The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.

htm

EJM 44,9/10

Consumer evaluation of technology-based vertical brand extension

Hongwei He
Warwick Business School, University of Warwick, Coventry, UK, and

1366
Received December 2008 Revised February 2009 Accepted March 2009

Yan Li
Norwich Business School and ESRC Centre for Competition Policy, University of East Anglia, Norwich, UK
Abstract
Purpose Little research on brand extension observes the role of technological levels between parent brand and brand extension on consumers attitudes toward brand extension. The present study aims to explore how consumers evaluate technology-based brand extension and how technologic direction interacts with brand loyalty and t in affecting brand extension evaluation. Design/methodology/approach A eld experiment (n 200) was conducted. Participants were assigned to two equal-number groups that differed in the technological direction of brand extension (i.e. upward extension versus downward extension). Findings This eld study nds that downward brand extension is generally evaluated more favourably due to its positive effect on perceived t; technological direction moderates the effect of t on brand extension t has stronger positive effect on downward brand extension than on upward brand extension; t moderates the effect of brand loyalty on brand extension when t is high, brand loyaltys effect is positive, whereas when t is low, brand loyalty can have negative effect on brand extension; and the moderating effect of t on brand loyalty is further moderated by technological direction of brand extension for upward brand extension, the moderating effect of t on brand loyalty is as general, but for downward brand extension, t enhances the effect of brand loyalty. Research limitations/implications The results lend signicant new insights to brand extension research by showing that the effect of brand loyalty on brand extension is moderated not only by t but also by technological direction, and that the moderating effect of t on brand loyaltys effect on brand extension is further dependent on the technological direction. Practical implications For the management of upward brand extension where a lower-tech brand extends to a high-tech product, more care and caution should be taken, since brand loyalty could have a negative effect if the upward brand extension is not perceived to t the parent brand image. Thus, it becomes extremely important to manage the t between the lower-tech parent brand and the higher-tech extended product. Originality/value This is one of few studies examining the effect of technology on brand extension. The major original nding of this study is that the effect of brand loyalty on brand extension is moderated by t, whose moderating t is further moderated by technologic direction of brand extension. Keywords Brand extensions, Brand loyalty, Consumer research, Consumer behaviour Paper type Research paper

European Journal of Marketing Vol. 44 No. 9/10, 2010 pp. 1366-1383 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090561011062880

Introduction Brand extension using an existing brand name to brand a new product is one of the most popular strategies in exploiting brand equity for the purpose of growth and

product diversication. Substantial research is available on the factors inuencing brand extension evaluation by consumers (e.g. Bottomley and Holden, 2001, Czellar, lckner and Sattler, 2006, Vo lckner and Sattler, 2007) and on the reciprocal 2003, Vo effects of brand extension (e.g. Balachander and Ghose, 2003, Broniarczyk and Gershoff, 2003, Keller and Sood, 2003, Lane and Jacobson, 1997). Yet little attention is has been accorded to an increasingly important issue of brand extension: technology[1], especially the issue of technological direction. Most prior brand extension research assumes similar technological levels between the parent brand and the brand extension. Technology is an important issue for brand and brand extension for these reasons. First, prior research suggests that perceived t between parent brand and extension product categories produces more desirable brand attitude transfer from parent brand to extension product, thus enhancing consumer evaluation of the brand extension. However, perceived t can have another dimension, i.e. technology, which could have direct or indirect effects on brand attitudes transfer. Second, in practice, it is not unusual for non-high tech companies to diversify their products and services to high-tech sectors. It is also a common practice for high-tech companies to offer relatively lower-tech products or services. Third, branding is equally important for high-technology products (Aaker and Jacobson, 2001). Some important questions regarding technology-based brand extension are whether and how technological differences between the parent brand and extension product categories impact on the evaluative process of brand extension by consumers. On the other hand, the customer-brand relationship has not received sufcient attention as a major factor for consumer evaluation of brand extension. One of the major constructs of customer-brand relationship is brand loyalty (Fournier and Yao, 1997), which refers to biased behavioural responses to a brand (Hem and Iversen, 2003; Joacoby and Chestnut, 1978). Hem and Iversen (2003) observe a positive relationship between customer loyalty to the original brand and brand extension evaluation. However, their study does not examine how brand loyalty interacts with the direction of technology-based vertical extension, or how brand loyalty interacts with the t between the original brand and the extended product category. The major purpose of this paper is to extend our traditional understanding of the effects of t and brand loyalty on brand extension evaluation by examining how their main effects and interactive effects can be moderated by technological direction in the context of vertical brand extension. These are important contributions because, rst, previous studies on brand extension mainly focused on the main effects of t and/or brand loyalty, but little is known on the boundaries/conditions of their effects, and our study is one of a very few studies investigating the moderating effect of t on brand loyaltys effect on brand extension evaluation. Anecdotal evidence suggests that t is not always a necessary condition for brand extension success. For example, the brands of Virgin and Easy.com have been extended to a wide range of products, some of which are not remotely similar to the parent brand. One of the possible reasons for this is that these brands have a strong brand loyalty. Second, and more importantly, we examine both the main and interactive effects of brand loyalty and t in a new, growing, and under-researched phenomenon: technology-based brand extension. Most brand extension involves certain different levels of technology between the parent brand and extension products. Thus, it is of strong relevance to brand extension practice and

Technologybased vertical brand extension 1367

EJM 44,9/10

1368

theory development to examine how the two main factors of brand extension (brand loyalty and t) take effect under different technological directions In this study, we dene upward (downward) brand extension as a brand extension from a brand with lower (higher) technological attribute to a product category with a higher (lower) technological level. It is important to examine both directions, i.e. upward and downward, of technology-based brand extension, given that they tend to be evaluated by consumers differently ( Jun et al., 1999). The present study aims to contribute to the brand extension research literature and the recent debate on the role of technology in brand management by examining whether and how brand loyalty, t and technological direction have interactive effects on brand extension evaluation. The results of this study shed new insight on the issue of vertical brand extension. The following major ndings were reached by our eld study. First, t mediates the effect of technological direction on brand extension evaluation. Second, technological direction moderates the effect of t on brand extension in that t has stronger positive effect on downward brand extension than on upward brand extension. Third, t moderates the effect of brand loyalty on brand extension in that when t is high, brand loyaltys effect is positive, whereas when t is low, brand loyalty can have negative effect on brand extension. Finally, the moderating effect of t on brand loyalty is further moderated by the technological direction of the brand extension in that for upward brand extension, the moderating effect of t on brand loyalty is as general, but for downward brand extension, t enhances the effect of brand loyalty. Conceptual background and hypotheses development Technology and vertical brand extension This study approaches technology-based brand extension within a broader framework of vertical extension. This is because technological levels represent hierarchical and vertical differences between product technology associated with the core brand and that of the brand extension. Vertical extension refers to extending an existing brand to a product at a different price or quality level (Kim et al., 2001, Kirmani et al., 1999, Randall et al., 1998). Technology-based vertical extension extends an existing brand to a product that typically requires different levels of technology. Upward (downward) brand extension refers to extending an existing brand to a product whose technological dimension is generally seen as more (less) advanced. On the other hand, technological vertical brand extension could differ from general vertical brand extension. General vertical brand extension normally involves extending an existing brand to a product in the same product category (Kim et al., 2001), whereas the extension product of technological vertical brand extension does not necessarily have to be in the same product category. The role of technology in brand extension has received limited attention in the literature. Only a very few studies have investigated the role of technology on brand extension evaluation. Jun et al.s (1999) study nds that the quality of brand extension is likely to be more (less) favourably judged and perceived by consumers when parent product category is at a higher (lower) technological level, and that such effects are likely to be enhanced by the perceived technological similarity between the parent product category and the extended product. Our study differs from their study in that it focuses on how brand loyalty and t interact in inuencing brand extension evaluation under different types of technological brand extension (upward versus

downward), whilst Jun et al.s (1999) study moves on to explain how brand extension evaluation and its reciprocal effect are affected differently by technological direction due to the technological similarity between parent brands and extension products. Another study by Story and Loroz (2005) suggests that the overall technology content of the brand extension is positively related to its quality evaluation by consumers. According to that study, overall technology content is a function of brand technology, product technology and attributes technology. It also nds that technological congruence of different loci (brand, product, attribute) of technology moderates the positive effect of technology content on quality evaluation. Vanhonackers (2007) study examines brand extension to a product category that involves higher technology. It nds that the perceived expertise of the parent brand in the extended product category along with other brand traits (e.g. predictability and faith) have a signicant impact on consumer considerations of brand extension. The study also nds that this effect is moderated by brand strategies (e.g. direct extension versus bridging strategy). Technological direction of brand extension In general, previous studies suggest that consumers tend to evaluate a downward extension more favourably than an upward extension. This is because, for technological vertical brand extensions, consumers knowledge about the technology of the parent brand becomes an important reference point for brand extension evaluation. When an established brand extends to a new product that is involved with at an easily distinguishable level of technology, it increases the salience of technology as a brand and/or product attribute, which subsequently renders it an important assessable and diagnostic cue for information process. Moreover, technological difference could trigger different evaluative processes for attitude formation and change. In addition, technological superiority and leadership is an intrinsically important product and brand attribute for brands of high-tech products (e.g. Microsoft and Sony). In other words, the salience of the technological attribute can be automatically triggered when consumers are exposed to high-tech product categories or brands (e.g. LCD or plasma TV sets). Moreover, for upward brand extension, consumers face higher risk and uncertainty (Vanhonacker, 2007), and thus they tend to evaluate such brand extension less favourably. For downward brand extension, consumers tend to evaluate it more favourably due to the positive relationship between technology level and product quality (Story and Loroz, 2005). H1. Downward brand extension will be more favourably evaluated by consumers than upward brand extension. Brand loyalty and brand extension Numerous denitions of brand loyalty are available in the literature. One of the widely recognised denitions is that brand loyalty refers to a biased behavior response expressed overtime by some decision-making unit with respect to one or more alternative brands out of a set of such brands (Joacoby and Chestnut, 1978, p. 80). Brand loyalty, as the core of brand equity (Aaker, 1991), refers to, in general, differential effects of brand knowledge on consumers responses to brand marketing (Keller, 2008). It includes multiple dimensions, for example brand awareness, brand image/associations and brand loyalty (Aaker, 1991; Keller, 2008). Despite the fact that much research on brand extension (Broniarczyk and Alba, 1994, Dacin and Smith, 1994, Herr et al., 1996, Keller

Technologybased vertical brand extension 1369

EJM 44,9/10

1370

and Aaker, 1992) has established the link between the rst two dimensions of brand equity (i.e. brand awareness and brand image), research on the effect of brand loyalty on brand extension evaluation is rare. Moreover, several recent review studies (Czellar, 2003; lckner and Sattler, 2006, 2007) have identied several categories of factors for brand Vo extension evaluation, i.e. parent brand, extension product category characteristics, relationship between parent brand and extension product, company characteristics, and consumer factors. On the other hand, brand loyalty has been re-conceptualised as a major indicator of customer-brand relationship (Fournier and Yao, 1997). However, little research has explicitly examined customer-brand interaction/relationship, for example brand loyalty, as an important factor for brand extension evaluation, despite the existence of vast volumes of literature for both brand extension and brand loyalty. One exception is a study by Hem and Iversen (2003), which found a positive effect of brand loyalty on brand extension evaluation. In addition, adding brand loyalty to brand extension research reects the recent development of incorporating consumer affect and relationship constructs in explaining consumer evaluation of brand extension. For example, two recent studies have noticed the roles of commitment and attachment in brand extension evaluation (Fedorikhin et al., 2006, Hansen and Hem, 2003). As noted by (Fedorikhin et al., 2006):
. . . [attachment] acts as a powerful determinant of consumers reactions to brand extensions that could help marketers overcome a lack of t [. . .] goes beyond both t/similarity and attitude in determining brand extension success.

Given the sizeable conceptual overlap between loyalty and attachment, we can put forward a similar argument that brand loyalty has a signicant positive effect on brand extension evaluation. Although both brand loyalty and brand extension evaluation are affective attitudes toward the focal brand, they differ in terms of the locus of the brand affect. Brand loyalty refers to the general preference towards the parent brand, whereas brand extension evaluation is a product-specic brand attitude. H2. Brand loyalty is positively related to brand extension evaluation. Perceived t and brand extension The rationale of brand extension is that strong positive and favourable brand equity (e.g. brand awareness and brand associations) can/should be transferable to the new product category with minimum costs and enhanced chance of success. Fit is one of the most important success factors for brand extension evaluation, as it has been consistently featured in various brand extension studies (Aaker and Keller, 1990; lckner and Sattler, 2006; Vo lckner and Bottomley and Holden, 2001; Park et al., 1991; Vo Sattler, 2007). Multiple dimensions of t exist: . complement; . substitute; and . transfer. Complement refers to the extent to which two product classes (original brand versus extended product) are seen as complementary. Transfer refers to the perceived ability of the original brands company in making the extended product. Prior studies nd that complement and transfer (but not substitutes) have a signicant positive effect on

brand extension evaluation (e.g. Aaker and Keller, 1990). On the other hand, Park et al. (1991) dene t at both the product-level similarity perception and the concept consistency perception. More recent studies also note the importance of image-related t in brand extension evaluation. Given the conceptual similarity between concept consistence and image t, our study conceptualises t as a construct that has the following dimensions: . image t; . complementary t; and . transferable t. H3. Fit is positively related to brand extension evaluation regardless of the technological directions of brand extension. Interaction between t and brand loyalty Even though both t and brand loyalty have main effects on brand extension evaluation, we predict that brand loyalty has a positive interaction effect with t on brand extension evaluation for the following reasons. First, prior research has identied and conrmed the interaction effect between t and quality of parent brand. More specically, it suggests that t reinforces the effect of parent brand quality on lckner and Sattler, 2007). brand extension evaluation (Keller and Aaker, 1992; Vo Similarly, the reinforcing effect of t on the effect of parent brand can extend to brand loyalty. Second, a study (Fedorikhin et al., 2006) also reports that the effect of attachment on brand extension evaluation is pronounced when the perceived t is at medium and high levels. H4. Fit moderates the effect of brand loyalty on brand extension evaluation. Brand loyalty has even stronger (weaker) effect on brand extension evaluation when t is higher (lower). Interaction between technological direction and t Similarly, even though t can affect brand extension evaluation regardless of technological direction, its effect could be different for upward extension and downward extension. Fit can have a stronger effect for downward extension, because when a high-tech brand is extended to a lower-tech product, the transfer of the technology-based attributes/associations for example expertise and quality will be more signicantly determined by whether the technology of the original brand is relevant to the extended product. If it is relevant, brand extension evaluation will be more favourable; if it is irrelevant, brand extension evaluation will be less favourable. For upward brand extension, t is still important, but its importance tends to be less than for downward brand extension. This is because when a lower-tech original brand extends to higher-tech new product, consumers will search a wider range of information (Aaker and Jacobson, 2001), instead of relying on general perception of t. H5. Technological direction moderates the effect of perceived t on brand extension evaluation. For downward brand extension, t has stronger effect on brand extension evaluation than for upward brand extension.

Technologybased vertical brand extension 1371

EJM 44,9/10

1372

Interactions among technological direction, t and loyalty Technological direction not only has a main effect on brand extension evaluation, but also alters the moderating effect of t on the effect of brand loyalty brand. H4 establishes that in general t can enhance the effect of brand loyalty on brand extension evaluation. We further propose that this moderating effect of t depends on whether the brand extension is upward or downward. As noted earlier, t has three major relevant dimensions for brand extension: (1) complement; (2) transfer; and (3) image. For upward brand extension, the positive effect of brand loyalty on brand extension evaluation exists only when t is high; whereas when t is low, brand loyalty has little positive effect. This is because for lower-tech brands, brand loyalty tends to be anchored in more affective, habitual or symbolic image (rather than technological) aspects of brand associations. For example, Chandler (1994) notes that low-technology products, in general, historically remained much the same and thus brand reputation/loyalty improvements can be powerful and have long-lasting effects on business performance. However, when these brands are extended to high-tech products, technology automatically becomes a salient issue for consumers product evaluation. For upward brand extension, the transfer of original affective habitual, or symbolic brand loyalty to the new higher-tech product can occur only when the new higher-tech product can complement the original product represented by the brand, or when customers believe that the company possess the ability/commitment to develop expertise in making the new product (transfer), or when the symbolic image of higher-tech new product possesses similar symbolic image to the original brand, or when a combination of the above situations happens. When these ts do not exist between the original lower-tech brand and higher-tech new product, customers will have difculties in making sense of the brand extension, may even lose their trust in the companys credibility, and thus will be more likely to resort to technological information to make evaluation. Hence, ultimately for customers with higher brand loyalty, they would evaluate the brand extension less favourably. On the other hand, for downward brand extension, even though similar effects exist, the positive effect of brand loyalty exists regardless of the levels of t. In other words, lower t, although it weakens the effect of brand loyalty, is not powerful enough to completely neutralise the positive effect of brand loyalty of high-tech products. This is because the brand loyalty of high-tech products tends to be anchored in not only affect-, symbolism- and habitual-related brand associations, but also in technologyand performance-related brand associations (e.g. expertise, quality, innovativeness, and trustworthiness) (Aaker and Jacobson, 2001), which can be more easily transferable ( Jun et al., 1999). Thus, even when t is low, consumers with stronger brand loyalty would still evaluate downward brand extension more favourably. Thus, we hypothesise: H6. There is a three-way interactive effect among technology, t, and brand equity on brand extension evaluation. For upward brand extension, brand loyalty has a positive relationship with brand extension evaluation only when

t is high. For downward brand extension, brand loyalty has a stronger (weaker) brand extension evaluation when t is high (low). Figure 1 shows the research model. Methods Design Two versions of a questionnaire were prepared and 200 participants were recruited (100 for each version) through the method of mall intercept in Guangzhou, the capital city of Guangdong province, China. The mall intercept method has the advantage of getting access to relevant participants over a short period of time, and having the opportunity to have personal contact with potential participants. Both versions of the questionnaire present ctitious brand extension. The upward (low- to high-tech) brand extension version of questionnaire tells the participants of a well-known Chinese kitchen electronic appliance brand (Galanz, (specialising in microwave ovens) extending to laptops. The downward (high- to low-tech) version tells the participants of a well-known Chinese laptop brand (Lenovo) extending to microwave ovens. There is no overlap between the parent brand and the extension product category, because neither of these two brands have yet started producing each others products. Laptops and microwave ovens were pre-tested (n 50) regarding their technological levels on a seven-point scale, which were 6.46 and 4.12 respectively. The questionnaire was prepared in English and translated into Chinese following double-translation rules. Measures and scale validation All items were measured on a seven-point scale (with 1 strongly disagree and 7 strongly agree). Brand loyalty in our study is operationalised as general brand preference by consumers regarding the parent brand. It was measured by four items (Washburn et al., 2004): (1) It makes sense to buy . . . instead of any other brand, even if they are the same. (2) Even if another brand has same features as . . . , I would prefer to buy . . . . (3) If there is another brand as good as . . . , I prefer to buy . . . . (4) If another brand is not different from . . . in any way, it seems smarter to purchase . . . . Perceived t and brand extension evaluation were measured by scales adapted from existing scales (Aaker and Keller, 1990):

Technologybased vertical brand extension 1373

Figure 1. Research model

EJM 44,9/10

. . .

[Brand extension product] matches the brand image of [the parent brand]. A customer who buys . . . will be likely to buy [brand extension product]. . . . has the capability to produce good [brand extension product].

1374

Brand extension evaluation was measured by ve items: (1) product quality; (2) attitude; (3) market potential; (4) purchase intention; and (5) recommendation. All measures were puried through computation of item-to-total correlations and a conrmatory factor analysis (Anderson and Gerbing, 1988). CFA achieved adequate t: standardised RMR 0:06, CFI 0:94, RMSEA 0:09, x 2 51 183:99. (p , 0:001), CMIN=df 3:61. As noted by Fornell and Larcker (1981), convergent validity occurs when the average variance explained (AVE) in items by their respective constructs is greater than the variance unexplained (AVE $ 0:50) and factor composite reliability (CR) is equal to or greater than 0.60. All factor loadings were signicant at the , 0.01 level. Table I presents the results of CFA. It shows strong convergent validity for all items with all loadings on the expected factors . 0.53, AVE over the 0.50 threshold, CR over the 0.60 threshold, and Cronbachs a over the 0.70 threshold. The discriminant validity was assessed by comparing the variance extracted of each construct with the square of the correlation estimate between these two constructs. Discriminant validity is achieved when the variance-extracted estimates is greater than the squared correlation estimate (Hair et al., 2006). Table II presents the descriptive statistics for all variables. The results in Tables I and II clearly show that the AVEs of all variables exceed the value of the squared correlation of all relevant pairs of variables.
Construct Brand loyalty (BL) BL ! BL1 BL ! BL2 BL ! BL3 BL ! BL4 Fit Fit ! Fit1 Fit ! Fit2 Fit ! Fit3 Brand extension evaluation BEE ! BEE1 BEE ! BEE2 BEE ! BEE3 BEE ! BEE4 BEE ! BEE5 0.76 0.69 0.73 0.75 0.73 0.89 0.89 0.91 0.89 0.96 0.93 0.92 0.97 0.92 0.82 0.53 0.85 0.77 Items Factor loadings AVE 0.83 CR 0.97

a
0.95

Table I. Results of CFA

Analyses and results We applied hierarchical moderated regression models to analyze the data and test the hypotheses regarding moderation effects. A dummy variable was created to represent the technology direction of brand extension. Upward brand extension was coded 0, whereas downward brand extension was coded as 1. Table III summarises the results of the hierarchical moderated models. To test the main effects of technological direction, we run the rst level, which has technology as the sole independent variable. The result shows that technological direction is indeed signicantly related to brand extension evaluation (b 1:14, t 5:95). In general, other things being constant, downward brand extension evaluation is more favourably evaluated than upward brand extension, which conrms Jun et al.s (1999) nding. And the second level adds the other two co-variant variables. The results of the second level suggest that brand loyalty and t, but not technological direction, have signicant effects (b 0:07, t 1:86; b 0:87, t 24:22, respectively). When t and brand loyalty are added to the model to predict brand extension evaluation, the effect of technological direction (upward or downward) becomes non-signicant; the effect of t has the strongest effect. These results suggest the possible presence of a mediation effect of t on the effect of technological direction on brand extension evaluation. In other words, the technological direction of brand extension affects brand extension evaluation through its effect on t, which in turn affects brand extension evaluation. To conrm such a mediation effect, one nal condition needs to be met based on Baron and Kennys (1986) standard procedure of the mediation test. That is, technological direction must signicantly affect perceived t. Thus we run a separate regression model. The result suggests that technological direction does signicantly affect perceived t (R 0:18, F 43:18, b 1:21, t 6:51). Therefore, we conclude that: . technological direction does have signicant effect on brand extension evaluation; and . its effect is mediated by perceived t, which extends Jun et al.s (1999) nding. The third level of the model tests the interactive effects between brand loyalty and t, technological directions and t, and technological direction and brand loyalty. A moderating effect exists when: . the coefcient of interaction term is signicant; . variable being moderated has a signicant main effect; . the interaction model explains more variables than the main effect model; and . the moderating variable has (as a moderator) or does not have (as a quasi-moderator) a signicant main effect ( Jaccard et al., 1990).
Mean Brand loyalty (BL) Fit BE evaluation (BEE) 4.40 3.74 3.31 SD 1.46 1.43 1.42 BL 1 0.01 0.06 Fit 1 0.89 * BEE

Technologybased vertical brand extension 1375

Note: *Correlation is signicant at the 0.01 level (two-tailed)

Table II. Descriptive statistics

1376

EJM 44,9/10

(Constant) Brand loyalty Fit Technology Fit brand loyalty Technology fit Technology brand loyalty Technology fit brand loyalty Adjusted R 2 1.14 * * 5.95 0.15 0.77

Notes: All coefcients are unstandardised regression coefcients. *Coefcient is signicant at the 0.1 level; * *coefcient is signicant at the 0.01 level

Table III. Results of hierarchical moderated regression models Technology B t B 1.59 * * 2 0.28 * * 0.38 * * 2 1.00 * * 0.08 * * 0.24 * * 0.05 2 1.47 1.86 24.22 1.11 2.75 20.14 2 0.29 0.07 * 0.87 * * 0.13 Main effects B t Interactions t 3.34 2 2.96 2.78 2 2.53 3.36 2.9 0.73 0.79 B 1.87 * * 2 0.35 * * 0.30 * 2 1.98 * * 0.11 * * 0.48 * * 0.27 * 2 0.05 * Full model t 3.82 2 3.55 2.11 2 3.26 3.93 3.42 2.15 2 2.11 0.80

Following these rules, t was found to signicantly moderate the effect of brand loyalty on brand extension evaluation (b 0:08, t 3:36). To improve the interpretation of the moderation effect, Figure 2[2] demonstrates the two-way interactive effect between t and brand loyalty. When t is low, brand loyalty is negatively related to brand extension evaluation. This means that means brand extension evaluation is higher (lower) when brand loyalty is lower (higher). When t is high, brand loyalty is positively related to brand extension evaluation. That means brand extension evaluation is higher (lower) when brand loyalty is higher (lower). Overall, it suggests that the how brand loyalty affects brand extension evaluation depends on the level of perceived t between parent brand and extension product. More interestingly, it nds that brand loyalty has negative impact on brand extension evaluation when perceived t is low. Technological direction of brand extension (upward versus downward) also moderates the effect of t on brand extension evaluation (b 0:24, t 2:9). Figure 3 demonstrates the interactive effects between technology direction and t. It shows that regardless of the technological direction of brand extension, t has a positive effect on brand extension evaluation, and more interestingly, that the technological direction alters the strength of such a positive relationship. In general, it shows that the effect of t is stronger for downward extension than for upward extension. A more interesting contrasting accentuating effect emerges. When t is higher, downward extension evaluation is more favourable than upward extension, when t is lower, downward extension evaluation is less favourable than upward extension. It means that t has a stronger either positive or negative effect on brand extension for downward extension.

Technologybased vertical brand extension 1377

Figure 2. Moderating effect of t on brand loyalty

Figure 3. Moderating effect of technological direction on t

EJM 44,9/10

1378

Finally, a three-way interactive effect among technological direction, t, and brand loyalty is signicant in the full model (b 20:05, t 22:11). Figure 4 illustrates the interactive effects between t and brand loyalty under conditions of both upward and downward brand extension. For upward extension (see Figure 4, Panel A), the moderating effect of t on brand extension is consistent with the overall two-way interaction effects between t and brand loyalty (see Figures 2 and 3) in that whether brand loyalty positively or negatively affect brand extension depends on the levels of t. However for downward brand extension (see Figure 4, Panel B), brand loyalty has a positively effect on brand extension regardless of the t level. More specially, for downward brand extension, t enhances the positive effect of brand loyalty on brand extension. Discussion Theoretical implications Very little brand extension research focuses on brand extension with asymmetric levels of technology for parent brand and product of brand extension. This study examines whether and how technology inuences consumer responses to brand extension. In particular, we examine the interactive effects between technology, brand loyalty and perceived t (between the parent brand and the product of brand

Figure 4. Three-way interactive effects

extension) on brand extension. This study contributes to brand extension research by examining the effects of brand loyalty and t on technology-based vertical brand extension. Our study produces the following insights. First, in line with prior studies and our expectations, this study nds support for H1, which posits that technological direction has the main effect on brand extension evaluation. In addition, we extend prior knowledge by detecting the mediation effect of t on the effect of technological direction on brand extension evaluation. Conrming the results of all previous studies on brand extension, t is still the most important factor for brand extension evaluation. As we explained in the hypotheses development and as also explained by prior studies (e.g. Jun et al., 1999), downward brand extension is more likely to be evaluated more favourably because consumers tend to judge the quality of the extension based on the technological competence of the parent brand. Our nding of the mediation effect of t suggests that another reason for more favourable evaluation of downward brand extension is that consumers tend to believe it is tter to extend a brand to a lower (than a higher) technology level product. Even though this is not explicitly elaborated in prior studies, it is implicitly implied by Jun et al.s (1999) argument of judgment based on the technological competence of the parent brand. In addition, the conceptualisation of t also implies that t tends to be higher for downward brand extension, since one of the dimensions of t is transfer, and technological competence is more transferable and indicative of quality (Story and Loroz, 2005). Second, as expected, even though brand loyalty in general has a positive effect on brand extension evaluation, its effect also depends on perceived t. Although no research has examined the moderating effect of t on brand loyaltys effect on brand extension evaluation, the existing literature has noticed that t enhances the effects of parent brand lckner and Sattler, 2007) and brand attachment quality (Keller and Aaker, 1992; Vo (Fedorikhin et al., 2006) on brand extension evaluation. Our nding extends the scope of the moderating effect of t. Hence, there is increased condence that t not only directly affects brand extension evaluation, but also enhances the effects of parent brand associations (e.g. quality, attachment, and loyalty) on brand extension evaluation. More interestingly and surprisingly, it suggests that the perceived t level changes the direction (positive versus negative) of effect of brand loyalty on brand extension. Brand loyalty has a positive effect on brand extension only when t is high, whereas it can have a negative effect on brand extension when t is low. The implication is that even though brand loyalty has been the basis for brand extension and growth, it is imperative to take caution to exploit brand loyalty via brand extension. Brand loyalty can have a double-edged effect for reckless brand extension. Consumer loyalty rewards proper, well-planned brand extensions, but punishes poorly t brand extensions. Furthermore, the study shows that this moderating effect of t on brand loyalty is conditional on the technological direction of brand extension. The signicant three-way interactive effects suggest that t changes the direction (positive versus negative) of brand loyaltys effect on brand extension only for upward brand extension. For downward brand extension, t only strengthens brand loyaltys effect. It implies that consumers do evaluate technological vertical brand extensions in different ways subject to the technological direction of extension. In general, t plays a more complex and decisive role for upward brand extension, since it not only enhances brand extension evaluation but also determines the valence of brand loyalty for upward brand extension.

Technologybased vertical brand extension 1379

EJM 44,9/10

1380

In addition, the double-edged effect of brand loyalty exists mainly for upward extension, but diminishes for downward extension, which in turn conrms the advantageous position and intrinsic value of powerful high-tech brand equity. This could be explained by the unique development process of high-tech brand equity and loyalty, which involves the development of deeper and ingrained trust, perceived expertise and credibility. Brand loyalty with such genuine consumer support is more readily transferable to brand extension. On the other hand, the loyalty of low-tech FMCG brands can develop out of habitual behaviour, customer inertia, etc., which are less transferable to higher-tech products. Managerial implications The ndings of the present study also offer signicant managerial implications. It suggests that for high-tech companies, brand loyalty can enhance the effectiveness of leveraging the brand name through brand extension to a low-tech product category regardless of the t between the parent brand and the extended product category. Nevertheless, it is still important for high-tech brands to secure congruence between their core technology and their target product category, since this congruence has a stronger effect for downward extension and the strength of brand loyaltys positive effect on brand extension unconditionally. For the management of upward brand extension where a lower-tech brand extends to a high-tech product more care and caution should be exercised, since brand loyalty could have a negative effect if the upward brand extension is not perceived to t the parent brand image. Thus, it becomes extremely important to manage the t between the lower-tech parent brand and the higher-tech extended product. Although brand loyalty can be a strong base for brand extension, our ndings also suggest that brand loyalty is not the panacea for brand extension. Boundaries do exist for the effectiveness of loyalty based brand extension. Such conditions include the technological direction of vertical brand extension and the t (image, complementary and transfer) between the parent brand and the extension product. Given the fact that most brand extensions involve certain technological differences between parent brands and extension products, it is highly desirable for managers to identify the technological direction of their proposed brand extension and the t level so that the transfer of brand loyalty to the brand extension can be assessed more accurately. Limitations and future research Despite the signicant theoretical and managerial insights, the present study has the following limitations, which suggest avenues for future research. First, the present study examines how technology affects the role of t and brand equity but not product involvement or perceived risk on brand extension evaluation, since previous studies on brand extension and corporate associations have conrmed the signicant roles of product involvement and perceived risk. Second, this study does not take into account another issue of technology-based brand extension: technology similarity between parent product category and extension product. For the purpose of being realistic about the brand extension manipulation, the present study examines only vertical brand extension with relatively similar technologies (electronic products: laptop versus microwave oven). Future studies should add explicitly the variable of technological similarity and examine its interaction with technological direction and other variables.

Third, this study considers only one option of brand strategies of brand extension: direct extension. Future research should incorporate different brand extension strategies, such as brand alliances, into the technology-based framework of brand extension research. Fourth, this study is limited by the choices of only one country and two brands. Future studies should extend the present framework to consumers of other countries and other more brands in different sectors. Finally, we are aware of the potential feedback effect of brand extension on the parent brand. Such an effect could also be relevant to technology-based vertical brand extension. In particular, little is known on how the success/failure of downward or upward brand extension could affect the perceived technological level of the parent brand. The present study does not examine this issue, which should be the focus of future research. Conclusion When a well-known brand extends to a new product that is at a noticeably different level of technology, what are the factors inuencing how it is received by consumers? The present study nds that technological direction has main and interactive effects with t and with brand loyalty on consumer evaluation of brand extension. Technological direction has a three-way interactive effect with t and brand loyalty on brand extension evaluation. In general, downward brand extension evaluation is more favourably evaluated than upward brand extension. This effect is mediated by perceived t. For upward (low- to high-tech) brand extension, there is a stronger positive moderating effect of t on the relationship between brand loyalty and brand extension evaluation. In other words, t is more important for upward brand extension than for downward brand extension to be able to truly leverage the brand equity of the parent brand. It suggests that brand managers should tailor their marketing and management of brand extension based on technological directions. This study contributes to the brand extension literature by: . providing solid evidence for the existence of the effects (mainly interactive) of technology asymmetry and direction of a brand extension on consumer evaluation of that brand extension; . conrming that consumers do employ different processes and seek different types of information in attitude formation when faced with different technological directions of brand extension; and . showing that both brand loyalty and t not only have a main effect on consumer evaluation of brand evaluation regardless of technological asymmetry and direction, but also have interactive effects with each other, and this interactive effect is further dependent on the technological direction of the brand extension.
Notes 1. High technology refers to the use and signicant importance of new and innovative technology in producing the products/brands. Low technology refers to the fact the products/brands rely less on technological innovation and advancement. Aaker and Jacobson (2001) explained that high-technology products/brands are characterised by dynamism, whilst low-technology products/brands historically remain much the same.

Technologybased vertical brand extension 1381

EJM 44,9/10

2. We take one standard deviation above/below the means of focal independent variables as the high/low level to calculate the scores of the dependent variable under different high/low level conditions.

1382

References Aaker, D. (1991), Managing Brand Equity: Capitalizing on the Value of a Brand Name, The Free Press, New York, NY. Aaker, D. and Jacobson, R. (2001), The value relevance of brand attitude in high technology markets, Journal of Marketing Research, Vol. 38 No. 4, pp. 485-93. Aaker, D. and Keller, K.L. (1990), Consumer evaluations of brand extensions, Journal of Marketing, Vol. 54 No. 1, pp. 27-41. Anderson, J. and Gerbing, D. (1988), Structural equation modelling in practice: a review and recommended two-step approach, Psychological Bulletin, Vol. 103 No. 3, pp. 411-23. Balachander, S. and Ghose, S. (2003), Reciprocal spillover effects: a strategic benet of brand extensions, Journal of Marketing, Vol. 67 No. 1, pp. 4-13. Baron, R.M. and Kenny, D.A. (1986), The moderator-mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations, Journal of Personality and Social Psychology, Vol. 5 No. 6, pp. 1173-82. Bottomley, P.A. and Holden, S. (2001), Do we really know how consumers evaluate brand extensions? Empirical generalizations based on secondary analysis of eight studies, Journal of Marketing Research, Vol. 38 No. 4, pp. 494-500. Broniarczyk, S.M. and Alba, J.W. (1994), The importance of the brand in brand extensions, Journal of Marketing Research, Vol. 31 No. 2, pp. 214-28. Broniarczyk, S.M. and Gershoff, A.D. (2003), The reciprocal effects of brand equity and trivial attributes, Journal of Marketing Research, Vol. 40 No. 2, pp. 161-75. Chandler, A.D. Jr (1994), The competitive performance of US industrial enterprises since the Second World War, Business History Review, Vol. 68, Spring, pp. 1-72. Czellar, S. (2003), Consumer attitude toward brand extensions: an integrative model and research propositions, International Journal of Research in Marketing, Vol. 20 No. 1, pp. 97-115. Dacin, P.A. and Smith, D.C. (1994), The effect of brand portfolio characteristics on consumer evaluations of brand extensions, Journal of Marketing Research, Vol. 31 No. 2, pp. 229-42. Fedorikhin, A., Park, C.W. and Thomson, M. (2006), How far do feelings go? How attachments inuence brand extensions, Advances in Consumer Research, Vol. 33 No. 1, p. 631. Fornell, C. and Larcker, D.F. (1981), Evaluating structural equation models with unobservable variables and measurement error, Journal of Marketing Research, Vol. 18 No. 1, pp. 39-50. Fournier, S. and Yao, J.L. (1997), Reviving brand loyalty: a reconceptualization within the framework of consumer-brand relationships, International Journal of Research in Marketing, Vol. 14 No. 5, pp. 451-72. Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E. and Tatham, R.L. (Eds) (2006), Multivariate Data Analysis, 6th ed., Prentice-Hall, Upper Saddle River, NJ. Hansen, H. and Hem, L.E. (2003), Brand extension evaluations: effects of affective commitment, involvement, price consciousness and preference for bundling in the extension category, Advances in Consumer Research, Vol. 31, p. 375. Hem, L.E. and Iversen, N.M. (2003), Transfer of brand equity in brand extension: the importance of brand loyalty, Advances in Consumer Research, Vol. 30 No. 1, pp. 72-9. Herr, P.M., Farquhar, P.H. and Fazio, R.H. (1996), Impact of dominance and relatedness on brand extensions, Journal of Consumer Psychology, Vol. 5 No. 2, pp. 135-9.

Jaccard, J., Wan, C.K. and Turrisi, R. (1990), The detection and interpretation of interaction effects between continuous variables in multiple regression, Multivariate Behavioral Research, Vol. 25 No. 4, pp. 467-78. Joacoby, J. and Chestnut, R.W. (1978), Brand Loyalty Measurement and Management, Wiley, New York, NY. Jun, S.Y., Mazumdar, T. and Raj, S.P. (1999), Effects of technological hierarchy on brand extension evaluations, Journal of Business Research, Vol. 46 No. 1, pp. 31-43. Keller, K.L. (2008), Strategic Brand Management: Building, Measuring, and Managing Brand Equity, 3rd ed., Prentice-Hall, Englewood Cliffs, NJ. Keller, K.L. and Aaker, D.A. (1992), The effects of sequential introduction of brand extensions, Journal of Marketing Research, Vol. 29 No. 1, pp. 35-50. Keller, K.L. and Sood, S. (2003), Brand equity dilution, MIT Sloan Management Review, Vol. 45 No. 1, pp. 12-15. Kim, C.K., Lavack, A.M. and Smith, M. (2001), Consumer evaluation of vertical brand extensions and core brands, Journal of Business Research, Vol. 52 No. 3, pp. 211-22. Kirmani, A., Sood, S. and Bridges, S. (1999), The ownership effect in consumer responses to brand line stretches, Journal of Marketing, Vol. 63 No. 1, pp. 88-101. Lane, V. and Jacobson, R. (1997), The reciprocal impact of brand leveraging: feedback effects from brand extension evaluation to brand evaluation, Marketing Letters, Vol. 8 No. 3, pp. 261-71. Park, C.W., Milberg, S. and Lawson, R. (1991), Evaluation of brand extensions: the role of product feature similarity and brand concept consistency, Journal of Consumer Research, Vol. 18 No. 2, pp. 185-94. Randall, T., Ulrich, K. and Reibstein, D. (1998), Brand equity and vertical product line extent, Marketing Science, Vol. 17 No. 4, pp. 356-79. Story, J. and Loroz, P.S. (2005), Technological congruence and perceived quality of brand extensions, Journal of Product & Brand Management, Vol. 14 No. 7, pp. 438-47. Vanhonacker, W.R. (2007), Brand extension naming strategies: an exploratory study of the impact of brand traits, Marketing Letters, Vol. 18, January, pp. 61-72. lckner, F. and Sattler, H. (2006), Drivers of brand extension success, Journal of Marketing, Vo Vol. 70 No. 2, pp. 18-34. lckner, F. and Sattler, H. (2007), Empirical generalizability of consumer evaluations of brand Vo extensions, International Journal of Research in Marketing, Vol. 24 No. 2, pp. 149-62. Washburn, J.H., Till, B.D. and Priluck, R. (2004), Brand alliance and customer-based brand-equity effects, Psychology & Marketing, Vol. 21 No. 7, pp. 487-508. About the authors Hongwei He is an Assistant Professor of Marketing, Warwick Business School, The University of Warwick, Coventry. Dr Hes research interests include corporate identity, organisational identity, branding, and corporate-level marketing. His research has been published in journals such as European Journal of Marketing, British Journal of Management, Journal of Marketing Management, and Journal of Marketing Communications. Hongwei He is the corresponding author and can be contacted at: hongwei.he@wbs.ac.uk Yan Li is a doctoral student at Norwich Business School and ESRC Centre for Competition Policy, University of East Anglia, Norwich.

Technologybased vertical brand extension 1383

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints