Professional Documents
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FMCG IN PAKISTAN
A
MODULAR APPROACH TO STUDY THE
IMPACT OF BRAND EXTENSIONS
BY
TARIQ JALEES
THESIS SUBMITTED IN
PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF M-PHIL
MAY 2008
ACKNOWLEDGMENTS
It took me more time than anticipated, more than a year to finalize my thesis. I
am obliged to and thank acknowledge all those people who have been a
source of encouragement, inspiration and motivation. Since I have not
maintained a proper record of all these helping hands, I would like to
apologize to those whose names I am not able to mention, here. Nonetheless,
I shall ever remain grateful and indebted to them all. I am thankful to the
management PAF-Karachi Institute of Economics and Technology, for having
provided an opportunity to upgrade my qualifications, and a stepping stone for
a Doctorate. In this context, I would like specially to mention the names of Air
Commodore (Retired) Mohammad Khalid Hussain, the President of the
Institution, Ex- Dean of the institute, Dr. Javaid A. Ansari, Ex-Director of
College of Management Science Mr. Raza Kamal, and the present Dean of
the institute Dr. Manzoor A. Khalidi. It would not be fair, if I do not mention the
name of Associate Professor Mr. A.A.Kanwar, of PAF-KiET, who not only
encouraged me all the time, in fact he
has always been breathing on my neck not only to complete the M-Phil, but
also go for a PhD.
I would also like to thank my Dr. Javed R. Laghari, Ms. Azra Maqsood, Dr.
Amanat Ali Jalbani, Dr. Mustaghis-ur-Rahman and Mr. Zia Memon of
SZABIST and Dr Wasim Qazi, Mr. Imtiaz Arif of IQRA with whom I had been
associated for a while before joining the PAF-KIET.
Last but not least, I would like to thank my supervisor Dr. Tahir Ali for
providing all the necessary guidance and supervision due to which I was not
only able to complete the thesis but was also able to present the summarized
versions of the thesis at an international conference at Dubai, UAE and
various other international journals.
i
CERTIFICATE OF STATEMENT
I hereby certify that this paper constitutes my own product, that where the
language of others is set forth, quotation mark so indicate, and that
appropriate credit is given where I have used the language, idea, expression
or writing of the others
SIGNED ______________________
TARIQ JALEES
ii
APPROVAL PAGE
BRAND EXTENSIONS OF
FMCG IN PAKISTAN
A
MODULAR APPROACH
TO STUDY THE IMPACT S OF BRAND EXTENSION
BY
TARIQ JALEES
APPROVED____________
SUPERVISOR: Dr. Tahir Ali
APPROVED
______________
Dr. Manzoor A. Khalidi
Dean of College of Management Sciences
iii
TABLE OF CONTENTS
ACKNOWLEDGMENTS ..........................................................................................................................I
CERTIFICATE OF STATEMENT ......................................................................................................... II
APPROVAL PAGE ............................................................................................................................... III
TABLE OF CONTENTS........................................................................................................................IV
ABSTRACT ........................................................................................................................................... VII
CHAPTER-1 .............................................................................................................................................. 1
INTRODUCTION ..................................................................................................................................... 1
1.1 PURPOSE OF THE STUDY ..........................................................................................................2
1.3 CONTRIBUTION OF THIS STUDY ............................................................................................2
1.3 PROBLEM STATEMENT.............................................................................................................3
CHAPTER - 2 ............................................................................................................................................ 4
LITERATURE SURVEY ......................................................................................................................... 4
2.1 BRAND...........................................................................................................................................4
2.2 BRAND EQUITY...........................................................................................................................6
2.3 BRAND MANAGEMENT STRATEGY.......................................................................................8
2.4 BRAND EXTENSION ...................................................................................................................9
2.5 RISK IN BRAND EXTENSIONS................................................................................................13
2.6 RATIONAL AND BENEFIT OF BRAND EXTENSION...........................................................14
2.7 CATEGORIZATION THEORY ..................................................................................................18
2.8 CONGRUITY THEORY..............................................................................................................19
CHAPTER-3 ............................................................................................................................................ 20
EMPIRICAL MODEL VIZ. HYPOTHESES .............................................................................................20
3.1 EMPIRICAL MODEL ..................................................................................................................20
3.2 HYPOTHESES .............................................................................................................................21
CHAPTER -4 ........................................................................................................................................... 22
METHODOLOGY .................................................................................................................................. 22
4.1 STIMULI SELECTION................................................................................................................22
4.2 MEASUREMENTS......................................................................................................................22
4.2.1 DEPENDENT VARIABLE ................................................................................................ 23
4.2.1.1 CONSUMER EVALUATION OF BRAND......................................................................... 23
4.2.2 INDEPENDENT VARIABLES .......................................................................................... 23
4.2.2.1 SIMILARITY......................................................................................................................... 23
4.2.2.2 REPUTATION OF PARENT BRAND ................................................................................ 23
4.2.2.3 PERCEIVED RISK ............................................................................................................... 24
4.2.2.4 INNOVATIVENESS............................................................................................................. 24
4.2.2.5 MULTIPLE BRAND EXTENSIONS................................................................................... 24
4.2.2.6 PARENTS BRAND CHARACTERISTICS......................................................................... 24
4.2.2.7 PARENT BRAND CONSISTENCY .................................................................................... 25
4.2.2.8 BRAND EXTENSIONS FIT................................................................................................. 25
4.3 SAMPLE SIZE..............................................................................................................................25
CHAPTER-5 ............................................................................................................................................ 27
RESULTS AND DISCUSSIONS ........................................................................................................... 27
5.1 DISCUSSIONS RESULTS OF REPUTATION, SIMILARITY & ASSOCIATION .................27
5.1.1 SIMILARITY ...................................................................................................................... 27
5.1.2 PARENT BRAND CHARACTERISTIC & EVALUATION............................................... 28
5.1.3 REPUTATION................................................................................................................... 29
5.1.4 STIMULI ........................................................................................................................... 29
5.1.5 HYPOTHESIS ONE: ...................................................................................................................30
5.1.5.1 CLOSE EXTENSION................................................................................................................... 30
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5.1.5.2 DISTANCE EXTENSION............................................................................................................. 32
5.2 DISCUSSIONS & RESULTS OF INNOVATIONS & PERCEIVED RISK ..............................35
5.2.1 PERCEIVED RISK.......................................................................................................................35
5.2.2 INNOVATIVENESS........................................................................................................... 36
5.2.3 STIMULI ........................................................................................................................... 36
5.2.4 HYPOTHESIS TWO: ...................................................................................................................36
5.2.4.1 CLOSE EXTENSION..................................................................................................................... 37
5.2.4.2 DISTANCE EXTENSION............................................................................................................. 38
5.3 DISCUSSIONS & RESULTS OF CONCEPT CONSISTENCY ................................................41
5.3.1 BRAND CONCEPT CONSISTENCY & EXTENSION ..................................................... 41
5.3.2 HYPOTHESIS.................................................................................................................... 42
5.3.2.1 CLOSE EXTENSION.................................................................................................................... 42
5.3.2.2 DISTANCE EXTENSIONS .......................................................................................................... 44
5.4 RESULTS AND DISCUSSIONS ON BRAND EXTENSION FIT.............................................47
5.4.1 BRAND EXTENSION AND PERCEIVED FIT ................................................................ 47
5.4.1 HYPOTHESIS-4 ................................................................................................................ 48
5.4.2.1 CLOSE EXTENSION ........................................................................................................... 49
5.4.2.2 DISTANCE EXTENSION .................................................................................................... 51
5.5 DISCUSSIONS AND RESULTS ON MULTIPLE BRAND EXTENSIONS ............................54
5.5.1 MULTIPLE BRAND EXTENSIONS AND EVALUATION............................................... 54
5.5.1 HYPOTHESIS 5 ................................................................................................................ 55
5.5.1.1 CLOSE EXTENSION ........................................................................................................... 55
5.5.5.2 DISTANCE EXTENSION .................................................................................................... 57
CHAPTER 6............................................................................................................................................. 59
CONCLUSIONS...................................................................................................................................... 59
CHAPTER 7 ................................................................................................................................................64
RECOMMENDATIONS ............................................................................................................................64
REFERENCES........................................................................................................................................ 66
APPNEDIX-1 QUESTIONNAIRE ........................................................................................................ 74
LIST OF TABLES
Table 1: Town wise Population and size................................................................................ 26
Table 2: Multiple regression of Close distance extension ...................................................... 31
Table 3: ANOVA (Close Extension) ....................................................................................... 31
Table 4: Coefficient (Close Extension)................................................................................... 31
Table 5: Multiple Regression of Distance Extension .............................................................. 33
Table 6: ANOVA-Distance Extension .................................................................................... 33
Table 7: Coefficients- Distance Extension ............................................................................. 33
Table 8: Multiple Regression of Close Extension................................................................... 37
Table 9: ANOVA of Close Extension ..................................................................................... 37
Table 10: Coefficients of Close Extension ............................................................................. 38
Table 11: Multiple Regression of Distance Extension ............................................................ 39
Table 12: ANOVA, Distance Extension.................................................................................. 39
Table 13: Coefficients, Distance Extension............................................................................ 39
Table 14: Multiple Regression of Close Extension................................................................. 43
Table 15: ANOVA, Close Extension ...................................................................................... 43
Table 16: Coefficients, Close Extension ................................................................................ 43
Table 17: Multiple Regression of Distance Extension ............................................................ 44
Table 18: ANOVA, Distance Extension.................................................................................. 44
Table 19: Coefficients Distance Extension............................................................................. 45
Table 20: Multiple Regression, Close Extension.................................................................... 49
Table 21: ANOVA, Close Extension ...................................................................................... 49
Table 22: Coefficients, Close Extension ................................................................................ 50
Table 23: Multiple Regression Distance Extension ................................................................ 51
Table 24: ANOVA, Distance Extension.................................................................................. 51
Table 25: Coefficients, Distance Extension............................................................................ 52
Table 26: Multiple Regression, Close Extension.................................................................... 56
Table 27: ANOVA, Close Extension ...................................................................................... 56
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Table 28: Coefficient, Close Extension .................................................................................. 56
Table 29: ANOVA, Distance Extension.................................................................................. 57
Table 30: ANOVA, Distance Extension.................................................................................. 57
Table 31: Coefficients, Distance Extension............................................................................ 57
LIST OF GRAPHS
Graph 1: Scattered Chart-Close Extension............................................................................ 31
Graph 2: Scattered Chart-Distance extension ....................................................................... 33
Graph 3: Scattered Chart, Close Extension ........................................................................... 38
Graph 4: Distance Extension ................................................................................................. 39
Graph 5: Scattered Chart Close Extension ............................................................................ 43
Graph 6: Scattered Chart, Distance Extension ..................................................................... 45
Graph 7: Scattered Chart, Close Extension .......................................................................... 50
Graph 8: Scattered Chart Distance Extension ....................................................................... 52
Graph 9: Scattered Diagram, Close Extension ...................................................................... 56
Graph 10: Scattered Chart, Distance Extension .................................................................... 58
vi
ABSTRACT
Most of the previous researches have used up to four factors for ascertaining
how consumers evaluate brand extension by using hypothetical brand
extension and college students as a subject. This study has identified several
variables that could influence the consumer evaluation of the brand extension
and then have used eight of them to ascertain the relationship of these
variables with the dependent variable “consumer evaluation” of brand
extension. The variables used in the empirical models are listed as (1)
similarity (2) reputation (3) innovativeness (4) perceived risk (5) multiple
extensions (6) parent brand characteristics (7) concept and consistency (8)
brand extension fit.
Moreover, four different real life brands have been used as stimulus in this
study which are: (1) Tapal Tea Viz. Tapal Tea Bag., (2) Life Buoy Soap Viz.
Lifebuoy Shampoo. (3) Sufi Vegetable Oil and Sufi Washing Soap. (4)
Woodward Gripe Water and Woodward Toothpaste. Two of the stimuli were
close brand extensions and the other two were distance brand extensions.
Based on these variables, a questionnaire was developed that was
administered to a sample size of 700. Quota sampling was used for drawing
samples from 18 Union District Council (UDC) of Karachi. The subject has
been drawn in such a manner that it would be a representative sample. The
research has established that the relationships of independent and dependent
variables is highly on related to “close brand extension” and “distance brand
extension”
vii
viii
CHAPTER-1
INTRODUCTION
The present chapter introduces the theme of this master thesis, and the
motives, problems and findings that lie behind this choice. It includes a short
background, of the area of investigated and continues with objective and
ends up with the problem statement.
New product failure could hurt the firm quite substantially and the loss could
run in millions. “RCA lost $850 million on its Selecta Vision. Texas instrument
lost a staggering $660 million on disc computer before withdrawing from the
home computer business; web TV lost $725 million before it was shut down.”
(Kotler & Armstrong 2006). It has become very difficult for a new product to
succeed because of ever increasing advertisement cost and sever
competition for limited shelf space. (Aaker 1991; 1996)
In view of the built-in risk associated with new products, brand extensions are
commonly used by companies for pursuing growth strategies.
In 1980s, the brand extension strategy for expansion became so popular that
of the entire new products launched in this era, about 80% of them were
brand extensions (Ries & Trout 1986). However, by 1990s the share of brand
extensions increased to 90%. Firms have adapted to this growth strategy
because financial and marketing benefits of this strategy are enormous (Aaker
1991). The researchers have found that the growth rate of introducing new
products by using brand extension strategy has an increasing trend. The
reasons for such a trend were: (1) substantial benefit and (2) reduced risks
associated with the brand extensions. Market intelligence service (2001) in
1
this context reports that about 31,432 new consumer related products were
launched in the year 2000; this was 21% higher than the preceding year. And
again, the market share of the brand extension remained 90%.
Brand extension may also adversely affect the brand name that happens to
be the most important asset of any company. Wrong extension, not only
results in substantial loss of time and other market opportunities, but it may
also lead to the “damaging association that may be expensive or even
impossible to change” (Ries & Trout 1986).
Consistent and repeated brand extensions may dilute the brand equity and
lead to the death of the brand name associated with the brand equity (Gibson
1990). Other researchers found no evidence that suggests a positive
relationship between unsuccessful brand extension and dilution of brand
equity (Keller & Aaker 1992). Aaker (1992) and Romeo (1991) found that
brand extension failures in terms of sales and product performance had no
adverse impact on the prominent and established brands (Aaker 1992;
Romeo 1991).
The objectives of the study were to (1) identify the variables that affect the
consumer evaluation of brand extensions, (2) develop an empirical model
showing relationships of the variables and, (3) test the validity of the empirical
model, separately for close and distance brand extensions.
2
2000). However, the scope of the previous researches has had a certain
degree of limitation. Most of the previous researches have used up to four
factors for ascertaining how consumers evaluate brand extension. The stimuli
in most of the previous studies were found to be hypothetical brand extension,
and the subjects, in most of the studies, were college students. The
contribution of this study is that it has attempted to ascertain the relationship
of eight variables that are related to consumer evaluation of brand extension.
Moreover, four different real life brands have been used as stimulus in this
study. Two of the stimuli were close brand extensions and the other two were
distance brand extensions. The subject has been drawn in such a manner
that it would be a representative sample. To the best of author’s knowledge,
no such comprehensive study on brand extension in Pakistan’s scenario has
ever been carried out
The failure rates of new product over the last few decades have increased
tremendously; therefore, firms have resorted to brand extensions, because of
inherent advantages including its acceptability, low promotion cost and
comparatively lesser degree of failures. Despite these advantages, the failure
rate of brand extension has remained significant in the last one decade.
Therefore, the researchers have been focusing in identifying the factors that
consumers use for “evaluating the brand extension”, or the factors that are
contributes towards the success or failure of brand extensions. The focus of
this study is to identify the variables that consumers uses for evaluating brand
extension. The variables used in this study are inclusive of (1) similarity, (2)
reputation of parent brand, (3) perceived risk, (4) Innovativeness, (5) multiple
brand extensions (6) parent brand characteristics (7) parent brand
characteristics (8) brand extension fit. The behavior and relationships of these
independent variables, with the dependent variable “consumer evaluation” of
brand extension will help marketers to use brand extension strategy more
effectively and successfully.
3
CHAPTER - 2
LITERATURE SURVEY
2.1 BRAND
Branding has an ancient history. It could be traced back to times when the
ancient Egypt brick makers used to stamp symbols on bricks for identification
and distinction purposes (Farghuhar 1990). Nilson (1998) on the other hand
found that ancient farmers used to put symbols on cattle with the help of hot
iron, which meant burning. The word “brand” has been derived from the
Scandinavian word "branna" that means to burn. In Swedish language the
word "brand", means fire. Thus, when a producer puts some marks or
symbols on their product, it will come in the category of branding (Nilson
1998). One of the advantages of strong brand name is that it helps in
penetrating in a new market or a new market category. Globalization has
created tremendous brand awareness and this awareness is not dependent
on the availability of the products. (Czinkota & Ronkainen 2001). For
example, brands such as McDonald, Pizza Hut and KFC had very strong
awareness in Pakistan even before they opened their franchises in the
country.
The success stories of leading and powerful corporation will tell that all of
them owned “strong brand”. Realizing the importance of brand, the companies
4
are now giving more attention to brands, which was previously reserved for
employees or tangible assets such as capital and equipment (Daivs 2002).
Kotler and Armstrong (2007) has defined brand as a name, term, sign,
symbol, design or a combination of these attributes used by the firms for
identifying their products and to differentiate the competitor’s brands. Another
important aspect of brand is that it helps consumers in identifying the
manufacturers (Kotler & Armstrong 2007). According to American Marketing
Association a brand is: "A name, term, sign, symbol, or design, or a combination of
them, intended to identify the goods and services of one seller or group of sellers and to
differentiate them from those of competition," (American Marketing Association
2007).
The scope of branding is beyond product identification. Brands not only reflect
quality but it helps in creating competitive advantage and helps customers in
making purchase decisions (Kapoor 2005). Keller (1996) also adds that
branding should be used for creating brand awareness and developing
associations in accordance with the firm's strategic goals.
Branding has two perspectives. One is product plus view and the other is
holistic view. In product plus view, brand is perceived as an addition to the
product; therefore, it is also termed as an identifier. In holistic view, the scope
of brand is not restricted to product. In fact, in holistic view, it is a reflection of
all the 4p’s of the marketing mix. Brand, besides offering product, contains
certain attributes that may provide satisfaction to the purchaser. These
attributes are not restricted to tangibility or rationality but are inclusive of
intangible or invisible features (Ambler & Styles 1996).
5
Branding is an important managerial activity for creating awareness about the
brand and its benefits and helping competitors to differentiate their products.
Brands thus are important assets of organizations and in some cases the
book value of a company may show that brands have a significant share as
compared to other tangibles (Kamakura & Russell 1991). Business week
(2004) reported that the market capitalization of the Coca Cola Company as
of early 2004 was approximately $120 billion, out of which more than 50%
($70 billion) was it’s brand value. Similarly, Procter & Gamble sold to
Cadbury-Schweppes its “Hires” and “Crush” product-line at $220 million. Of
this aggregate, about 90% of the total price was associated with brand assets.
(Kamakura & Russell 1991).
Ambler and Styles (1997) are of the opinion that brand equity could be
measured from two perspectives. One is “financial evaluation approach” and
the other is “consumer-based approach”. The financial evaluation approach is
related to the monetary value of the brand, and the consumer-based
approach focuses on the brand itself that is how much value the consumers
give to the brand. Brand equity is also considered as an accumulated profit
that could be realized at a future date. The brand equity concept can also
6
cause confusion, because of the difficulty in measuring it (Amler & Styles
1997).
Firms could have a strong competitive edge over competitors, if they could
create brand equity ‘through building awareness, image, and linking
associations’ (Keller 1998). A stronger brand would always have a better
understanding of needs, wants, and preferences of consumers than the
brands that are not competitive. Thus stronger brands would help in creating
effective marketing programs that could go beyond consumer expectations.
(Keller 1998).
Brand equity, since last one decade, has remained popular for attracting new
market segments (Pitta & Katsanis, 1995). This phenomenon of brand equity
has coincided with the newly emerged but equally popular phenomenon of
brand extension (Ambler & Styles 1997). Research shows a two way
relationship between brand equity and extension. A brand's equity could
influence the success of extensions, and extensions could positively influence
brand's equity. The result is that highly valued brand extensions are more
successful. Consumers tend to choose those brands that have strong brand
equity. Brand position of a firm is strongly dependent on the positive image of
brands. Strong brands are a major source of differentiation and extending the
same towards a specific product category is easier. Successful brand allows
firms to demand high prices and are a source of barrier which makes it difficult
for consumers to switch to other brands (Pitta & Katsanis 1995.)
Investment and brand equity both have a limited life. Brand equity cycle is
comprised of growth, reinforcement or decay, and is vulnerable to
7
competitors. Organizational actions have a direct bearing on the brand equity.
Strong brand equity also helps in reducing the introduction cost of new
brands. (Pitta & Katsanis 1995),
The firm could use above definitions of brand equity for developing long term
growth-strategy. For example, predictors’ variables such as “familiarity with
the brand name”, and “level of promotion” may influence “trial purchase” more
strongly as compared to determinants such as distribution, packaging, and
brand awareness achieved by advertising (Aaker 1990). It has been found
that one of the strongest motivating factors for inducing trial purchase is
established brand name (Aaker 1990). The marketing cost at introduction
stage is generally higher as the awareness is low. Firms with strong “brand
equity” have two advantages at the introduction stage of new brand.
Marketing costs at this stage will decline considerably, and it would also
support a higher price, resulting in increased profitability (Aaker 1990).
Retaining customers is more cost efficient than attracting new customers. The
studies have suggested that the customers are more loyal to stronger brands
than weaker brands. Thus, retention of loyal customer is easier than non-loyal
customer (Aaker 1992).
8
1930, they were afraid that this brand would fail, as it would have to compete
directly with the company’s established brands (e.g., Ivory). In order to give
protection to the newly launched “Camy” the company for the first time in
history, introduced the “brand manager system.” Under this system, a brand
manager was appointed for “Camy”, and he was given all the authority,
including competing directly against the established brands (Zenor 1994). The
strategy of brand management was so successful that the firm formally adopted
this philosophy. Subsequently, other industries, including food, soap, toiletries,
and chemical industries, adopted the brand management strategy initiated by
Procter & Gamble for Camy Soap (Low & Fullerton 1994).
9
product category which is new to the company is known as franchise strategy
(Hartman & Price & Duncan 1990).
When a firm uses the existing brand name for extending into a new product in
the “same product class or to a product category new to the company” it is
considered as horizontal extension (Pitta and Katsanis 1995). Horizontal
extension again could be extended into two categories. One is line extension
and other is franchise extension. Aaker and Keller (1990) states that
horizontal brand could be further divided into two categories which are line
extension and franchise extensions, and according to them the focus of these
brand categories is different (Aaker & Keller 1990). Using an existing brand
name and same product class for entering a new market segment comes in
the category of line extension. Examples of line extensions are Pepsi and Diet
Pepsi (Aaker and Keller 1990). Other examples of line extensions are
shampoos for different segments such as dry hair, oily hair, and dandruff
hairs, etc. This strategy is generally more successful for extensions in the
same category as the core product. Franchise extension on the other hand is
a strategy of using current brand name for entering a product category that is
new to the company (Tauber 1981).
10
Firms when launches “related brands” in the same product category with
significant difference in price and quality levels they are considered as vertical
extension. (Pita & Katsanism, 1995) The vertical extension has two directions.
If the new product is of higher quality level with higher pricing it will be called
up-scaling. On the other hand if the extended brand quality is low and is also
of lower pricing it will be known as down scaling (Kamal 2003)
If a newly launched product has a strong association with a strong brand then
customers would have the comfort of believing that the firm will support its
offering. (Aaker 1990). Extensions are significant in creating awareness of the
strong brands especially to the segment that are not purchasing the product.
The cost of “new launch” is increasing, the market is becoming more
competitive and therefore more firms are deriving benefits from strong brand
equity by brand extension strategies.
In view of the high costs associated at introduction stage, firms leverage the
equity of established brand name to introduce products in a totally different
product category (brand extension). The rationale for this strategy is that
consumer perception of the positive image (equity) tends to carry over to the
extension and hence would be beneficial to new launch (Nkocha 2000)
Ambler and Styles (1997), observed that although brand extension and line
extensions are used interchangeably by some of the authors, but there is a
conceptual difference in the definitions of the two. The definition proposed by
Ambler and Styles(1997) is: when a company launches an existing product
and brand name in the same product category with the same name by adding
new flavor, changing form or color of the product, or changing ingredients or
package sizes, it comes in the category of line extension. These line-
extensions are commonly used in dairy products, and shampoo (Kotler &
Armstrong, 2007)
11
(Kotler & Armstron, 1996). Virgin, basically a tobacco company has
successfully ventured into businesses such as record company, airline,
financial services, vodka, jeans and cola by using brand extension strategy
(Hart & Murphy 1998).
If the brand is of high quality, and if there is resemblance (fit) between the
new product category and brand, and if a company has relevant expertise
then the chances of successful brand extension would be bright (Ambler &
Styles 1997).
One of the problems in brand extensions is that customers might think that the
company already offers this product and is not new in the new product form
(Nijssen 1999). Despite this problem, the acceptance of the new brand will
be higher for those brands that have strong associations with the brand as
compared to reasonably familiar or weak brand (Nijssen 1999).
Consumers while evaluating the brand extensions tend to assess its suitability
in the relevant product category and the brand’s original category. If the
customers’ perception is positive toward the suitability, then the degree of
acceptance would be higher (Nijssen 1999). If the customers do not find any
suitability between original brand category and brand extension category then
the brand extension would adversely affect the brand equity of the company
(Kim & Lavack 1996). Since last one decade, brand extension is getting
extensive coverage in the academic and trade journals and is extensively
used as growth strategy; therefore, it could be attributed as a branding
strategy (Sharp 1993).
12
involved in brand extensions and study the factors that contribute to the
success of brand extensions (Ambler & Styles 1997).
Ries and Trout (1986) endorsing the preceding opinions, stated that even if
the brand is used “congruously”, the success to extended brand would be at
the expense of parent brand. Aaker and Keller (1990) in this context found
that the brand extension may carry typical attributes of the parent that may be
dangerous to the extended brand. Thus Aaker and Keller were surprised that the
respondents’ thought that Crest Chewing Gum, a brand extension of Crest
tooth paste would taste typically like toothpaste or may not be appealing.
Loken and John (1993) in similar research found that the possibility of dilution
in brand extension cases increases when there are higher degrees of
inconsistency between parent brand and extension brand. Loken & John
(1993) found that when consumers’ perception towards brand extension is
weak, this perception will also be transformed to the parent brands and hence
they would believe that the attributes of the parent’s brand are weak as well.
(Shocker, Srivastava & Rueker 1994)
Another risk associated with brand extension is the cannibalization effect. The
gravity of cannibalization would be higher for (1) those brand extensions that
are more successful in new brand category, and (2) for those extensions that
have higher degree of “closes ness” between parent brands from the
consumers’ perspective. (Sharp 1993; Farquhar 1990).
13
If brand extension is not executed properly, it would not only damage
corporate associations but would have several other adverse impacts (Ries &
Trout 1986; Loken & Roedder 1993).
Reputed brand extensions at times fail. This failure could generate the
following adverse feelings for the parent brands: (1) customers may feel that
the brand extension is not adding value to the product, and (2) it is an
exploitation strategy, in general and specially for increasing the prices (Aaker
& Keller 1990). Failure of extended brand hurts the core brand, especially, if
there is inconsistency between the parent and extended brand. In this context,
the customer did not find any association between Levi tailored Classic, a line
of men suiting that was sold separately, and the old and strong perception
that Levi’s products are casual living and are of rugged material (Aaker 1990).
The cost of launching a new product has increased tremendously and the risk
of failure is high. These constraints have made brand extension strategy very
popular. Brand extension is not only cost efficient but it is less risky as
compared to a new brand launch (Ambler & Styles 1997). The survival rate of
brand extensions is generally higher than a new brand launch (Grime & Smith
2002).
Of all the reasons for adopting brand extension strategy, the most vital is that
it facilitates growth (Kapferer 2001). The biggest advantage of brand
extension is that the growth could easily be achieved by keeping the cost
within controllable limits (Sharp 1993). The penetration capability of a new
product with the same name would be considerably higher than the product
with a new brand name. The brand extension strategy has the potential to
capture substantial market share of growing segment by drawing a parallel
between the positive values associated with the core brand and extended
brand (Kapferer 2001). Brand extension increases the market coverage, its
strength, and creates a segment that was not in existence previously (Kim &
Lavack 1996)
14
In this context, Virgin Company is one of the many companies that have
successfully ventured into new market by using the reputation of the existing
brand. The company initially was a publisher and a retailer of popular music,
subsequently, it successfully ventured through brand extension strategy into
diversified business such as airlines, cola production, and financial services
(Randall 2000).
15
While deliberating on the economic rationales for brand extension Kapferer
(2001) warned that the firms should not get mixed up between two different
issues which are (1) increasing profitability and (2) reducing cost. The
production cost, distribution cost and communication cost varies from one
market to other, therefore, the profitability may also vary accordingly. Hence,
the profitably ratios of all the companies may not be the same. Thus, the
brand extension strategy should be used for those markets where the degree
of profit is high and cost structure is low (Kapferer 2001). If the extension is of
a strong brand then the company could take the liberty of charging a higher
premium of about 17% on it extended product (Buday 1989).
Brand extensions of strong and familiar core brands provide a certain degree
of comfort and assurance to the customers, therefore, the customers would
not hesitate in trying such extended brands. Thus, the trial cost for brand
extension would be quite lower than the new brand (Smith & Park 1992).
Other researchers also found that brand extension of established name have
several advantages including low cost, high success rate and it helps
“customer trial” ( Pitta & Katsanis 1995; Aaker & Keller 1990).
One of the major advantages of brand extension is that the reputation and
image may silently transmit from parent’s brand to the extended brand. One
such example is that of Heinz. The firm after acquiring “Weight Watcher”
launched low calories food and got instant recognition and positive brand
association. The parent brand and the brand extension advertisements not
only complement each others but the quality of the core brand leads to higher
level of acceptance and increase the awareness of the brand extension (Pitta
& Katsanis 1995).
Brands with strong reputation can capitalize its name and success by
extending it in other categories (Randall 2000). Pitta and Katsanis (1995)
were of the opinion that a core brand's associations with the extended brands
are complex and well defined, as most of the core brands also possess well-
defined brand image. Ambler and Styles (1997) also observed that the degree
of acceptance between core and extended brand would be higher if there is a
strong association between the two in terms of quality.
16
Customer based equity helps in increasing the brand image while the parent
brand and the extended brand makes the brand stronger and helps in creating
a “mega brand” (Pitta & Katsanis 1995). A mega-brand helps in increasing
distributors’ bargaining power creating investment opportunities, and
enhancing value of brands that critically affects brand positioning (Ambler &
Styles 1997). The firm, thus, in its media campaign could focus on perceived
quality and value of brands that helps in avoiding product specification based
advertising battle (Pitta & Katsanis, 1995).
The competitors are always targeting the niche gaps that the prevailing
brands may not be protecting effectively and efficiently. Brand extensions help
firms to fill those vulnerable gaps which the competitors may target. Filling
shelf space is an important marketing strategy for preventing the competitors
to sneak in. The brand extensions help in filling shelf space in the market and
make it more difficult for the competitors to attack from this end (Randall
1997). Some product categories lack quality and may not fulfill the consumer
needs in one part of the world. The brand extensions help to fulfill the demand
of other parts of world where the brand has strong reputation and more need
for it (Weilbacher 1995).
17
the consumer acceptance would be positive, otherwise the level of
acceptance would be low (Randall 2000).
18
2.8 CONGRUITY THEORY
Schema congruity theories (Handler 1982) propose that cues (e.g., brand
names) state that some degree of congruity has a relationship with the level of
processing used by the consumers. If there is some degree of incongruity
than the consumer will process brand extension more positively. However, the
consumer evaluation will not be that positive if the (1) cues are congruent or
extremely incongruent (Nkwocha 2000).
19
CHAPTER-3
FIGURE-1
EMPIRICAL MODEL
SIMILARITY
REPUTATION H1
H2 OF
INNOVATION
BRAND
20
3.2 HYPOTHESES
H1: Those brands that have a stronger (a) reputation, (b) extended to
similar brand category, (c) share strong association, would get a
stronger consumer evaluation.
H4. The “consumer’s brand evaluation” would be positive for those brands
that have more “concept consistency”
H5: The “consumer perception fit” between the core brand and
extended brand would have a positive impact on the “consumer
evaluation of the brand”.
21
CHAPTER -4
METHODOLOGY
The first two stimuli come in the category of close extension, and the later two
in the category of distance extension.
4.2 MEASUREMENTS
22
4.2.1 DEPENDENT VARIABLE
The dependent variable for the study was “consumer evaluation” of brand
extension. Keller and Aaker (1992) have used the following statement for
measuring overall evaluation: “I am very positive to the extension of the
“XYZ.” In this study, the same was used for measuring “Consumer Evaluation”
of brand extension. Reference may be made to question No.8 of the
questionnaire attached as Appendix -1.
4.2.2.1 SIMILARITY
Similarity between the parent brand and extended brand has been measured
differently by different researchers (Aaker and Keller (1990) and Smith and
Park (1992) have measured similarity by asking “think of a brand__ how
similar is the competence for making the original and extension brand”. “Think
of what you associate with brand____ how much overlap exists” (Bouschs
et.al 1987). In this study, the (Boush et. Al 1987) statement was modified for
measuring the similarity between for brands and their extensions. (Refer
question no.1, appendix-1).
Aaker and Keller (1990); Loken and John (1993) have used similar measures
for measuring reputation of parent brand. (1) “All- together, I am very positive
with the brand XYZ” (2) “Altogether, I am very satisfied with the brand XYZ”.
(3) “Altogether, I associate positive things with the brand XYZ”.
In this study, the statement-1 above was modified for measuring reputation of
parent brands. (Refer to Question -2 of the questionnaire, appendix-1).
23
4.2.2.3 PERCEIVED RISK
Heim (2001) has used five factors for measuring perceived risk. Of those five
factors, the following two factors have been used in this study for measuring
perceived risk. (Refer question No.3 of Appendix one)
4.2.2.4 INNOVATIVENESS
(1) “I am continuously seeking new ideas” (2) “When things get boring, I like to
find some new and unfamiliar experience”. Based on these constructs two
questions were developed. (Refer question number-4, of the questionnaire at
appendix-1)
Aaker (1992) has found a relationship between the brand extension history
and the consumer evaluation of the brand. Respondents in this study were
asked to rate the history of introducing multiple brand extensions. (Refer
question number 5, questionnaire at appendix-1)
24
4.2.2.7 PARENT BRAND CONSISTENCY
The independent variable has been defined by Aaker and Keller (1990) and
Keller, (1992), in terms of (1) Complimentary, (2) Suitability (3) Transferability
and (4) Difficulty. In this context, the respondents were asked to rate the four
brands in terms of these four sub dimensions. (Refer question number 8a, 8b,
8c, 8d, of the questionnaire, appendix-1).
Karachi is divided into 18 Union District Council (UDC) and each UDC
different population. It is as high as 0.723 million for Orangi and as low as
0.289 million for Gadap. To ensure appropriate representation from each
UDC, quota sampling technique was used for drawing 700 samples. The
population of all the 18 UDC along with the samples drawn form each town is
presented below:
25
Table 1: Town wise Population and size
It may be pointed out that and Gulshan and Orangi Towns are the most
populated towns with populations of and 646, 662 and 616,151, respectively.
Comparatively, the Bin Qasim and Gadap are the least populated with the
population of 315,864 and 289,564, respectively.
26
CHAPTER-5
Results and discussions have been presented into five sub-chapters with
each chapter containing the derived hypothesis and its results, along with the
variables used in the hypothesis.
The empirical model developed earlier shows that the independent variables
reputation, similarity and brand association have strong relationship with the
consumer evaluation of the brand. These variables have been briefly
discussed below:
5.1.1 SIMILARITY
Dacin and Smith (1994), major findings were: The consumer’s evaluation
would be positive for those brands that are associated with several products,
provided there is no significant parity between the qualities of product. In fact,
addition of product would enhance positive evaluation, provided the quality
level of additional product is the same. Their research also found that it may
not be advisable to extend the brands un-discriminately into unrelated
product, even if the quality of the core brand is high. First, extension must be
carried out into moderately related categories and then to unrelated category.
This step wise extension from one category to moderately unrelated category
would help consumer in maintaining the perception of relatedness (Kapoor
2005).
A brand could have association with several products. However, the level of
association of brand name with all products may vary. Products that have
strong association with the core brand could be easily evaluated by
28
consumers. Contrarily, products that have weaker association with the core
brand are dependent on a certain degree of “cues” for evaluation purpose
(Kapoor 2005)
5.1.3 REPUTATION
5.1.4 STIMULI
The stimuli used for this study can be categorized into two categorize. One is
close and other is distance extension. Brand extensions such as Tapal Tea
Viz. Teabags, comes in the category of close-extension. The brand
extensions such as Sufi Soap viz. Vegetable Oil and Woodward Gripe Water
viz. Tooth Paste comes in the category of distance extension. The hypothesis
for close and distance extensions have been tested separately.
29
5.1.5 HYPOTHESIS ONE:
H1O: Brands that have (a) stronger reputation (b) similarity between parent
brands and extended brand, and (c) strong associations would have strong
consumer evaluation.
H1A. At least one of the variables has linear relationship with the dependent
variable “consumer evaluation”
H1O: β1=β2=β3=0
H1A: β1≠β2≠β3≠ 0
The above hypothesis was tested separately for close and distance
extensions:
Brands such as Tapal viz. Teabags and Lifebuoy viz. Shampoo have lesser
distance. The combined relationships of these stimuli in terms of similarity,
reputation and association with overall evaluation were tested through
multiple regressions.
30
Table 2: Multiple regression of Close distance extension
Regression Statistics
Multiple R 0.96
R Square 0.92
Adjusted R Square 0.92
Standard Error 0.11
Observations 700.00
Similarity-tapal
6.00
Brand Evaluation
5.00
Similarity-
4.00 lifbuoy
3.00 Reputation-
2.00 tapal
1.00 Reputation-
- Lifebuoy
0 5 10 15 Assosciation-
Close Extension Tapal
Assosciation-
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the brand
extension was accepted. The ANOVA Table shows that the F< 0, meaning it
is significant. Moreover, all the P values are less than .05 except
“association”. This indicates that all the coefficients are relevant to the model
except “Association-Tapal” and “Association-Lifebuoy”. The R2 is 0.92, which
31
indicates that the combined effect of the independent variables that is
similarity, reputation and parent brand characteristics (association) will cause
the dependent variable, consumer evaluation of brand extension to move by
92%, which is an indication of a very strong relationship.
The coefficient of determination for similarity Lifebuoy, and reputation lifebuoy are
0.42 and 0.31, respectively indicating that these two predictor variables/stimuli
have comparatively stronger influence on the dependent variable as
compared to other variables/stimuli.
The above tables and graphs indicates that in case of “Lifebuoy Soap Viz.
Shampoo” similarity and reputation were found to be stronger predictors for
“consumer evaluation” of brand extensions as compared to “reputation” and
“parent brand characteristics (association)”. The variable “similarity” was
found to be, comparatively, stronger predictor in case of “Tapal Tea viz.
Teabag”, as compared to other variables.
Brands such as “Sufi viz. Vegetable Oil” and “Lifebuoy viz. Shampoo”
Woodward viz. Grip Water” have more distance. The combined relationships
of these stimuli in terms of similarity, reputation and association with overall
evaluation were tested through multiple regressions. The multiple estimating
regression equation for distance extensions used as stimuli is presented
below:
32
Table 5: Multiple Regression of Distance Extension
Regression Statistics
Multiple R 0.76
R Square 0.58
Adjusted R Square 0.58
Standard Error 0.47
Observations 700.00
4.00 Similarity-
3.00 Woodw ar
Rep-Sufi
2.00
1.00
Rep-Wood
0.00
0 5 10 15 Assos-Sufi
Distance
Brand Extension Assos-Wood
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the brand
was also accepted for the distance extension. The ANOVA table shows that
the F< 0, meaning it is significant. Moreover all the P values are less than .05,
further confirming the relationship of the model. The R2 is 0.58, which
33
indicates that the combined effect of the independent variables will cause the
dependent variable “consumer evaluation” of brand extension to move by
58%, which is an indication of a strong relationship.
are 0.26 and 0.37, respectively indicating that these two predictor
variables/stimuli have comparatively stronger influence on the dependent
variable “consumer evaluation” of brand as compared to other variables.
From the above, it could also, be inferred that in case the parent brand is
extended to similar category, then the similarity between parent brand and
brand extension would be vital for respondents’ evaluation of brand extension.
In case extension is of distance nature (not in similar category) than
reputation of parent brand would be used by respondents for evaluation of
brand extension. It may also be observed from the above that the predicator
variable “reputation” is comparatively stronger in case of close and distance
extensions.
Firms, whose brands have strong reputation, could afford the luxury of
venturing into distance brand extension. Firms with weaker brand reputation
should focus on enhancing the brand reputation, and if they have to extend
their brand, it should be in the same category (Close distance).
34
5.2 DISCUSSIONS & RESULTS OF INNOVATIONS &
PERCEIVED RISK
35
5.2.2 INNOVATIVENESS
An individual who is receptive to new ideas and is willing to try new practices
and brand is considered to possess a personality trait of innovativeness
(Rogers 1989). “The innovators are venturesome; they try new ideas and take
some risk…where as late adopters (laggard) are tradition bound, they are
suspicious of changes, and adopt innovation when it has become some thing
of a tradition itself” (Kotler & Armtrong, 2007). The innovative consumers tend
to get comfort when they take risk.
5.2.3 STIMULI
Like preceding section, close brand extensions such as “Tapal Tea Viz. Tea
Bags”, and “Lifebuoy Soap viz. Shampoo”, and distance brand extensions
such as “Sufi Soap viz. Vegetable oil” and “Woodward Gripe Water viz.
Tooth Paste” have been tested, separately.
H2A. At least one of the variables has linear relationship with the dependent
variable “consumer evaluation”
H2O: β1=β2=0
H2A: β1≠β2≠ 0
36
The above hypothesis was tested by two different methods. In method one,
the relationship of the close-extensions was tested and in method two the
relationship of distance-extensions was tested:
37
Table 10: Coefficients of Close Extension
Standard Lower Upper
Coefficients Error t Stat P-value 95% 95%
Intercept 3.78 0.07 53.50 0.00 3.64 3.91
Perceived Risk 0.05 0.02 2.94 0.00 0.02 0.08
Innovativeness 0.15 0.02 9.03 0.00 0.12 0.19
Graph 3:
Scattered Chart, Close Extension
Evaluation 6
4
Brand
2
0
1 2 3 4 5 6 7 6 9 10
Close Brand Extension
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the close
brand extension was accepted. The ANOVA Table shows that the F< 0,
meaning it is significant. Moreover, all the P values are less than .05, further
confirming the relationship of the model. The R2 is 0.14, which indicates that
the combined effect of the independent variable will cause the dependent
variable to move by 14% which is a very weak relationship. Innovative
consumers tend to evaluate close brand extension more positively (coefficient
of determination being 0.15) as compared with consumer with a higher degree
of “perceived risk” (coefficient of determination being 0.05).
38
Y= a + b1Innovativeness + b2Percived Risk
6.00
Evaluation
Consumer
4.00
2.00
-
1 2 3 4 5 6 7 8 9 10
Distance Extension
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of brand was
accepted. The ANOVA Table shows that the F< 0, meaning it is significant.
Moreover, all the P values are less than .05 except “innovativeness” indicating
that “innovativeness” has no relationship with the dependent variable that is
39
“consumer evaluation” of brand extension. The R2 is 0.18, which indicates that
the combined effect of the independent variables will cause the dependent
variable to move by 18% which is a very weak relationship. The overall level
of “innovativeness” and “perceived risk” of respondents were high, but their
relationships to distance brand extensions were weak.
The coefficients for “perceived risk” and “innovativeness” are 0.36 and -0.04,
respectively indicating that consumers with high level of innovativeness would
tend to evaluate distance brand extensions lowly and negatively. Consumers
with high level of “perceived risk” have evaluated distance extensions
comparatively more positively with coefficient being 0.36
Firms that are extending their brands to similar category (close extension)
should target consumers that have high level of “innovativeness”.
Comparatively, companies that are extending their brand into non-similar
category (distance extension) must target those customers that have high
level of “perceived risk”.
40
5.3 DISCUSSIONS & RESULTS OF CONCEPT
CONSISTENCY
Factor “similarity” is important but it fails to explain all the aspects related to
fitness. Two objects could have several common physical attributes, but it
does not mean that both the objects would have similar brand concepts. For
example Sieko and Rolex watches share several common product level
features. But as far as brand concepts of the two watches are concerned,
Seiko has reputation of functional brand and Rolex as a prestige brand (Park
et al 1991). Thus the perceived fit is “combination of (1) product feature
similarity and (2) brand concept consistency.
41
5.3.2 HYPOTHESIS
H3O. The “consumer’s brand evaluation” would be positive for those brands
that have more “concept consistency”
H3A. The “consumer’s brand evaluation” would be positive for those brands
that have more “concept consistency”
H3O: β1=β2=0
H3A: β1≠β2≠ 0
The above hypothesis was tested for close extensions and distance
extension, separately.
The brands “Tapal viz. Teabags” and “Lifebuoy viz. Shampoo” have lesser
distance. The combined relationships of these stimuli in terms of: (1) design,
and (2) price, with overall evaluation were tested through multiple regressions.
Multiple estimating regression equation for close extensions used as stimuli is
presented below:
42
Table 14: Multiple Regression of Close Extension
Regression Statistics
Multiple R 0.82
R Square 0.67
Adjusted R Square 0.67
Standard Error 0.22
Observations 700.00
6.00 Price-Tapal
Tea
Brand evaluation
5.00
4.00 Price-Lifebuoy
3.00
2.00 Design-Tapal
Tea
1.00
Design-
-
Lifebuoy
1 2 3 4 5 6 7 8 9 1
Evaluation of
Close Extension close brands
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of brand was
accepted. The ANOVA Table shows that the F< 0, meaning it is significant.
Moreover, all the P values except design of lifebuoy are less than .05. This
indicates that except the design of lifebuoy other variables validate the model.
The R2 is 0.67, which indicates that the combined effect of the independent
43
variables will cause the dependent variable
to move by 67% which is an indication of strong relationship.
The coefficients for design and price of Tapal Tea is 0.55, and -0.04,
respectively indicating that consumers while evaluating Tapal tea were more
influenced with the “design” of tea as compared to the “price” of Tapal tea. In
case of Lifebuoy, the coefficients for “design” and “prices” were 0.01, and
0.20, respectively, indicating that while evaluating Lifebuoy, consumer
appears to be more influenced with price, as compared to design of Lifebuoy
soap.
The brand concept consistency for distance extensions “Sufi Soap viz.
Vegetable Oil”, and “Woodward Gripe Water viz. Tooth Paste” brands were
measured in terms of: (1) design, and (2) price, which were then related with
“consumer overall evaluation” of brand extension. Multiple estimating
regression equation for distance extensions used as stimuli is presented
below:
44
Table 19: Coefficients Distance Extension
Coefficients Standard t Stat P-value Lower Upper
Error 95% 95%
Intercept 1.88 0.10 19.69 0.00 1.70 2.07
Price-Sufi 0.14 0.03 5.05 0.00 0.08 0.19
Price Woodward 0.13 0.02 5.79 0.00 0.09 0.18
Design-Sufi 0.19 0.03 6.76 0.00 0.14 0.25
Design-Woodward 0.01 0.02 0.71 0.48 (0.02) 0.05
10.00
8.00 Price
6.00 Woodward
4.00
2.00 Design-Sufi
-
0 5 10 15
Design-
Distance Extension
Woodward
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the brand
was accepted. The ANOVA Table shows that the F< 0, meaning it is
significant. Moreover, all the P values except of the design of Woodward
Gripe water are less than .05. This indicates that the design of Woodward has
no relationship with the dependent variable “consumer evaluation” of brand
extension. The R2 is 0.32, which indicates that the combined effect of the
independent variables will cause the dependent variable to move by 32%
which is a weak relationship.
The coefficient of determinations for Sufi’ design and price are 0.19 and 0.14,
respectively indicating that in case of Sufi design is comparatively a stronger
predictor than price. Comparatively, price of Woodward is stronger predictor
and design has no relationship with consumer evaluation of distance brand.
In case of close extensions such as Tapal Teabag the firm must concentrate
on the design, which Tapal was found to be doing it. However, in case of
45
distance extension, no relationship was found with the design of Woodward
Gripe Water. Woodward needs to improve the design of the gripe water
packaging in order to remain competitive.
46
5.4 RESULTS AND DISCUSSIONS ON BRAND EXTENSION
FIT
In this sub-chapter, first the related variable brand extension fit has
been deliberated and subsequently the derived hypothesis was tested
separately for close extensions, and distance extension, followed by
recommendations.
Some of the researchers have used two components in their brand extension
fit studies. For example Park and Srivnvason (1994) proposed two concepts
which were (1) product related similarities (2) and product concept
consistency. The relationship between function orientation and prestige
47
orientation were used for studying brand concept consistency (Nkwocha
20005). Similarly, Park et.al., (1991) proposed a concept in which they
identified product related similarity through concrete measures i.e. attribute
matching or abstract (e.g. shared usage situation) for studying the relationship
between the parent brand and extended brand(Nkwocha 2000)
Broniarcz and Alba’s (1994) in the same study used two tooth pastes that are
“close-up” and “crest” as stimuli for extending into product category
“mouthwash”. The finding of this research was that crest tooth paste was
more acceptable in mouth wash category. Reasons for these conclusions
were that “crest” tooth paste is more associated with breath-freshening, which
is relevant to mouth wash category. In the same context “crest” toothpaste
was not evaluated favorably because, it is more associated with “dental care”,
which has little or no relevance with mouth wash category (Nkwocha 2000).
5.4.1 HYPOTHESIS-4
Variable such as parent brand fitness have been used by various author in
relation to how the consumer evaluates brand. Some of the commonly used
sub-variables for brand fitness are complimentary, supplementary,
transferability, and difficulty, which have, also, been used in this study. The
developed hypothesis in this context is presented below:
H4O: The “consumer perception fit” between the core brand and
extended brand would have a positive impact on the “consumer
evaluation of the brand”.
48
H4A: The “consumer perception fit” between the core brand and
extended brand would not have a positive impact on the “consumer
evaluation of the brand”.
H4O: β1=β2=β3=β4=0
The above hypothesis was tested for close and distance extensions
separately.
49
Table 22: Coefficients, Close Extension
Coefficients Standard t Stat P-value Lower Upper
Error 95% 95%
Intercept 1.67 0.08 20.83 0.00 1.51 1.83
Tapal compliment 0.01 0.01 0.85 0.40 (0.01) 0.02
Tapal substitute 0.24 0.03 8.58 0.00 0.19 0.30
Tapal transferability 0.23 0.03 8.02 0.00 0.17 0.29
Tapal difficulty (0.01) 0.02 (0.49) 0.62 (0.05) 0.03
Lifebuoy-Compliment 0.07 0.01 5.40 0.00 0.04 0.09
Lifebuoy-Substitute (0.09) 0.01 (9.11) 0.00 (0.11) (0.07)
Lifebuoy-Transferability 0.18 0.01 12.21 0.00 0.15 0.21
Lifebuoy-Difficulty 0.02 0.01 2.54 0.01 0.00 0.04
Tapal- comp.
6.00
Brand Evaluation
5.00
Tapal- sub.
4.00
3.00 Tapal-trans.
2.00
1.00 Tapal-diff.
-
1 2 3 4 5 6 7 8 9 1 Lifebuoy-
Close Brand Extension Comp.
Lifebuoy-Sub
(Respondents have been grouped)
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the close
brand extension was accepted. The ANOVA Table shows that the F< 0,
meaning it is significant. Moreover, all the P values except tapal- difficulty and
Tapal tea-compliment are less than .05. This indicates tapal-tea difficulty, and
tapal tea-compliment has no relationship with the dependent variable that is
consumer evaluation of brand. The R2 is 0.71, which indicates that the
combined effect of the independent variables will cause dependent variable to
move by 71% which is an indication of very strong relationship.
50
these variables are stronger predictors for the dependent variable “perceived
fitness”. The rest of the variables are weak predictors for the perceived fitness
with all the coefficients of determination being less than 0.18.
51
Table 25: Coefficients, Distance Extension
Coefficients Standard t Stat P-value Lower Upper
Error 95% 95%
Intercept 4.46 0.05 88.52 - 4.36 4.55
Sufi-Complimentary (0.02) 0.01 (1.20) 0.23 (0.04) 0.01
Sufi-Substitute 0.00 0.01 0.35 0.73 (0.02) 0.03
Sufi-Transferability 0.08 0.02 4.30 0.00 0.05 0.12
Sufi-Difficulty (0.09) 0.01 (7.06) 0.00 (0.12) (0.07)
Woodward compliment 0.01 0.01 0.78 0.44 (0.02) 0.04
Woodward substitute 0.03 0.00 6.19 0.00 0.02 0.04
Woodward transferability (0.06) 0.02 (3.65) 0.00 (0.09) (0.03)
Woodward difficulty 0.07 0.02 4.40 0.00 0.04 0.10
3.00 Sufi-subs.
2.00 Sufi-Trans
1.00
Sufi-diff.
-
0 5 10 15 Woodward.Co
Distance Extension m
Woodward.Sub
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the close
brand extension was accepted. The ANOVA Table shows that the F< 0,
meaning it is significant. Moreover, all the P values are less than .05 except
Sufi-complimentary, Sufi-substitute, and Woodward complimentary, indicating
that these mentioned variables have no relationship with the dependent
variable. The R2 is 0.15, which indicates that the combined effect of the
independent variables will cause dependent variable to move by 15% which is
a very weak relationship.
The entire image of coefficients was weak. It was as high as 0.08 for Sufi-
transferability, and as low as 0.01 for Woodward complimentary. Almost no
relationships were found in cases of Sufi-complimentary, Sufi-substitute, and
Woodward-complimentary.
52
Sufi vegetable oil does not compliment soap, and Sufi vegetable oil does not
substitute soap. Similarly, the Woodward toothpaste does not compliment
gripe water.
In case of distance extension, firms must not extend their brands to category
that consumer would hate to assume it as substitute or complement. The
owners of Sufi and Woodward despite knowing this has dared to extend in
these categories assuming that while evaluating their extension, the
customers will take cues from the reputation of the company.
53
5.5 DISCUSSIONS AND RESULTS ON MULTIPLE BRAND
EXTENSIONS
Firms that pursue growth strategy through multiple brand extension are
dynamic and their brand association modifies with introduction of brand
extension. Thus, this process has an impact on the perception of fit between a
brand and its future extension. On the introduction of new brand extension,
consumer recalls the previous perception of brand and modifies it that affects
the fit between a brand and its future extension (Lynch & Sru1 1982). Keller
and Aaker (1992) have suggested that the relationship between core brand
and its extension would be moderated on previous brand extension history
and the quality levels of the parent brands. If a firm has previous history of
brand extension then consumer while evaluating brand extension would see
(1) if previous extensions were successful or not (2) If there is any similarity in
the core brand and proposed extension (Keller & Aaker 1992). If brand
extensions were "dissimilar" (lacked fit) consumer perception on the quality of
brand will also be adversely affected. The proposed brand extension would be
affected, if there was no parity between the quality of the core brand and
intermediate extension. If the quality of the intermediate brand is lower than
the core brand, the consumer evaluation would be low. Intermediate brand will
improve perception of core brand, if the quality of intermediate brand is of
average level. If there is parity between intermediate and core brand, then
there will be no change of perception on proposed brand (Kapoor 2005).
54
5.5.1 HYPOTHESIS 5
The consumers tends to evaluate the “brand extension”, positively that have
a strong reputation of introducing multiple brand extensions. The hypothesis
developed in this context is presented below:
H5O: β1=0
H5A: β1≠ 0
The above hypothesis was tested for close extensions and distance
extension, separately.
Y= a + b1Multiple-Brand-ExtensionTapal-Tea + b2Multiple-Brand-ExtensionLifebuoy
The summarized multiple regression results are presented below:
55
Table 26: Multiple Regression, Close Extension
Regression Statistics
Multiple R 0.35
R Square 0.12
Adjusted R Square 0.12
Standard Error 0.36
Observations 700.00
4.00
Mult-tapal
3.00
Mult-Lifbuoy
2.00
Overall-Assoc.
1.00
-
0 5 10 15
Close Brand Extension
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the brand
was accepted. The ANOVA Table shows that the F< 0, meaning it is
significant. Moreover all the P values are less than .05 further confirming the
relationship of the model. The R2 is 0.12, which indicates that the combined
effect of the independent variables will cause dependent variable to move by
12% which is a very weak relationship.
56
The coefficients of Tapal tea and lifebuoy in reference to multiple extension
are o.14 and 0.10, respectively indicating that the consumers while
evaluating Tapal tea and Lifebuoy soap were not influenced with the
reputation of multiple extensions. In fact, it has diluted the brand reputation.
57
Graph 10: Scattered Chart, Distance Extension
6.00
Mult-suf
Brand Evaluation
5.00
4.00
Mult-woodward
3.00
2.00
Overall
1.00 Evaluation
-
0 5 10 15
Distance Extension
The hypothesis that at least one of the independent variables will have the
relationship with the dependent variable “consumer evaluation” of the brand
was accepted. The ANOVA Table shows that the F< 0, meaning it is
significant. Moreover the P value for Sufi is more than five and for Woodward
it is less than .o5. This indicates that Woodward validates the model where as
Suif does not. It also means that consumers’ evaluation for sufi extension
would not increase with the multiple brand extension. The R2 is 0.26, which
indicates that the combined effect of the independent variables will cause
dependent variable to move by 26% which is a very weak relationship.
Firms must not go for all kind of extensions as it would have adverse affect on
parent brand and would also adversely affect reputation of the parent brand.
58
CHAPTER 6
CONCLUSIONS
The objectives of the study were to, (1) identify the factors that affect the
consumer evaluation of brand extensions, (2) develop empirical model on of
the variable associated with how consumer evaluates brand extension, (3)
test the validity of the empirical model.
The conceptual definitions of different authors were used for identifying the
determinants of the above variables. Based on these variables, a
questionnaire was developed that contained seventeen questions. Nine
questions were related to the personal data and the rest were related to the
subject study.
The sample size for the study was 700. Stratified proportionate non-random
sampling was used for drawing samples from the 18 UDC of Karachi.
Based on the focus group discussions, the following four different brand
extensions were finalized each representing different level of closeness
among: (1) Tapal Tea Viz. Tapal Tea Bag., (2)Life Buoy Soap Viz. Lifebuoy
Shampoo. (3) Sufi Vegetable Oil and Sufi Washing Soap. (4) Woodward
Gripe Water and Wood ward Toothpaste.
59
The major findings fare disused below:
a) The hypothesis that at least one of the variables amongst these, (1)
stronger reputation (b) similarity (c) strong association has relationship
with “consumer evaluation” brand was accepted.
60
is comparatively stronger in case of close and distance
extensions.
b) The hypothesis that at least one of the consumers traits that is (1)
perceived risk (2) level of innovativeness was accepted
61
that the consumers while evaluating Tapal tea were more
influenced with the design of tea as compared to the price of
Tapal tea. In case of Lifebuoy, the coefficients for design and
prices were 0.01, and 0.20 indicating that while evaluating the
Lifebuoy, the consumer appears to be more influenced with the
price, as compared to the design of the Lifebuoy soap.
62
0.23 an 0.18 respectively. Indicating that these variables are
stronger predictors for the dependent variable perceived fitness.
The rest of the variables are weak predictors for the perceived
fitness with all the coefficients of determination being less than
0.18.
63
CHAPTER 7
RECOMMENDATIONS
This chapter deals with the recommendations that have been derived from the
analysis and conclusions and literature survey
1) The firms whose brands have strong reputation could afford the luxury
of venturing into distance brand extension. The firms with weaker
brand reputation should focus on enhancing the brand reputation, and
if they have to extend their brand it should be in the same category
(Close distance)
2) The firms that are extending their brands to similar category (Close
brands), should target the consumer that have high level of
innovativeness. Comparatively, the companies that are extending their
brand into non-similar category (distance extension) must target those
customers that have high level of perceived risk.
3). In case of close extensions such as tea and tea bag, the firm must
concentrate on the design, which Tapal was found to be doing.
However, in case of distance extension, no relationship was found with
the design of Woodward gripe water. Woodward needs to improve the
design of the gripe water packaging in order to remain competitive.
4) In case of distance extension, the firms must not extend their brands to
the category that consumer would hate to assume it as substitute or
complement. The owners of Sufi and Woodward despite knowing this
has dared to extend in these categories assuming that while evaluating
their extension, the customers will take cues from the reputation of the
company.
64
5) The firms must not go for all kind of extensions (multi-branding) as it
would have adverse affect on the parent brand and would also
adversely affect the reputation of the parent brand.
65
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APPNEDIX-1 QUESTIONNAIRE
SIMILARITY
Q1 Rate the “similarity” of the following brand extensions on the scale of 1-5.
Five being “very similar” and one being “not similar” at all
PARENT BRAND EXTENDED BRAND
1.1 Tapal tea Tapal tea bag 5 4 3 2 1
1.2 Lifebuoy soap Lifebuoy shampoo 5 4 3 2 1
1.3 Sufi vegetable oil Sufi soap 5 4 3 2 1
1.4 Woodward grip water Woodward tooth paste 5 4 3 2 1
REPUTATION
Q2 Rate the “reputations” of the following Parent brands on the scale of 1-5.
Five being “very high reputation” and one being “very low reputation”.
PARENT BRAND
2.1 Tapal tea 5 4 3 2
2.2 Life buoy soap 5 4 3 2
2.3 Sufi vegetable oil 5 4 3 2
2.4 Woodward grip water 5 4 3 2
PERCEIVED RISK
Q3 Rate the following statements related to “perceived risk”. Five showing
“very strong agreement” and one showing “very strong disagreement”
3.1 When I am in front of __section I always feel unsure what to pick 5 4 3 2 1
3.2 When I buy an ___ it is easy to make wrong choice. 5 4 3 2 1
INNOVATIVENESS
Q4 Rate the following statements related to “innovativeness”. Five showing
“very strong agreement” and one showing “very strong disagreement”
3.1 I am continuously seeking new ideas and experience 5 4 3 2 1
3.2 When things get boring I like to find some new experience 5 4 3 2 1
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MULTIPLE BRANDS
Q5 Rate which of the core brands have a strong history of introducing
“multiple brands”. Five being “very high” and one being “very low”.
PARENT BRAND
1.1 Tapal tea 5 4 3 2 1
1.2 Lifebuoy soap 5 4 3 2 1
1.3 Sufi Vegetable Oil 5 4 3 2 1
1.4 Woodward Grip water 5 4 3 2 1
PARENT BRAND CHARACTERISTICS
Q6 Rate which of the core brands have strong “association”. Five being “strong
association” and one being “low association”.
Strong association is brand like “Sony” that can be used for multiple products.
Products.
PARENT BRAND
1.1 Tapal tea 5 4 3 2 1
1.2 Life buoy soap 5 4 3 2 1
1.3 Sufi vegetable oil 5 4 3 2 1
1.4 Woodward Grip water 5 4 3 2 1
BRAND CONCEPT CONSISTENCY
Q7.1 Rate your “price perception” about the following core brands. Five being
very high and one being very low
PARENT BRAND
1.1 Tapal tea 5 4 3 2 1
1.2 Lifebuoy soap 5 4 3 2 1
1.3 Sufi Vegetable Oil 5 4 3 2 1
1.4 Woodward Gripe water 5 4 3 2 1
BRAND CONCEPT CONSISTENCY
Q7.2 Rate your “design perception” about the following core brands. Five being
“very expensive” and one being “not expensive at all”.
PARENT BRAND
1.1 Tapal tea 5 4 3 2 1
1.2 Life buoy soap 5 4 3 2 1
1.3 Sufi Vegetable Oil 5 4 3 2 1
1.4 Woodward Grip water 5 4 3 2 1
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PARENT BRAND EXTENSION BRAND COMPLEMENT
Q8.a Rate how much the following core brands and extended brand “compliment” each
Other. Five being “very highly complimentary” and one being “very low
complimentary” (Complimentary: tea and milk)
PARENT BRAND EXTENDED BRAND
1.1 Tapal tea Tapal tea bag 5 4 3 2 1
1.2 Life buoy soap Life buoy shampoo 5 4 3 2 1
1.3 Sufi Vegetable Oil Sufi Soap 5 4 3 2 1
1.4 Woodward Grip water Woodward tooth paste 5 4 3 2 1
PARENT BRAND EXTENSION BRAND SUBSTITUTE
Q8.b Rate how much the following core brand and parent brand “substitute” each
Other. Five being “highly substitute” and one being “low substitute”
(substitute:: tea and coffee)
PARENT BRAND EXTENDED BRAND
1.1 Tapal tea Tapal tea bag 5 4 3 2 1
1.2 Lifebuoy soap Lifebuoy shampoo 5 4 3 2 1
1.3 Sufi vegetable oil Sufi soap 5 4 3 2 1
1.4 Woodward Grip water Woodward tooth paste 5 4 3 2 1
TRANSFERABILITY
Q8.c Rate the level of “transferability” between core brand and parent brand.
Five being “ very highly transferability” and one being “very low transferability”
(Transferability mean closeness in the manufacturing process of two products
PARENT BRAND EXTENDED BRAND
1.1 Tapal tea Tapal tea bag 5 4 3 2 1
1.2 Life buoy soap Life buoy shampoo 5 4 3 2 1
1.3 Sufi vegetable Oil Sufi Soap 5 4 3 2 1
1.4 Woodward Grip water Woodward tooth paste 5 4 3 2 1
PERCEIVED DIFFICULTY
Q8.d Rate the level of “perceived difficulty” between core brand and extended brand.
Five being highly “Perceived difficulty” and one being low level of difficulty
(Difficulty means: how difficult it is to make the product.
PARENT BRAND EXTENDED BRAND
1.1 Tapal tea Tapal tea bag 5 4 3 2 1
1.2 Lifebuoy soap Lifebuoy shampoo 5 4 3 2 1
1.3 Sufi vegetable oil Sufi soap 5 4 3 2 1
1.4 Woodward gripe water Woodward tooth paste 5 4 3 2 1
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OVERALL CONSUMER EVALUATION OF THE BRAND
Q9 Over all I am very positive to the following extensions. Five being very
Positive and one being not very positive
PARENT BRAND EXTENDED BRAND
1.1 Tapal tea Tapal tea bag 5 4 3 2 1
1.2 Life buoy soap Life buoy shampoo 5 4 3 2 1
1.3 Sufi vegetable oil Sufi Soap 5 4 3 2 1
1.4 Woodward Grip water Woodward tooth paste 5 4 3 2 1
Q10. Age
{ 21 – 30 { 31 – 40 { 41 – 50 { 50 and Above
Q11. Qualification
Q12 Gender
{ Male { Female
Q13. Income
Q16. Profession
{ Teacher { Others
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