Vertical versus horizontal line extensions: a comparison of dilution effects

Abstract

Purpose Many apparel brands use growth strategies that involve extending a brand’s line horizontally (same price/quality) and/or vertically (different price/quality). While such opportunities for growth and profitability are enticing, pursuing them could dilute a highly profitable parent brand. Categorization theory’s bookkeeping model and the cue scope framework provide the theoretical framework for this study. The purpose of this study is to test whether specific attributes of a line extension (i.e. direction of extension, brand concept, price discount and perceived fit) make a parent brand more susceptible to dilution. Design/methodology/approach This experimental study manipulates brand concept (premium or value brand) and price level (horizontal or vertical: −20per cent, −80per cent) and measures perceived fit to test effects on parent brand dilution. ANOVA and t-tests are used for the analysis. Findings Vertical extensions dilute the parent brand, but horizontal extensions do not. Dilution is strongest for premium (vs value) brands and when line extensions are discounted (i.e. −20per cent or −80per cent lower than the parent brand), regardless of the perceived fit between brand concept and brand extension price. Overall, brand concept is the strongest predictor of parent brand dilution in the context of vertical-downward extensions. Originality/value This study establishes which factors emerge as important contributors to parent brand dilution. Although previous studies on brand dilution are abundant, few studies have compared the effects of horizontal and vertical extensions on brand dilution. This study offers strong theoretical as well as practical implications.

Branding the hotel industry: The effect of step-up versus step-down brand extensions

“…Nevertheless, the insignificant result might imply that the step-up extension neither outperforms nor underperforms, suggesting that value perceptions are not affected. Although these general findings offer a viable explanation for some of the mixed results in the literature concerning performance outcomes of brand extensions (e.g., Childs et al, 2018;Ye et al, 2019), future research should investigate the discrepancy between step-up and step-down extensions and their role in value perception and revisit intentions as well as the differing mechanisms that might drive it.…”

“…Notwithstanding the potential upsides of following a successful brand extension strategy, the extant academic literature reveal inconsistencies with regard to the direction of the parent brand-extended brand relationship and its outcomes (Ye et al, 2019). While some studies report positive effects (e.g., , others find evidence of parent brand dilution following the introduction of brand extensions (e.g., Childs et al, 2018). Ye et al (2019), in addition to highlighting inconsistencies in current empirical brand extension research, further observe that the majority of extant studies take a manufacturing industry perspective, with limited research conducted in the hospitality services sector.…”

Examining the Step-Up Brand Extensions of Budget Hotels: The Reciprocal Spillover Effects

“…In some cases (Heath et al, 2011;Janiszewski & Van Osselaer, 2000;Lei, de Ruyter, & Wetzels, 2008), positive effects were documented, wherein the functional parent brand was determined to be significantly improved in terms of brand attitude and perceptions (e.g., quality, prestige, and innovation) after introducing a prestigious extension. By contrast, other empirical studies found that parent brand equity can be diluted and customer attitude toward parent brand can be negatively affected after establishing an upward extension (Childs et al, 2018;Kim et al, 2001). Keller and Aaker (1992) suggested that the direction of reciprocal effects primarily depends on the performance of the extended brand because the step-up extension will create a "performance bond" that can be used by customers to develop an attitude toward the downscale brand.…”

“…However, such positive reciprocal effects are refuted by other studies. For example, Childs et al (2018) and Kim et al (2001) found that vertical brand extension, whether step-up or step-down, can eclipse the initial evaluation of a favored core brand. Fu et al (2009) found that brand extension evaluation has no impact on parent brand attitude.…”

“…Muroyiwa et al (2017) Downscale Product (mobile phone) Brand extension affects the customer relationships of the parent brand. Childs et al (2018) Up/down Product (fashion goods) Vertical extensions can dilute the parent brand, particularly for premium brands.…”