In Good Company

Brand extensions are a common way companies seek to increase sales in new product categories, whether it be yoga apparel company Lululemon launching a skincare line or premium fitness center Equinox branching out into hotels. When contemplating brand extensions marketers think a lot about parent brand quality and extension-brand fit. But how should marketers approach positioning brand extensions within the retail environments (online and offline) in which consumers are introduced to brand extensions?

They often have to choose between two distinct in-store display formats: by-brand display, where a brand extension is presented alongside the parent brand’s other products (e.g. Dove men’s deodorant with Dove body wash and soap) and by-category display, where a brand extension is presented in the context of competing brands (e.g. Dove men’s deodorant displayed with other deodorants such as Speedstick and Old Spice).

In their new paper, Ravi Dhar from the Yale School of Management, along with Xiaoying Zheng from Nankai University, and Ernest Baskin from Saint Joseph’s University, explore how these two distinct retail display formats influence consumers’ evaluations of mismatched brand extensions. The authors find that low-fit extensions from high quality brands are evaluated more favorably when displayed by-category than by-brand, while high-fit extensions of low quality brands are evaluated more favorably when displayed by-brand than by-category. This is because brand extensions displayed by-category (i.e. alongside competitors’ similar products) lead consumers to focus on “parent brand quality information over brand-extension fit,” while by-brand displays (i.e. alongside the brand’s other products) lead consumers to focus on “brand-extension fit information over parent brand quality information.”

The authors’ findings are based off of three experiments. In the first, half of participants were asked to evaluate a hypothetical Nike electric razor brand extension compared to a control in both by-category and by-brand display formats. The results showed that the Nike electric razor was viewed more favorably when displayed by-category, reinforcing the idea that brand extensions poorly aligned with brand equity are viewed more favorably in by-category displays, as “consumers assign a greater weight to parent brand quality than to brand-extension fit information.” In other words, Nike’s clout as a quality brand instills favorability when consumers see it next to competitor products, yet changing the context to a by-brand display stresses the electric razor’s poor fit with the overall Nike portfolio.

The second experiment in the study had consumers compare two camera brands, Nikon (higher quality) and Minolta (lower quality) each launching photo printers (high fit) and electric razors (low fit), across the two display formats. The results corroborated the Nike experiment, as the Nikon electric razors were seen as more favorable when displayed with competitors’ products. Conversely, Minolta’s photo printer (a low quality, high fit product) saw consumer evaluation decrease when displayed by-category. The first two studies demonstrate that consumer evaluations of mismatched brand extensions can be influenced by retail display context and that this is driven by a shifting of weight in the consumer’s mind between brand-extension fit and parent brand quality.

The final experiment sought to explore whether the evaluations discovered above would persist when consumers experience the extension products themselves. Conducted in China, the researchers selected two well-known water brands, Ganten and Ice Dew, as brands of high versus low quality alongside two product categories, tea drinks and hand cream, representing high fit and low fit categories, respectively. The consumers were asked to evaluate how they enjoyed the consumption of the brand extension products. The study results showed that participants consumption experience of Ganten hand cream (low fit product of a high quality brand) was more favorable in the by-category display, while the Ice Dew tea drinks (high fit product of a low quality brand) performed better in the by-brand display. Thus, retail display not only affects consumer evaluation of mismatched brand extensions, but also has downstream effects on the consumption experience.

Zheng, Baskin and Dhar’s findings have important implications for brand marketers and retailers. Although low fit brand extensions can be a risky maneuver, such extensions can increase a “brand’s growth potential” and therefore we see brands launch extensions in categories perceived to be outside their purview, such as Lululemon’s skin care line. Utilizing this study, brand managers can counteract negative assessments of low fit extensions by displaying them alongside competing brands in the category. Online retailers can also learn from this study on how position certain brand extensions using recommendation page (i.e. category searches vs. brand-owned pages).