Asymmetric fit effects on vertical line extensions

2017-02-06T05:59:56Z (GMT) by Pontes, Nicolas
This research examines the moderating role of the extension direction on the fit-extension relationship in a vertical extension context. Existing brand extension knowledge suggests that as fit increases, risk decreases, resulting in better extension evaluations. However, there is a gap in our knowledge of how this effect behaves in a vertical line extension context. In contrast to the existing brand extension literature, this research shows that fit has an asymmetrical effect on evaluations of vertical extensions; an effect is found for upscale but not downscale extensions. The asymmetry suggested here is a consequence of the moderating effect of the extension direction on the two independent variables, fit and brand expertise. It is shown that for upscale extensions, fit is used as a risk reduction mechanism while brand expertise plays that role for downscale extensions. Further, this thesis investigates a different proxy for fit perception. Examining the role of the parent brand price range on fit perceptions, it is shown that consumer evaluations of extensions are more consistent with range theory than adaptation-level theory predictions about consumers’ contextual reference price processing. In particular, it is demonstrated that the parent brand price range rather than its mean, or a single anchor (e.g. end-prices), influences consumer perceptions of the new extension product. And because fit has no effect on downscale scenarios, judgments of the new downscale extension are made regardless of the parent brand price mean or range width. In contrast, upscale extensions derived from parent brands with wide price portfolios tend to be more similar and thus are more positively evaluated than those derived from brand with a narrow vertical price structure. This thesis defines and measures perceived fit from a feature-based perspective. The rationale for this approach relies on a particular characteristic of vertical extensions: new products are extended within the same product line as the parent brand but at a higher or lower price/quality point than current offerings of the parent brand. Hence, price and quality are the two attributes that receive the most weight when determining the fit between parent brand and extension. Further, fit is also measured from a relative perspective that takes into account the parent brand price range as an antecedent of fit. Experimental research was conducted to test the hypotheses outlined in this thesis. Six web-experiments were conducted using MTurk’s platform for respondent sampling. The first three studies demonstrate that consumers systematically use perceived fit as a risk reduction mechanism for upscale extensions while perceived brand expertise is the mechanism for downscale extensions. These studies reveal that risk perceptions are lower for downscale extensions than for upscale extensions because it is the effect of brand expertise on the extension evaluation that is mediated by perceived risk in the downscale setting while the effect of perceived fit on the extension evaluation is mediated by perceived risk in upscale scenarios. In addition, the latter three studies show that respondents systematically used the parent brand price range rather than a single anchor (either the mean or end prices) to make judgments about the new extension product. Importantly, results from the first three studies are replicated in a different fit manipulation and it is shown that an effect exists in upscale but not in downscale scenarios. This research adds to the literature by showing that the assumption that improvements of fit, decreases risk, resulting in better extension evaluations is replicated only for an upscale setting. Conversely, in the downscale scenario, it is the effect of brand expertise on extension evaluations, rather than fit, that is mediated by perceived risk. Further, this thesis extends the use of range-theory to a vertical extension context by showing that consumers do not rely on a single price anchor (mean prices or end prices) to make judgments of a new product. Rather, it demonstrates that all contextual price information can influence how consumers rate new products. It adds to the literature by showing that consumer perception of similarity in a vertical extension context is a relative construct that can be affected by the firm’s framing of its product line. By using vertical price differentiation, brands can improve their perceptions of fit for upscale extensions. This is particularly important for mainstream brands trying to introduce higher priced segments. Lastly, the research presented in this thesis has direct implications for marketers hoping to successfully leverage their product line by introducing vertical extensions. If the effects of fit are diminished by the extension direction, then the extendibility of brands is different than previously thought. This thesis shows that if companies want to move their brands to the higher end of the market they should take small steps, slowly increasing perceptions of brand expertise. The introduction of a product that is far from their current price range is likely to be viewed with scepticism by consumers, who may see the purchase as too risky. But this is not the case for downscale extensions where new product evaluations are made regardless of fit.