Cross‐category revenue spillover in brand extensions: The role of within‐category experience

Abstract

Building on signaling theory, the current research proposes an empirical framework to help firms understand the degree to which cross‐category purchases affect the revenue generated for each category and how within‐category purchases influence the cross‐category spillover effects. The framework is applied to novel individual‐level, cross‐sectional, and time‐series transaction details from a leading lifestyle conglomerate in the Middle East. The empirical results provide strong support for the presence of revenue spillover across multiple categories of brand extensions, with the spillover being more pronounced in categories in which customers have infrequently purchased and thus had less within‐category experience. These results add to the ongoing stream of research on brand extensions by offering evidence that both within‐ and cross‐category learning play a significant role in revenue generation from brand extensions for multi‐product or service firms.