller, 2003):
1. Corporate brand 2. Family brand 3. Individual brand 4. Modifier
Riezebos (1996) distinguishes three aspects in extension strategy:
• Line extensions, to gain a bigger market share
• Brand extensions, to penetrate new product categories
• Transnational extension, to penetrate new geographic markets
Doyle (1998) also distinguishes multibranding. That is when a brand differentiates in the same product category, but with a different brand name and a different brand identity.
Concluding, in this research the definition of brand extensions will be used, the way Kotler (2003) and Alsem (2001) define brand extensions.
2.2 Advantages and disadvantages of brand extensions
Keller (2003) claims that the advantages of brand extensions can be categorized as those that facilitate new product acceptance and those that provide feedback benefits to the parent brand or company as whole.
The following advantages are those that facilitate new product acceptance. The extension can:
• improve the brand image
• reduce the risk perceived by the consumers
• increase the probability of gaining distribution and trial
• increase the efficiency of promotional expenditures
• reduce the costs of introductory and follow-up marketing programs
• avoid costs of developing a new brand
• allow for packaging and labeling efficiencies
• permit consumer variety seeking
• create brand awareness
The following advantages are those that provide feedback benefits to the parent brand.
The extension can:
• clarify brand meaning
• enhance the parent brand image
• bring new consumers into the brand franchise and increase market coverage
• revitalize the brand
• permit subsequent extensions
Keller (2003) also distincts some disadvantages of brand extensions. The extension can:
• confuse or frustrate consumers
• encounter retailer resistance
• fail and hurt brand image
• succeed but cannibalize sales of parent brand
• succeed but diminish identification with any one category
• succeed but hurt the image of the parent brand
• dilute brand meaning
• cause the company to forgo the chance to develop a new brand
Another advantage, not mentioned by Keller, is that brand extensions increase the brand visibility.
Riezebos (1996) divides the advantages of brand extension strategies in financial advantages and strategic advantages.
The financial advantages can be divided in:
• Relative low marketing communication costs
• Relative high sales
The strategic advantages can be divided in:
• Brand extensions spread the risk of the organization
• Trial purchases by consumers who are familiar with the parent brand Riezebos also distinguishes disadvantages of brand extensions:
• Brand extensions can lead to brand dilution
• The risk that the brand image of the parent brand does not leverage to the brand extension
• Brand extensions can alienate the customer from the parent brand
Franzen (1991) mentions the following advantages of introducing brand extensions:
• Brand extensions facilitate market entries
• Exploitation of the brand potential
• Brand extensions can keep the brand vital
Brands are often only focused on the advantages of the introduction of brand extensions and underestimate the disadvantages of brand extensions. There are a lot of examples of brand extensions that have failed, because brands were not aware of possible disadvantages.
Chiquita was unsuccessful in his extension to the frozen juice bar. The reason was that the parent brand image could not leverage to the brand extension. The association of Chiquita with banana is so strong that it is almost impossible to extend to another product category.
Another example is the introduction of Pepsi One by PepsiCo. Pepsi One was a cola that had the full flavor of regular cola, and the advantages of a diet cola. PepsiCo introduced this new product next to its Diet Pepsi and that was the problem. PepsiCo could not explain its consumers the difference between the two colas. This situation confused the consumers, because consumers perceived the two products as similar.
These preceding examples show that brands must not only focus on the advantages of brand extensions. They always have to be aware of the disadvantages of the brand extension. Not every brand extension is successful.
2.3 Extension evaluation process methods
This paragraph discusses the different methods for evaluating brand extensions found in the literature.
Keller (2003) claims that brand extension strategies must be carefully considered by systematically following the next steps:
1. Define actual and desired consumer knowledge about the brand
2. Identify possible extension candidates. These can be generated through managerial brainstorm sessions as well as consumer research.
3. Evaluate the potential of the extension candidates 4. Design marketing programs to launch extension
5. Evaluate extension success and effects on parent brand equity
Kotler (1991) designed a decision process model that follows a normative decision sequence, Kotler’s eight-point sequence:
1. Idea generation 2. Idea screening
3. Concept development and testing 4. Marketing strategy development 5. Business analysis (financial)
6. Physical product development (including branding decision) 7. Market testing
8. Commercialization
Ambler et al. (1997) also developed a process model of brand extension decisions. This model differs from the traditional textbook models, like the previous model of Kotler, in four areas:
1. Antecedents: this model does not start with idea generation but looks more specifically at the strategic and other drivers of extensions.
2. Brand equity: Brand equity related issues such as equity enhancement, dilution
are considered early in the extension development process in stead of as one of the last steps.
3. Marketing leadership: this extension decision model is more brand development rather than product development.
4. Planning: this process is relatively informal and occurs outside the formal planning process
The model of Ambler contains the steps, depicted in figure 2.1.
Antecedents
Decision Criteria
Brand strategy - Growth - Defence
Specific Drivers - Consumer - Competition - Technology - Other
Brand Equity Criteria (marketing/R&D) Concept
Development and testing
(Qualitative research)
Product development And testing (Qualitative and
Quantitative research)
Forecasts (Marketing) - Consumer research - Company experience
Financial Criteria (Marketing) - ROI - Payback - NPV
Launch
Figure 2.1: Process model of brand extension decisions (Ambler, 1997)
The first two steps of the Ambler model, the antecedents, encompass the reason behind this present research. The research is initiated because of the growth strategy of K-Swiss that is driven by the extension strategies of competitors and the vision of K-Swiss. The decision criteria of this present research are not congruent with the first decision criteria of the Ambler model, the brand equity criteria. In stead of these criteria, this present research will use the second step of Keller’s model, to considerate the brand extension strategy:
• Identify possible extension candidates. These can be generated through managerial brainstorm sessions as well as consumer research.
After the identification of the possible brand extension candidates, the potential of the extension candidates will be evaluated, conform the third step of Keller’s model, on the basis of consumer research, one of the decision criteria of Ambler’s model.
In this present research, there is one decision criterion extra needed, which can be placed in the Ambler model between the brand equity criteria and the forecasts. That is the assessment of the market attractiveness.
2.4 Brand extensions evaluation
Keller (2003) claims when consumer evaluations of brand extensions have to result in favorable evaluations in a situation where consumers have brand knowledge and extension category knowledge, but there is still no advertising or promotion, the following four assumptions have to hold true:
1. consumers have some awareness of and positive associations about the parent brand in memory
2. at least some of these positive associations will be evoked by the brand extension 3. negative associations are not transferred from the parent brand
4. negative associations are not created by the brand extension
The more that these four assumptions hold true, the more likely it is that consumers will form favorable attitudes toward an extension (Keller, 2003)
Launch decision - Top management
Incorporate into Official planning
Launch
- Sales functioninvolved
Several factors can play a role for consumers in evaluating brand extensions. For years academic researchers do research with regard to these factors in the consumer evaluation of brand extensions. Alsem/Zweegers (2004) researched those researches with regard to the consumer evaluations of brand extensions, which had as result a model that shows an overview of the possible factors that can play a role in the brand extension evaluation.
This model is shown in figure 2.1. In this present research a couple of these factors are researched again. Which factors these are will be explained now.
First, Alsem/Zweegers (2004) identified in their research a lack of agreement in the conclusions between the different academic researchers regarding some of these factors that are researched by more than one academic researcher. In this present study, the choice has been made to study the following two factors again, to investigate what their impact is on the consumer evaluation of the brand extensions:
• Perceived quality
• Brand relationship
In the paragraph 2.4.1 these factors will be explained. Attention will be paid to definitions of these factors and the lack of agreement in the different brand extension evaluation studies regarding these factors.
Second, a couple of other factors will also be researched. These are factors from the Alsem/Zweegers model that play a role in the consumer evaluations in the particular product categories for this study, the consumer evaluation of apparel and bags. These factors are identified in a preliminary qualitative research. These factors are:
• Complement
• Expectations with regard to the price of the brand extension
• Fit brand concept
This preliminary qualitative research will be explained in paragraph 2.4.2
2.4.1 Brand extension evaluation: Choice factors based on theory
Perceived quality
Zeithaml (1988) defined perceived quality as the global assessment of the consumer opinion about the superiority or excellence of a product. Perceived quality has a broader meaning in the area of brand extensions, which transcends the mere dimension of the physical product and includes the quality perceptions associated with the brand (Martinez et al., 2003)
Keller (2003) defines perceived quality as consumers’ perception of the overall quality or superiority of a product or service relative alternatives and with respect to its intended purpose. Thus, perceived quality is a global assessment based on customer perceptions of what constitutes a quality product and how well the brand rates on those dimensions Aaker (2001) claims that perceived quality affects ROI directly because the cost of retaining consumers is reduced and indirectly because it allows a higher price to be charged and enhances the market share.
In the literature there is found a lack of agreement between the different academic researchers who studied the relationship between perceived quality and the evaluation of brand extensions. On the one hand Aaker and Keller (1990) concluded that there is no
direct relationship between the perceived quality of the parent brand and the evaluation of the brand extension. On the other hand Meskers et al. (1999) concluded in their research that the perceived quality of the parent brand has a direct and positive effect on the evaluation of the brand extension.
Aaker and Keller (1992) and Bottomley et al. (2001) concluded that perceived quality can exercise a direct effect on the evaluation of the brand extension regardless of the fit.
Brand relationship
Hem (2003) claims that brand relationship quality is similar to brand loyalty, since both constructs attempt to capture the strength of the connection formed between the consumer and the brand in order to predict the relationship stability over time.
Brand loyalty implies both a consistent pattern of purchase of a specific over time and a favourable attitude towards a brand. Brand loyalty develops when the brand fits the personality or self-image of the consumer or when the brand offers gratifying and unique benefits than the consumer seeks (Quester et al., 2003).
LeClerc et al. (1997) stated that repeat purchase for high-involvement product is an indicator of brand loyalty and repeat purchase for a low involvement product was simply habitual purchase behaviour.
Kotler (2000) claims, that consumers have varying degrees of loyalty to specific brands.
Consumers can be divided into four groups according to brand loyal status:
• Hard core loyals: consumers who buy one brand all the time
• Split loyals: consumers who are loyal to two or three brands
• Shifting loyals: consumers who shift from one brand to another
• Switchers: consumers who show no loyalty to any brand
Aaker (1991) claims that brand loyalty is a key element in sustaining stable demand and sales flows over time.
Quester et al. (2003) divides the brand loyalty in to three components:
• Cognitive component
• Affective component
• Conative component
Fournier (1998) specified six facets of brand relationship quality. Several of them, like love, passion and self attachment, stipulate the affective component.
The two selected brand extension candidates have to be introduced in the line of K- Swiss’ casual footwear. K-Swiss position these products in the market as fashion products, next to its tennis footwear and apparel line that is positioned as functional. The cognitive component of brand loyalty plays an important role with brands that produces functional products; consumers base their choice of functional products on their knowledge of the functional aspects of the products. The affective component does this with fashion products. Consumers base their choice of fashion products on the whole of abstract associations they have with this brand that produces these products.
Research on brand loyalty and brand relationships and the impact they have on the evaluation of brand extensions has been done by several academic researchers. In these researchers there is found a lack of agreement between the researchers.
Park et al. (2002) concluded that, consumers having a strong relationship, which means by definition those people who feel strongly attached, will react more favourably to the extension than consumers having a weak or no relationship.
On the other hand Hem et al. (2003) concluded that having a strong affective relationship with the brand can decrease the evaluation of an extension.
2.4.2 Brand extension evaluation: Choice factors based on preliminary qualitative research
The objective of the preliminary qualitative research was to see what factors emerged out of the Alsem/Zweegers (2004) model (Fig. 2.2), that were favourable in this particular situation, the evaluation of apparel and bags. This consisted of informal interviews to identify which benefits in a product are sought in the market and the extent of differences in these expectations (Doyle, 1998). These informal face to face interviews were initiated to make an inventory of the relevant factors in the consumer evaluation of these product categories, apparel and bags. After having interviewed ten respondents in the age range 18 to 30 years, 6 male and 4 female, consistent with the target group of K-Swiss, a lot of factors were identified. In the next table a summary is made of all the factors that were mentioned in the interview. The respondents mentioned a lot of other factors (e.g. colour, size etc.), but the following ten factors from the Alsem/Zweegers cover all these factors.
1 Image of the parent 6 Brand relationship brand
2 quality 7 Complement
3 Fit brand 8 Fit on the basis of concept consumers 4 Price expectations 9 Bad fit brand name
with brand extension
5 Product involvement 10 Category fit
Table 2.1
Image of the
parent brand Reputation and
credibility
Decline fit
of the different products of the brand
Category fit
Fit on the basis of consumers
Breadth of the brand
Variability product quality within the parent brand
Relevant brand associations With regard to
Extension category
Fit brand concept
Type of association
Attitude with regard to the company
Associations skills High risk perceptions
Lack of attribute information
Influence of the
company
Strength of the brand relation
Product involvement
Bad fit brand name with brand extension
Expectations with regard to the price of the brand extension
Negative effects with regard to the parent brand Brand extension
evaluation
Social responsibi- lity of the parent company
Figure 2.2: Factors that play a role in brand extensions evaluation (Alsem/Zweegers, 2004)
The following three factors the respondents mentioned the most in the interviews. These three factors will also be studied further in this research.
• Complement; complementarity of the original and the extension product classes in use
• Expectations with regard to the price of the brand extension
• Fit brand concept
Next an overview of the brand extension literature with regard to these three factors will be given.
Complement
According to Aaker and Keller (1990) the relationship between a positive perceived quality of the parent brand and the evaluation of a brand extension is only strong when product categories fit. This fit is based on three dimensions:
• Complement, which indicates the extent to which consumers view two product categories as complements
• Substitute, which indicates the extent to which consumers view two product categories as substitutes
• Transfer, which reflects the perceived ability of a firm operating in the first product category to make a product category in the second product category
Complement and substitute are the two most important fit measures and only one of the two measures is enough for a positive evaluation of the brand extension. Meskers et al. (1999) also conclude that the connection of these three fit measures have a direct positive influence on the evaluation of the brand extension.
In this research there is only a focus on the fit measure complement, because, according to the results of the preliminary qualitative research, the other two fit measures are not relevant for the evaluation of the two specific product categories apparel and bags.
Expectation with regard to the price of the brand extension
The price expectations of a brand extension can also influence the evaluation of a brand extension. When the quality of a product is hard to judge, consumers often use price as an indicator to judge the quality of the product.
Jun et al. (2003) concluded that the price of the parent brand influences the price expectations with regard to the brand extension, which influences the perceived quality of the brand extensions.
In this research the focus is on the relationship between the price expectations and the perceived quality of the brand extension, where the influence of the price of the parent brand is not studied. Jun et al.(2003) conclude that the perceived quality of the brand extension does not influence the price expectations, but only the other way round. This study assumed that the perceived quality of the brand extensions influences the price expectations and not the other way round.
Fit brand concept
The brand concept is the term for the total of brand specific abstract associations. For that reason the fit of the brand concept is especially important for prestige brands in stead of functional brands. Respondents in the qualitative research did not perceive the products apparel and bags just as functional products, but are conscious of brands in these product categories and attach value to the concepts of the brands.
Park et al. (1991) conclude that the consistency in the brand concept is also important in the evaluation of the brand extension. The brand extension has to fit the brand concept to be evaluated positive. Aaker and Keller (1992) conclude that fit between the parent brand and the brand extensions is necessary for positive brand extension evaluation.
Fig. 2.3 Park, C. et al. (1991): Evaluation of brand extensions: the role of product feature similarity and brand concept consistency
2.5 Conceptual Model
In the preceding paragraph 2.4.1 an overview was given of the literature and the lack of agreement in the literature with regard to two factors and their impact on the consumer evaluations of brand extensions. These were the following factors:
• Perceived quality
• Brand relationship
In the preceding paragraph 2.4.2 three factors were added, that were identified in a preliminary qualitative research and are specific for the evaluation of the products specific in this study, apparel and bags. These three factors are:
• Complement; complementarity of the original and the extension product classes in use
• Expectations with regard to the price of the brand extension
• Fit brand concept
Evaluation of Brand extension
Perceived fit of Brand extension
Concept Consistency
Perception
Brand concept Brand extensions
Complement is one of the three category fit measures (Aaker/Keller, 1990) and indicates the extent to which consumers view two product categories as complements. Products are considered complements if both are consumed jointly to satisfy some particular need.
Expectations with regard to the brand extensions suggest playing an important role in relation with the perceived quality in the eventual brand extension evaluation.
The fit brand concept measures the fit between the brand extension and the parent brand.
Is the brand extension consistent with the parent brand concept? The parent brand concept is the whole of brand specific associations that consumers have.
Further will be investigated whether the factor product experience, direct as well as indirect, influences the evaluation of the brand extensions
These six factors were investigated to identify the influence they can have on the evaluation of the brand extension.
This will lead to the following conceptual model:
Fig. 2.4 Conceptual model
Brand relationship
Perceived quality
Complement
Fit brand concept
Price expectations Positive or negative
evaluation of the brand extension (in)direct product
experience
3 Market analysis
The question in this chapter is whether the markets of the selected brand extension candidates are attractive enough at this moment to enter. To answer this question an assessment has to be made of the market attractiveness of the product-markets.
According to Alsem (2001) the market attractiveness is defined by the following aspects:
• Macro-environment factors. These are factors organizations can hardly influence, e.g. government decisions
• Market factors. These factors directly influence the market attractiveness.
• Industrial structure factors. These factors define the market intensity, e.g. the market concentration.
These factors contain each several factors, as shown below:
Macro environment factors Market factors Industrial structure factors
Demographic Market size Profitability
Economical Market grow Threat of new entrants
Social-Cultural Phase in product life cycle Power of customers Technological Conjuncture sensibility Power of suppliers Ecological Season sensibility Intensity of competition
Political-Juridical Threat of substitutes
Figure 3.1: Market attractiveness factors
3.1 Macro environment factors
The macro environment factors are the factors that influence the organization, but are hardly to control by the organization. Alsem (2001) uses the DESTEP factors, shown above in figure 3.1, to analyze the macro environment.
Alsem (2001) mentions that not all factors have to be analyzed, but only those factors that have a clear relationship with the strategy. Aaker (2001) also claims that it is necessary to restrict the analysis to those areas relevant enough to have a significant impact on strategy. Therefore in the following paragraphs only the social-cultural factors will be analyzed. The demographic and economic factors can also influence the market attractiveness in this situation, but this influence would be so marginal, the impact on a particular brand can not be measured, that is not relevant in this situation.
The demographic factor the proportional increase of ageing people in the population for example in all three countries is of course never ideal for a brand that has a target group in the age range 18 to 30 years. The impact however of this development must not be exaggerated. The proportional increase is not that big that it will directly damage the sales of brands.
It is the same situation with the economic factors consumer’ confidence and economic growth in the three countries. The figures of CBS, Destatis and National Statistics show a recovery of economic growth and a growth of the consumers’ confidence after a couple of years of recession, but this would not have that impact that it directly can be identified in the sales figures of K-Swiss.
Social-cultural factors
Alsem (2001) claims that the social cultural factors relate to the habits, views and norms in a society.
The last years there is a trend that consumers become more individualistic. Therefore it becomes important for marketers to get insight in the individualistic norms and values of the consumers, to set the products optimal in the market (Motivaction, 2002).
This individualization tendency implicates that consumers want to create their own world, their own style. Consumers do not want products that everybody has. This implicates for brands that they have to find niche markets, differentiate their brand, to reach the consumer.
3.2 Market factors
The following market factors can be regarded as important for K-Swiss and will be discussed in the following paragraphs:
• (potential) market size
• (expected) market growth
• phase in the product life cycle Market size
Alsem (2001) claims that market size is important, because bigger markets are more attractive than smaller markets. Bigger markets offer more possibilities for segmentation.
A negative aspect of bigger markets is that they attract more competitors.
A distinction has to be made in the analysis between the current market and the potential market. The current market is in this situation not important, because the analysis discusses potential new product-markets, i.e. diversification.
Product Present New Market
Present Market Product
Penetration Development New Market Diversification
Development
Figure 3.2.: Growth strategies (Ansoff, 1984)
According to figures of Euratex, the revenues in the sport apparel market in Western Europe, the geographic market this research focuses on, are up to 15.7 billion euro. This is more than twice the revenues, 7.4 billion euro, of the sport footwear market, the market that K-Swiss is active on. The problem here is the market definition of the sport apparel market and the apparel market in general, but it is evident that the apparel market is much bigger than the footwear market and in that sense attractive.
The product bag is not the product anymore as it was in the past. The bag is not only a product anymore to put your things in, but became a fashion accessory (Trendstyle.net).
This trend caused that the bags market became much broader and bigger. A lot of sport and fashion brands reacted on this market development and entered this market.
3.2.1 Market Growth and product life cycle
Next to market size market growth is an important criterion for market attractiveness. In the following paragraph the market growth of the new potential product-markets K-Swiss wants to enter will be defined. These products are the selected brand extension candidates.
The concept of the product life cycle can be used to assess the potential market growth.
The phase in the product life cycle defines the expected development in the future.
The selected brand extension candidates are:
• Casual apparel. That is apparel for everyday use, not for sport purposes.
• Casual Bags. That are bags for everyday use or as fashion accessories, not for sport purposes
A lot of products have a product life cycle. The product life cycle has five stages (Alsem, 2001):
1. Introduction phase: few consumers, slowly growing sales, limited distribution
2. Growth phase: fast growing sales, product is a success, increasing distribution
3. Maturity phase: sales are still growing, but growth decreases 4. Saturation phase: sales decreases slowly
5. Declination phase: sales decreases strongly. Product is substituted by other products.
The selected brand extension candidates also have a product life cycle.
The concept of the product life cycle can also be applied to product groups and brands.
Apparel can not be defined as one product, but as a product group. Apparel is as a product group in his maturity phase. A product group in the maturity phase seems unattractive, but by choosing the right segmentation strategy, growth of sales can be possible for the particular brand (Alsem, 2001). The brand can be in an earlier phase in the brand life cycle than the product group in his life cycle.
It is the same situation with bags. The product group bags is in his maturity phase, but by choosing the right segmentation strategy, e.g. by making it fashion, growth can be possible.
Competitors of K-Swiss chose for another segmentation strategy. In the past they were only active on the performance markets, but they chose to enter the casual segment also.
The tendency toward individualisation created a larger differentiation in consumer needs that caused a division of the markets in more segments that makes the product-markets much broader. Those competitors realised that this increase in segments made the markets more attractive them to enter. The unmet needs, consumer needs that are not being met by the existing product offerings, of the individualistic consumer are strategically important for brands to enter new markets or create and own new markets and cause a market growth of the product-markets, because of the chance to meet the latent unmet need of consumers. They entered these markets with performance inspired products, but they were aiming on the consumer who would use the products for casual wear. That they are successful with this strategy and made the European apparel and accessories markets grow can be supported by the growth figures of the competitors of K-
Swiss. The management judgment method was used to identify the competitors.
Management judgment means that a manager judges on the basis of experience and market knowledge what the current and future competitors are.
A distinction has been made between direct and indirect competitors (Alsem, 2001).
Direct competitors are competitors that produce the same products and serve the same markets and indirect competitors are competitors that produce the same products, but serve other markets.
There are also potential competitors (Alsem, 2001) and these are competitors that serve the same markets, but with other products. The competitors are:
• Direct competitors: Lacoste, Adidas
• Indirect competitors: Puma
• Potential competitors: Nike
Financial reports of Lacoste are not public, so accurate judgments regarding the performance of the brand Lacoste can not be made.
Adidas claims in their Annual Report that apparel is their fastest growing product category. Precise growth figures are not explicitly mentioned. Accessories sales, that is covering bags sales, growth is not mentioned in the Annual Report (Source: Adidas Management Report 2003). Apparel sales of Nike in Europe grew in 2003 16% compared to the previous year. Apparel sales at Nike are also covering bags sales (Source: Nike Annual Report 2003). Apparel sales of Puma in Europe grew in 2003 53.1% compared to the previous year. Accessories sales, that are covering bags sales, were at the previous year’s level (Source: Puma Management Report 2003).
3.3 Industrial structure factors
Industrial structure factors are the factors that determine the intensity of the competition on the market (Alsem, 2001). The analysis of the intensity of the competition is important, because the market is more attractive as long as the competition is less intense.
The five-forces model of Porter (1980) will be used to analyze the industrial structure factors (Figure 3.3)
The analysis of the industry structure will be done for the apparel market and the bags market.
Threats of new Entrants
Bargaining Power of Suppliers
Bargaining Power of
Buyers Rivalry among
Existing Competitors
Figure 3.3.: Five-forces model (Porter, 1980)
In the next paragraphs the five forces will be discussed.
3.3.1 Threat of new entrants
New entrants are competitors, who are now still active in another industry structure or geographic market.
The strength of the threat of new entrants depends on how the markets are defined. Alsem (2001) claims that the threat of new entrants is high, when:
• There is less product differentiation
• There is easy access into distribution channels
• The entree barriers are low
There is less physical product differentiation on the apparel and bags market. The products have less technical features and so are easy to make. The possibilities for product differentiation are limited. The fact that there is less product differentiation makes the entrance for new brands easier. The new entrants make the markets less transparent and make it harder for brands to be distinctive compared to other brands, but brands can find niche-markets through segmentation of the brand and the intensity of the communication. This differentiation in segmentation is possible, because of a tendency towards individualisation. A brand can be successful and differentiate itself by increasing the communication (Alsem, 2001). Via this way brands can distinct themselves from other brands. The higher the communication also makes it easier to access distribution channels.
3.3.2 Bargaining power of suppliers
The fact that K-Swiss Europe does not have direct suppliers is the reason why it would not be necessary to keep suppliers in mind during this analysis.
3.3.3 Bargaining power of buyers
The bargaining power of buyers is strong, when:
• Power of buyers is concentrated strongly
• Buyers are not price sensitive
• Product differentiation is low
An important factor that can influence the power of the concentration of the buyers on the Dutch, British and German apparel and accessories market is the distribution product strategy.
Leeflang (1995) distincts three distribution product strategies:
• Intensive distribution: the choice for a very high distribution spread.
Threat of Substitute
Products
• Selective distribution: the choice for a limited number of buyers.
• Exclusive distribution: the choice for only one buyer.
The more exclusive the distribution is the stronger is the concentration of the power of the buyers.
When K-Swiss enters these product-markets it will choose a selective distribution strategy. K-Swiss will choose a selective distribution, because K-Swiss chose to position the brand as a more exclusive brand. This choice may contribute building this brand image, but the risk is that the brand limits its selling points, which will strengthen the bargaining power of the buyers.
In the product categories apparel and bags, just as in many other product categories, there is a breakdown between those buyers concerned first about price and others who are willing to pay extra for higher quality and features.
Product differentiation at K-Swiss is low; K-Swiss is only selling footwear in the casual segment. By entering new product-markets K-Swiss will diminish the bargaining power of their buyers and will spread the risk for K-Swiss.
3.3.4 Threat of substitute products
Substitutes satisfy the same need, but with another product. The threat of substitute products depends on the breadth of the market definition. When the market is defined narrow there are relative more substitute products.
Out of several expert interviews with the marketing manager the following market information emerged. In the apparel market a distinction can be made for the segments that are served with different apparel. The market of apparel has changed the last years.
Although these products have always served the casual and the performance segment, the differences between these segments have become less clear and overlap more now.
Performance apparel brands do not focus any more on the performance segment only, but also focus now on the casual segment. Performance apparel, which in the past was not a substitute product for casual apparel, is momentary that substitute. This trend is especially visible in the performance footwear industry segments. Casual wearers using performance shoes more and more for street wear. Recognizing that the casual wearer segment is 80 percent performance brands have employed a style focused strategy as an alternative to the performance strategy. These brands have also identified these opportunities in the apparel market.
The product market bags experiences the same tendency. Sport brands as Puma, Nike, and Adidas introduced bags with the goal to serve the casual segments, while in the past they only produced bags for the performance segment that had a functional goal.
3.3.5 Rivalry among existing competitors
According to Porter (1980) internal factors that determine the rivalry among existing firms are: the amount of competitors, the amount of product differentiation, the amount of concentration among the competitors and the amount of cooperation within the market.
The amount of cooperation within the market is not relevant in these product-markets.
There is a huge rivalry among existing competitors on the apparel and the bags markets.
The products are easy to make, what makes the entrée barriers low for new entrants and the amount of competitors on the market much higher. The amount of concentration
among the competitors is dependent on perception and definition of the markets. If the markets are defined narrow and only the direct, indirect and potential competitors, mentioned in chapter 4, Nike, Adidas, Puma and Lacoste, are perceived as competitors the amount of concentration is high. Except as mentioned earlier, the differences between the products have become less clear and brands are serving more segments, what makes the markets much broader and the rivalry among competitors larger.
3.4 Conclusion market attractiveness
In this paragraph the market attractiveness will be assessed on the basis of the macro environment factors, market factors and the industrial structure factors.
The influence of the macro-environment factors is not that significant that it will influence the market attractiveness in this situation.
It is evident that the product-markets apparel and bags are in their maturity phase, but by choosing the right segmentation strategy, growth of sales can be possible for a particular brand. The current tendency towards more individualisation creates possibilities for the brand to choose a differentiated segmentation strategy. The individualisation creates a larger differentiation in consumer needs that makes the product-markets much broader and more attractive for brands, not active yet on these markets, to enter these markets.
The threat of new entrants is of course also much higher, but the possibilities and the attractiveness are there, but it depends then on the brands that they find the right niche markets through the right segmentation of the brand.
Concluding can be mentioned that the market attractiveness of the product-markets apparel and bags are very attractive.
This market attractiveness will be supported with the following table with market attractiveness scores (Alsem, 2001)
Factor Weight Score Value Market factors
Market size 0.2 4 0.8 Market growth/ 0.3 4 1.2 phase in product life cycle
Industrial structure factors
Threat of new entrants 0.2 2 0.4 Bargaining power of supppliers 0.05 5 0.25 Bargaining power of buyers 0.05 3 0.15
Rivalry among existing competitors
0.2 2 0.4
1.0 3.3
Table 3.1: Market attractiveness scores (1=very unattractive – 5 = very attractive)
4 Consumer Survey
In this chapter the design and the results of the consumer survey, the most essential part of the research will be discussed. First the questions will be discussed tat are used in the quantitative research. Then it will be explained which type of consumer survey has been chosen, and the reason why this type has been chosen. Then the design of the consumer survey will be explained. Finally the results of the quantitative research will be discussed.
4.1 Questionnaire
In the next table an overview will be given of the questions that are used in the questionnaire, and next to the questions the subjects the questions deal with. Some questions form a multi-item construct. This means that a construct of items is measuring one variable. This is also shown in table 4.1.
Questions Multi-item construct and/or subject 1 Are you familiar with the brand K-
Swiss?
Brand familiarity 2 I consider myself loyal to K-Swiss
3 K-Swiss would be my first choice Brand relationship 4 I will not buy other brands if K-Swiss is
available at the store
5 How do you perceive the overall quality Perceived quality of of the brand K-Swiss? the brand 6 What is the likelihood that you buy
K-Swiss assuming a purchase was
planned in this product category? Attitude toward 7 How do you perceive the overall quality brand extension
of the K-Swiss apparel?
8 What is the likelihood that you wear the
K-Swiss apparel together with the Complement
K-Swiss footwear?
9 How do you perceive the fit between the K-Swiss apparel and the brand K-
Swiss?
Fit brand 10 How do you perceive a potential concept
introduction of apparel for K-Swiss?
11 Which price do you expect for the Price
K-Swiss apparel? expectations
12 What is the likelihood that you buy the K-Swiss bags assuming a purchase
was
planned in this product category? Attitude toward 13 How do you perceive the overall quality brand extension
of the K-Swiss bags?
14 What is the likelihood that you wear the
K-Swiss bags together with the Complement
K-Swiss footwear?
15 How do you perceive the fit between the
K-Swiss bags and the brand K-Swiss? Fit brand 16 How do you perceive a potential concept
