Extending product lines up and down in quality: Asymmetric effects on brand evaluation

Timothy Heath, Professor of Marketing - February 15th, 2013
Boxes of coloured power - Extending Product Lines

Companies frequently extend product lines in a bid to target diverse market segments and increase sales, though this risks diluting brand image, especially when extending the brand to lower-quality products. But a series of studies shows that the positive effects of line extensions to higher quality are stronger than the negative effects of line extensions to lower quality. Also, the risk of image dilution can be mitigated through various branding strategies.

Heath Timothy

Timothy Heath taught marketing and consumer behavior at HEC from 2012 to 2013. Before that, he taught at the University of Pittsburgh, USA for 13 years, at Miami University for (...)

Be it creating new flavors of a given pasta sauce by adding every possible spice, vegetable or amount of cheese, or introducing a bargain-priced line of vehicles by a given carmaker, offering more products under the same umbrella brand is one of many ways for companies to boost growth. What is known as “line extension” can be done horizontally—within the same quality or price level—or vertically - across price or quality levels. For example, chemical and pharmaceutical giant Bayer, known in the US for aspirin, is now beginning to sell fertilizer and weed killer under its own brand name. It’s a matter of exposure, of making consumers more comfortable with the brand, as Timothy Heath explains. “If consumers have the choice, they are more likely to go for a brand they know, an effect known as ‘neophobia’,” he adds. And as consumers travel, as the globe shrinks, brands want to be recognized around the world—so they splash their names across wider ranges of products.


DILUTING BRAND IMAGE?

But in the case of downward line extensions, doesn’t associating a recognized brand name with lower-quality risk tainting the brand’s image? That’s what Timothy Heath and his co-authors hypothesized, wondering why a successful multinational such as Procter&Gamble would risk diluting brand equity by marketing, say, inferior paper towels under the name of the market’s leading paper towel, Bounty. After all, humans tend to give more weight to negative experiences than to positive ones, a tendency known as “the negativity bias.” But when the researchers asked consumers to rate middle-quality brands in common product categories (beer, pasta sauce, restaurants, etc.) now seen with lower or higher quality line extensions, they repeatedly found the opposite: Higher-quality line extensions improved brand perception and evaluation far more than lower-quality extensions damaged brand them. Two psychological mechanisms contributed to this asymmetric effect: Opponent processes and what the authors dubbed “best-of-brand processing.”


OPPONENT PROCESSES

Offering a higher-quality line extension associates the brand with higher quality (a positive quality association effect) and also increases the number of products under the brand’s umbrella, which consumers generally like (a positive variety effect; e.g., more products signal brand energy, expertise, and innovativeness while offering options to a wider range of consumers). Both effects then improve overall brand evaluation. However, offering a lower-quality line extension associates the brand with lower quality (negative quality-association effect) but still increases the number of products offered under the brand umbrella, a positive variety effect, which then tempers negative consumer responses.


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If lots of prestige is associated with a brand, diffusion of the brand name might hurt it.



BEST-OF-BRAND PROCESSING

Interestingly, the second contributing factor is that consumers tend to judge a brand more on the basis of its higher-quality products than its lower-quality products (best-of-brand processing). Lower-quality line extensions were deemed somewhat irrelevant by consumers when evaluating a brand. On the other hand, higher-quality extensions were considered quite important when judging brands because these extensions signal high brand skill level and expertise. “If BMW were to manufacture a 9-series of cars, it would show how much quality they can produce,” says Timothy Heath. At the other end of the range, the fact that they produce the 1-series does not drag them down because everyone knows that they are capable of producing the 7-series.”


STRETCHING BRAND EQUITY

But companies can only extend product lines so far. Consider, for example, BMW’s 1-series, which, as Timothy Heath points out, BMW executives refer to as “smaller-quality” rather than “lower-quality.” But, he adds, what if BMW started to make a really junky car, whose doors didn’t close properly, and that fell apart rather quickly? Then the negative impact on brand equity would probably be significant. Indeed, if lots of prestige is associated with the brand, diffusion of the brand name might hurt it. “It may offend the sensibilities of those people who are religiously devoted to BMW and buy a new one very couple of years,” says the researcher. Of course, the quality gap between flagship and lower-end products is less of a jump for toilet paper than for German-manufactured prestige automobiles.


Finally, while extending product lines may improve a brand’s general image—or at the very least, not harm it—the reverse may not be true, and a higher-quality individual product may be “tainted” by the image of the flagship product or the overall brand perception. For instance, when Volkswagen launched the Phaeton model in the US, it tanked. “Volkswagen in the US is associated with small, sporty cars, not high-end luxury cars, so even if the Phaeton per se was a very good car, consumers didn’t buy it,” says Timothy Heath. “Volkswagen stretched its brand too high, so to speak.”


Based on an interview with Timothy Heath and the article “The Asymmetric Effects of Extending Brands to Lower and Higher Quality” (Journal of Marketing , July 2011, vol. 75, pp. 3-20) co-written with T. Heath, D. DelVecchio and M. S. McCarthy.

Applications in the workplace
Applications in the workplace

Managers otherwise skeptical of extending brands to lower quality should be encouraged to reconsider. But that doesn’t mean they should throw themselves headlong into line extensions without considering the potential negative effects. In order to prevent image dilution, it may be more strategic to launch new products through multi-branding. For example, Toyota avoided Volkswagen’s Phaeton failure by marketing its luxury car through its separate Lexus brand and selling it through separate dealers, and it worked (although it was common knowledge that Toyota owned Lexus). Sub-branding, i.e. introducing a new brand said to be produced by the parent brand, is a middle ground between multi-branding and line extensions, and another way to avoid backlash against the core brand.

METHODOLOGY
METHODOLOGY

The authors used three studies and a follow-up study to test fictitious and known brands on groups of respectively 248, 218, 220, and 84 students at major US universities. The participants had to imagine that they were evaluating brands of beer, pasta sauce, clothing, portable CD players, and/or restaurants in a distant market. They were given (fictitious) consumer quality ratings of a brand’s various products and then asked to to rate overall brand liking, prestige, innovativeness, etc.