The Phenomena of local food and beverage conceptsusing Brand Extensions in the Kuwait market:1. Background:In recent yearsKuwait has witnessed a boom in the food and beverage sector, especially withthe launch of the governments National Fund for SME’s AND THE Industrial BankSME fund. It has become the number one choice for young investors and entrepreneurs,mostly focusing on restaurants and coffee shops. Dining is the number one formof entertainment in the country and is a mouthwatering prospect for the youngentrepreneurs and as a result the term serial entrepreneur is often used todescribe the large number of youth entering the food and beverage market.
As aresult, some of these start ups have invested and employed brand extension strategiesfor their brands, a phenomena that has increased considerably in recent years.Three main reasons are behind this phenomena, mainly being the need to cutcosts, maximise taking advantage of customer loyalty and the need to increasemarket share. Examples of this are Canteen by Brothers, a burger conceptventuring into the coffee shop segment, Raha by Naturerland; an organic foodproducts retail shop venturing into the dining in restaurant segment and Pick aspin off from a frozen yoghurt concept to a retail dining in outlet serving avast range of food options such as readymade healthy meals. These are justexamples and there are many more.(appendix…). All the aforementioned haveadopted a brand extension strategy capitalizing on brand loyalty and theircustomer base.
There have also been failure stories due to incorrectimplementation of brand extension and bad timing of the brand extension typeand strategy by eager young entrepreneurs whose rush and rapid expansion hasled to their loss. In this paper, the brand extension phenomena in Kuwait foodand beverage SME’s will be covered with a literature review of the concept fromacademic literature, an explanation of the phenomena linked to the literaturereview and a discussion of the implications and recommendations for businessesto succeed in this booming and very competitive market.2. LiteratureReviewOver the two decades,introducing new products as brand extensions has become popular (Maoz andTybout; Hou, 2003). Brand extension is considered paramount to develop a brand.It is widely used as eighty percent of new products are introduced as a brandextension in the market ( Keller 2003; Simms, 2005; Volckner and Sattler,2006).
This strategy is broadly applied in order to reduce marketing expensesin launching new products in the market and to enhance the quality of the corebrand.Exploitingvaluable core brand to build up brand extensions are an obvious strategy forgrowth (Keller and Aaker, 1992) but it is not without risks for businesses inthe new economic environment. Prior studies on brand extension have indicatedthat a successful brand extension depends a lot on firm characteristics (Hou,2003) and core brand characteristics (Keller and Aaker, 1992; Park and Kim, 2001;Hou, 2003), customer characteristics (Keller, 1993; Swaminathan, et al., 2001),extended brand characteristics (Hou, 2003), and marketing strategies (Desai andKeller, 2002; K.L Washburn, Till and Priluck, 2000; Park and Kim, 2001; Hou, 2003).Understandingbrand extension in terms of core brand, characteristics and customer behaviorsare very important for marketers and companies in order to expand and increasesales revenue. 2.
1 Types of brand extensionBrandextension can be classified into many types. The need to clearly differ brandsubstitutions and changes in brand design has led to define brand nameextension as the replacement of at least one of the verbal denominations of aproduct by another, accompanied by the disappearance of the former denomination(Collange, 2008). Brand extension is also defined as “a product whosenature and function differ from those of products currently commercializedunder the brand name” (Cegarra and Merunka, 1993 cited in Collange, 2008).
In other words, brand extension is defined as using an established brand nameso-called parent brand or core brand (Volckner and Sattler, 2006) to introducea new product (Keller, 2003).Brandextension is classified into two categories: width and depth of a parent brand(Keller, 2003). Keller (2003, p.581) claimed that “brand extensions cancome in all forms”. A core brand is replaced by sub-brand (Collange, 2008)or using a new feature added to the parent product (Densai and Keller, 2002). Edwardclassified brand extension into some categories, what he calls afranchise-extension based on the brand extension characteristics and itscorrelation to the parent brand. 2.
2 Advantages of brand extension As an efficientstrategy, brand extensions have become popular over the last twenty years.There are a lot of firms like Apple, which has succeeded with the extension of theApple iPod digital music player. It is considered as a tool for a firm toimprove brand image when consumers’ inferences to the performance of a newproduct is based on what they really know about the brand. These inferences arenoted by Keller (2003) that can improve the strength and uniqueness of the corebrand. Many firms areusing this way in order to generate quicker positive reciprocal effects andheavier purchase by consumers (Swaminathan, et al., 2001).
Another expectedbenefit is to ease the acceptance of the extended brand. Extending brands bothwithin and beyond the original product category can be profitable. In a competitive economicenvironment, extending a brand is often seen as a popular (Maoz and Tybout,2002) and beneficial strategy to introduce different products into the marketin order to reduce costs, risk of failure and to increase successfulopportunity cost (Taylor and Bearden, 2002). Risk ofbrand extensionSimilar to costof opportunity, the success of brand extensions is uncertain (Nkwocha, Bao,Johnson, and Brotspies, 2005). A brand extension can create negative reciprocalconsequences that enhance or diminish the equity of the parent brand(Swaminathan, et al., 2001). In some specific circumstances, it is extremelyrisky for firms and could be doubted (Collange, 2008)..
Extending a brand in themarketplace today is more challenging (Hansen and Hem, 2004) and needs to be managedand selected very carefully. It really requires companies to have knowledge andunderstanding of how customers evaluate brand extensions and research further intohow customers react upon brand extensions in order to maximize profit.Extended brandssometimes cause consumers to feel not appreciated, this may lead consumers toquestion the integrity of the brand. It is one of the most popular reasons forthe failure of brand extension (Park, Milberg and Lawson, 1991).
Besides, theworst possible consequence with a brand extension is that not only does itfail, but it also diminishes the parent brand.. Similarly, brand name extensionis extremely risky for firms because consumers may no longer recognize it and doubtits quality. Explanation2.3 Parent brand and brand extension · Core brandequityAccording toprevious researchers, the parent brand characteristics have influence on brandextension (Hou, 2003) and play an important role in successful brand extension(Keller and Aaker, 1992).
Particularily, the relationship between the core andextended brand is linked to the dominance and nature of the core brand(Bridges, Keller and Sood, 2000). Extendedbrands from high equity core brands will shape more favorable attitudes(Washburn, Till and Priluck, 2000The literatureon brand extension has shown the essential role of brand equity in shapingconsumer attitudes about an extension (Collange, 2008). Later research hasrevealed that the stronger the parent brand equity is, whether formed by thebrand’s quality (Keller and Aaker, 2000) or its awareness, the more brandextension is appreciated and deemed to be successful.
Core brand equity has notdisappeared, and is engraved in customers’ minds even though replaced by theextended brand and is demonstrated by the fact that many companies continue torefer a new product by its former name as a guarantee for success.· Quality ofparent brandBrand extensions are perceivedby customers’ perceive about the quality of the core brands (Densai and Keller,2002; Taylor and Bearden, 2002). An existing brand name provides an assuranceof quality, thereby reducing the risks involved in purchasing a new product(Swamanithan, et al., 2001). Due to the importance of quality, brand extensionswhich are from a strong quality brand are benefited more than those from theweak brands (Park, et al.
, 2002). Extension brands from high quality parentbrands perceived as substitutes tend to be less favorably received than thosefrom lower quality brands (Bottomley and Holden, 2001). Also, in laterresearch, those effects should depend on the level of perceived quality of thecore brand and a high level of both perceived core brand quality between theoriginal and extension product categories is necessary (Keller and Aaker, 1992).· Customer-brandrelationshipCustomer-brandrelationship quality interacts significantly and positively with brandextension evaluation (Park, et al., 2002). During introduction of new brandextensions, this strong relationship helps to obtain customers’ acceptance ofthe new extensions (Park, et al., 2002) and the extended brand will be formedbetter in a customers’ mind (Densai and Keller, 2002). In addition, customerswith a greater perception of core brand will accept the proposed extension morefavorable (Keller and Aaker, 1992).
2.4 Brand extension characteristics There are someimportant brand extension characteristics which are considered by customers inevaluating brand extension.· BrandattachmentDue to thelimitation of knowledge about new offerings (Taylor and Bearden, 2002),customers may evaluate extended brands by their experience about the core brand(Swamanithan, et al., 2001). Furthermore, brand attachment is defined as anemotional relationship of the consumer with the parent brand (Lacoeuilhe, 2001cited in Collange, 2008). It means the consumer who is emotionally attached tothe core brand will be unhappy if it disappears, regardless of the qualities ofthe substitution brand. It was claimed that the stronger the consumer’sattachment to the extended brand the more purchase intention will deteriorate.Indeed, the third condition for the extended brand to be a success is thatconsumers must not be too attached to the brand that will eventually disappear(Collange, 2008).
· Perceived fitAnothercharacteristic of brand extension, which is recognized as one of the keys tothe success of brand extension is perceived fit of the extended brand to the corebrand (Hou, 2003). According to previous research, perceived fit can impactbrand extension evaluations in some ways. First, it affects the extent to whichconsumers transfer their core brand awareness to an extension (Densai andKeller, 2002). Second, consumers may fit as a cue to make their inferencesabout an extension (Hou, 2003). Besides, perceived fit of brand extension is animportant component of extension evaluations (Bridges, et al.
, 2000). In otherwords, brand extension fit with the core brand is considered as the firstcondition (Collange, 2008). It leads to evaluate brand extension as morepositive (Michel and Cegarra, 2002; Collange, 2008). Earlier research has shownthat perceived fit between a brand and an extension is high; consumers are morelikely to base their evaluations of the new product on their attitudes towardsthe parent brand (Bridges, et al., 2000). Therefore, as one of the key successfactors of brand extension, it is urgent to manage and emphasize carefully thetransfer of the brand in terms of a customer’s perspective (Collange, 2008).Perceived fitis not only the extension’s functional similarity to the brand category butalso its relevance to abstract brand benefits (Broniarczyk and Alba, 1994).Furthermore, consumers may evaluate a brand extensions perceived fit on deepfeatures or surface features (Zhang and Sood, 2002).
It might be the mainreason leading to the mixed results above.· PerceivedsimilarityPerceivedsimilarity is a factor which influences consumer’s acceptance of extensions(Hem and Iversen, 2008). Also, similarity has been found to be a majordeterminant of brand extension evaluations (Hansen and Hem, 2004).
It isdefined in terms of the features shared by the core product and extensionproduct (Keller and Aaker, 2000). Historically, similarity is understood interms of internal operating synergies that arise when a new product canleverage on an existing market (Hem, Gronhaug, and Lines, 2002). Perceivedsimilarity is found to be the most relevant variable that can influence thesuccessful result of extensions (Volckner and Sattler, 2006; Hem and Iversen,2008).The similaritybetween the parent and extended brand might influence perceptions of customers tobrand extension and a similar extension of a brand is evaluated more favorablythan a dissimilar one. In addition, the extension information must be deemedrelevant in the parent category and the similarity between the extension andparent brand is necessary for the extension information to be consideredrelevant (Swaminathan, et al., 2001). The higher the similarity between theextension and the core brand, the more favorable brand extensions are assessed,the higher purchase intention will be (Collange, 2008). When theextension is seen as unrelated to the core brand, it will not be evaluatedfavorably and will not be seen as relevant to judging the extension (Boush andLoken, 2003).
In contrast, a number of successful extensions that lack anoverall perceived similarity with the parent brand have been launched into themarket (Maoz & Tybout, 2002). For example, the Virgin brand has been extendedto a huge range of products, such as magazines, a music retailing chain, musiclabel, airlines, trains, holidays, personal computers, wine, cola, financialservices, radio stations, bridal services, movie theatres, perfume and cellularphones (Keller, 2003). The role of similarity is to influence both positive andnegative reciprocal effects (Swaminathan, et al., 2001). 2.
5 Customer attitudes towards brand extension· Attitudes andpurchase intentionCustomerattitudes towards brand extension may be affected and varied in terms of age,mood and culture (Hou, 2003). As consumers are heterogeneous, they may evaluatedifferently brand extensions. This difference caused mixed results in previousstudies.
Zhang and Sood (2002) measured brand extension in terms of customer’sage groups and they found that teens evaluate brand extensions by relying moreon surface cues and less on deep cues. Customers from Eastern cultures,characterized by holistic thinking, perceive higher brand extension fit andevaluate brand extensions more favorably than those in Western cultures,characterized by analytic attitudes (Monga and John, 2007).Therefore differencein culture can lead customers to uncommon responses to brand extensions. Interms of customer intent to purchase an extended brand, there are some opinionsabout the dependent on customer relationship and satisfaction in the core brand(Park, et al., 2002). An important factor that leads to customer purchaseintention is a lower affective commitment to the parent brand (Hansen and Hem,2004). This means the parent brand experience has no impact on repeat purchaseof the brand extension (Swaminathan, et al., 2001) On the other hand,consumers’ willingness to buy is influenced by perceived value of the corebrand (Taylor and Bearden, 2002).
Similarly, purchase decision to buy anextended brand depends on consumer level of involvement in the core brand(Hansen and Hem, 2004).· · CustomerknowledgeCustomerknowledge is considered as the most important factor that might influence ontheir attitudes towards brand extension (Hou, 2003). Brucks (1985) describedthree categories of consumer knowledge: subjective knowledge, objectiveknowledge and prior experiences with the product category. In the further research,subject knowledge is considered as the strongest motivation of purchaseintention for an extended product (Hem, et al., 2002).
Also, when consumersencounter a new product in the marketplace, they are unlikely to engage inextension cognitive deliberation. Meaning that they might base theirevaluations of an extended brand on their subjective opinion of the core brandwithout considering any specific or different features that the extended brandmight have (Yeung and Wyer, 2005). For instance, perceived subjective knowledgeabout the extension category was found to have a negative effect on brandextension evaluation, meaning the evaluation of brand extensions are morepositive when perceived subjective knowledge of a consumer is low than when itis high (Park and Smith, 1992). However, in the past, research of brandextension showed mixed results for the effects of consumer knowledge on brandextension. Customer attitudes and the characteristics of brand extensionWhen a strong relationship existsbetween an extended brand and the core brand, customer attitudes on brandextension might transfer from the parent brand (Keller and Aaker, 1992;Volckner and Sattler, 2006).
Besides, brand extension characteristics have themost weight in the evolution of purchase intention for the brand that haschanged name (Collange, 2008). Purchase intention toward the extension isdirectly influenced by the perceived similarity (Swaminathan, et al., 2001).However, this influence of perceived similarity will be mediated by acategorization construct, called brand meaning (Martin and Stewart, 2001).
Along with theimportance of perceived similarity in the studies of brand extension,researchers have suggested that explaining how and why similarity is importantfor successful brand extension is necessary as well. Consumers first considerif there is a match between what they know and experience about the parentbrand and what they believe to be true about the parent brand in a new productcategory (Hem, et al., 2002). If the match is perceived good, consumers mightexpect to transfer their attitudes to the extended brand. 3.
Implications:In order toimplement a brand extension strategy business owners must address thedisadvantages and advantages of this method. As a phenomena that is spreadingin the local Kuwaiti food and beverage market local brands must be vigilant intheir approach. Many local businesses are expanding and implementing brandextension with no clear vision or plan, availability of funds from sources suchas The National Fund and The Industrial Bank giving them a sense of unrealsafety to spend. As a result it is expected as stated by officials in bothinstitutions that many are expected to default on their first payments in 2018. There are severaldisadvantages of a brand expansion strategy, the major one being the possibilitythat the parent brand image gets diluted. Even a single mistake duringextension can hurt the brand image. In some cases a brand extension succeedsonly to negatively affect the parent brand. Furthermore, when there is a lackof similarity and familiarity, the entire brand family image gets negativelyaffected.
Customers also get confused due to over information when there aremany brand extensions for the same family brand. Loyal customers in particularstart having a negatively perceived value towards brands if brand extensionsare unsuccessful.As for theadvantages, for they are many. Mainly making customers purchase and repurchasethe same brands products and increasing market share by taking advantage of theeconomies of scale also being a staple. Of course cutting cost especially inpromotional activities is a also a plus. Furthermore, parent brand image can beenhanced, product lines and mix can be increased and a stronger market positionmay be achieved.
Finally, but not least the creation of a competitive advantageto face severe competition is possible.In conclusion,in order for a brand extension strategy to be successful for local food andbeverage concepts, business owners must first invest in branding at the start,as there is no use of extending a brand image that is not successful in market.Product quality and consistency must be monitored so as to win customer loyaltybefore trying to sell them other sister brands or products through brandextension.
Timing of the brand extension and whether it will be vertical orhorizontal must be carried out based on strong market due diligence and not onego or aspirations of growth for growth reasons only. Last but not least theuse of economies of scale can be the foundation for success in this competitivemarket as costs are high, especially rental space and food cost, which must betackled from day one.