A commonly advanced rationale for the proliferation of brand extensions is companies' motivation to leverage the equity in established brands, thereby developing profitable products relatively easily. A more interesting strategic argument for brand extensions that has been advanced is that extensions would favorably affect the image of the parent brand and thereby influence its choice. In this research, the authors investigate the existence of such reciprocal spillover effects emanating from the advertising of a brand extension. The authors use scanner panel data and study spillover effects of advertising on brand choice. They develop implications for brand and product line management.
Linear compensatory models, which involve tradeoffs between product attributes, have been argued to provide reasonably good predictions of choices made by noncompensatory heuristics, which do not involve tradeoffs. This robustness to misspecification of functional form may fail, however, when there are negative correlations among attributes in a choice set. A Monté Carlo simulation demonstrates that certain noncompensatory rules are poorly fit by linear models, even in orthogonal environments, and that this fit diminishes further in nonorthogonal environments. Two laboratory experiments assess the extent to which such model failure might arise in natural contexts. The first, a process-tracing analysis, examines the decision strategies consumers use in nonorthogonal choice environments. The second explores the ability of a compensatory choice model calibrated on actual choices to predict decisions made in orthogonal and nonorthogonal contexts. The authors conclude with a discussion of the work's implications for current research in applied choice modeling.
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