Looking to introduce a new brand extension? Be sure to leverage the brand equity of the parent brand as well as the extension fit

Newswise — A fresh Journal of Marketing study by scholars from University of International Business and Economics, University of Groningen, University of Cologne, and University of Chinese Academy of Sciences analyzes the factors influencing the triumph of brand expansion.

Titled "The Impacts of Parent Brand Equity and Extension Fit: A Meta-Analysis of Brand Extension Success," the upcoming article in the Journal of Marketing is authored by Chenming Peng, Tammo H.A. Bijmolt, Franziska Völckner, and Hong Zhao.

Introducing a brand extension refers to the utilization of one of a company's existing brand names on a new product or category. An instance of this is Google, which started as a search engine and still emphasizes it as their main focus, but also offers different products like Google Play and Google Cloud. Brand extensions account for nearly 70% of new products in the U.S. consumer-packaged goods market.

The introduction of a new product using an existing brand name is anticipated by managers to decrease introduction expenses, minimize failure risk, and boost the company's earnings. Nevertheless, just like new brands, only 30% of all brand extensions in the U.S. consumer packaged goods market survive the initial two years. With such an unexpectedly high rate of brand extension failures, it is crucial for marketers to comprehend the factors that contribute to brand extension success.

The aforementioned study presents valuable insights into the determinants of brand extension success. It investigates how businesses can formulate more effective brand extension strategies by considering contextual factors such as the parent brand, extension, communication, and consumer factors, as well as the research techniques employed.

Pay Attention to Parent Brand Equity and Extension Fit

The study provides three key findings that will benefit chief marketing officers.

1. If the parent brand equity improves, there is a 60.6% chance of a more favorable reaction to a brand extension. Likewise, if the extension fit improves, there is a 61.4% chance of a positive response to the brand extension.
2. It is crucial for managers to consider the distinct impacts of different dimensions of parent brand equity and extension fit. For instance, while introducing an extension product, highlighting the similarities in product features and imagery between the parent brand and the extension can be advantageous.According to Bijmolt, "We discovered that parent brand equity can enhance the positive impact of extension fit on brand extension success, and vice versa. As a result, managers must consider both parent brand equity and extension fit simultaneously." Even if the extension has a poor fit, parent brand equity has a small but positive effect on brand extension success. Similarly, even if the parent brand has low equity, extension fit has a small but positive effect on brand extension success. "If the parent brand does not have high equity, brand extensions can still be a feasible strategy for launching new products as long as the extension fits well with the parent brand. In the same way, an extension that does not have a good fit can still be successful as long as the parent brand is strong," Völckner adds.
3. To develop effective brand extension strategies, managers should adopt a broader perspective that takes into account contextual factors related to the parent brand, the extension product, communication, and consumers. For instance, managers of brands whose primary products are services should give particular importance to the equity of the parent brand (and its dimensions) while launching an extension product.In addition to contextual factors, the research team also explores the potential moderating effects of research method factors. Zhao explains, "For instance, in our extensive database that encompasses 26 countries, we did not discover any proof of a moderating role of the region .in which the data was gathered, which contributes to the discussion on whether Eastern cultures evaluate brand extensions differently from Western cultures."

In conclusion, this study establishes empirical generalizations and findings concerning the main effects, relative importance, and interaction effect of the two key drivers of brand extension success – parent brand equity and extension fit. It also proposes how to create more effective brand extension strategies by considering five groups of moderators, namely contextual factors (parent brand, extension, communication, and consumer factors) and research method factors.

About the Journal of Marketing 

The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Shrihari (Hari) Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) serves as the current Editor in Chief.
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About the American Marketing Association (AMA) 

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