The Impact of Brand Equity on Luxury Horizontal Brand Extension

Date

2014-12

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Abstract

A recent trend in the luxury industry reveals that many companies are using brand extension strategies to leverage their assets among competitors. Despite the popularity of the luxury brand extensions, limited research has been conducted to determine its effectiveness. This study proposed the framework that has merit in that it increases the understanding of luxury brand extensions by focusing on the horizontal extension from the product to the service category. The research investigates three elements of brand equity of a luxury brand which influences service brand extensions. Perceived quality, brand association, and brand loyalty were examined in the process of horizontal brand extension. The luxury high-tech brand “Audi” and “Audi-Rent-a-Car” were investigated to differentiate from other research that focuses on luxury fashion brands. A total of 190 samples were collected using an online survey from Amazon Mechanical Turk. Data was analyzed with structural equation modeling. Among the investigated constructs, the brand association of the parent brand showed a significant impact on the evaluation of the extended service brand. In addition, a high level of the brand association was also found to influence the final purchase decision of the extended service brand. However, this study could not find any significant impact on perceived quality and brand loyalty from the overall evaluation on service brand extension. In the horizontal brand extension, especially product to service category extension, there is a gap in the consumer perception between the parent brand and the extended service brand. In order to maximize the positive impact of the parent brand, marketers and retailers should investigate the role of the brand equity, which influences consumer perception and purchase intention toward the extended brand.

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Keywords

Luxury brand extension, Luxury high-tech brand, Brand equity, Horizontal brand extension

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