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The Impact of Brand Equity on Luxury Horizontal Brand Extension

_____________________________

A Thesis

Presented to

the Faculty of the College of Technology

University of Houston

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In Partial Fulfillment

of the Requirements for the Degree

Master of Science in Global Retailing

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By

Jiseon Ahn

December, 2014

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Acknowledgements

Firs of all, I would like to express my deep gratitude to Dr. Jungkun Park, my supervising

adviser, for guidance, recommendations, and encourages, throughout this research and graduate

program. My special appreciation is also extended to Dr. Marcella Norwood, Dr. Shirley Ezell,

and Dr. KiJoon Back, my committee members, for their time and thoughtful advice regarding

this thesis. Appreciation also goes out to Dr. Barbara Stewart for her teaching and assistance in

graduate courses. I also would like to thank my colleagues and office mates with whom I

enjoyed working in such a friendly environment. Finally, I can not find words to express my

heartfelt gratitude to my husband, Wooyoung Kim, who supported and encouraged me in the

study. He has been my indispensable source of love and spiritual strength. Sincere thanks are

extended my parents and parents-in-law for their unconditional love and support.

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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.

Keywords Luxury brand extension, luxury high-tech brand, brand equity, horizontal brand

extension

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Contents

Chapter 1. Introduction ................................................................................................................... 6

1.1 Background ........................................................................................................................... 6

1.2 Problem Statement ................................................................................................................ 8

1.3 Research Purpose .................................................................................................................. 9

1.4 Definition of Terms ............................................................................................................. 10

Chapter 2. Review of Literature.................................................................................................... 12

2.1 Luxury Brand ...................................................................................................................... 12

2.2 Brand Extension .................................................................................................................. 14

2.2.1 Horizontal Brand Extension ......................................................................................... 15

2.2.2 Luxury Brand Extension ............................................................................................... 16

2.3 Brand Equity ....................................................................................................................... 18

2.3.1 Perceived Quality ......................................................................................................... 19

2.3.2 Brand Association......................................................................................................... 20

2.3.3 Brand Loyalty ............................................................................................................... 21

Chapter 3. Methods and Procedures ............................................................................................. 24

3.1 Data Collection .................................................................................................................... 24

3.2 Sample Selection ................................................................................................................. 26

3.3 Data Analysis ...................................................................................................................... 26

3.4 Measurement Development................................................................................................. 27

Chapter 4. Analysis of Data .......................................................................................................... 30

4.1 Descriptive Analysis ........................................................................................................... 30

4.2 Reliability and Validity Test ............................................................................................... 31

4.3 Test Hypothesis ................................................................................................................... 34

Chapter 5. Discussion ................................................................................................................... 37

5.1 Effect of perceived quality of the parent luxury brand on horizontal brand extension ....... 37

5.2 Effect of brand association of the parent luxury brand on horizontal brand extension ...... 39

5.3 Effect of brand loyalty to the parent luxury brand on horizontal brand extension ............. 40

5.4 Effect of overall evaluation of the extended brand and purchase intention ........................ 41

Chapter 6. Conclusion and Implication ........................................................................................ 42

6.1 Theoretical Implication ....................................................................................................... 42

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6.2 Managerial Implication ....................................................................................................... 43

Chapter 7. Limitation and Future Study ....................................................................................... 45

References ..................................................................................................................................... 47

Appendix ....................................................................................................................................... 57

A1. Information about “Audi-Rent-a-Car” ............................................................................... 57

A2. Working Environment of Amazon Mechanical Turk......................................................... 58

A3. Survey Questionnaire ......................................................................................................... 59

A4. Original Items in Survey .................................................................................................... 60

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Chapter 1. Introduction

1.1 Background

In the past decades, brand extension has been an important source of growth strategy,

particularly in the luxury industry. Due to a strong and symbolic image of luxury brands (Vickers

& Renand, 2003), luxury brand extension can substantially reduce marketing costs and enhance

the possibility of success by engaging with mass consumers. Many successes of luxury brands

have led to the luxury industry growing faster (Stankeviciute & Hoffmann, 2011), and now the

overall luxury market is estimated to be close to $1 trillion despite the economic uncertainty

(Bellaiche, Mei-Pochtler, & Hanisch, 2010). Especially in emerging countries such as China and

India, the luxury market has increased considerably with the growth of the middle class

(Hudders, Pandelaere, & Vyncke, 2013).

Luxury goods are categorized into three types: accessible super premium, old luxury

brand extensions, and mass prestige (Csaba, 2008). These days, the demand for luxury products

has expanded to consumers who are occasionally able to afford luxury brands (Yeoman, 2011;

Wiedmann, Hennigs, & Siebels, 2009). Traditional luxury brands have used the brand extension

strategy to enter into this mass-prestige market based on a well-established brand. Luxury brands

and goods became more accessible to a larger consumer population with the introduction of the

extended brand.

Despite the fact that many luxury brands utilize brand extension strategies, not all

attempts have succeeded in market creation. For instance, Versace, the Italian luxury fashion

brand, expanded their business into private jet design. Despite unique custom designs, an

expensive price for products resulted in brand extension failure and sales of Versace decreased

by 20 percent (Fionda & Moore, 2009). Brand extension strategy exposes risks, such as failure of

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the extension or the potential of diluting the original brand image of its prestige and social status.

Lane and Jacobson (1995) found that an inappropriate brand extension strategy could harm brand

associations. In order to reduce the negative impact of the brand extension, luxury companies

need to have a good understanding of how consumers evaluate brand extensions.

The luxury industry is highly competitive, and brand equity has been more important to

reduce potential risk and increase symbolic power. Measuring brand equity is one effective way

to provide a guideline for marketing strategy decision-making for assessing brand extension

strategy (Ailawadi, Lehmann, & Neslin, 2003). Based on literature reviews, brand equity was

investigated as the antecedent of evaluation in luxury brand extensions. Perceived quality, brand

association, and brand loyalty were adapted from Keller’s (1993) study. First, perceived quality

of the parent brand is selected, because it has an impact on enhancing brand trust and brand

equity (Delgado-Ballester, Munuera-Aleman, & Yague-Guillen, 2003). In addition, perceived

quality plays a role in determining a consumer’s preference toward global or local brands

(Milberg & Sinn, 2008). Second, brand association is chosen, because it influences the loyalty of

the consumer toward specific brands (Aaker, 1996). Brand association refers to anything related

to the brand (Aaker, 1991). The strong association with the parent brand has a positive impact on

a consumer’s attitude and evaluation of the extended brand (Martin, Stewart, & Matta, 2005).

As the third element, brand loyalty is selected because it is a key driver that affects the re-

purchase behavior (Bennett & Rundle-Thiele, 2002). A high level of brand loyalty maintains the

sales level and increases competitiveness in the luxury market. The main reason for choosing

three factors is that the impact of these elements that was revealed from previous research on

brand extensions. There is sufficient evidence for retail companies to understand the important

role and the influence of these elements of brand equity on the luxury brand extension process.

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1.2 Problem Statement

Brand extension is widely applied as a growth strategy in many industries. Brand

extension is defined as the use of an established brand name to enter a new product category

(Aaker & Keller, 1990). Due to consumer preferences derived from a strong parent brand, luxury

brand extension strategies are becoming more popular and important. Luxury brands extended

over more product lines and a wide range of product categories to make it more accessible to a

larger group of consumers. Brand extension strategies using a luxury brand name are widely

used in the luxury industry because it is less expensive and less risky than creating a new brand.

Many luxury companies introduce the extended brand based on well-known brand identity, high

brand awareness, perceived quality, retention of sales value, and customer loyalty (Phau &

Prendergast, 2000). However, brand extension strategy has not always had a positive impact.

Introducing an extended brand may result in tarnishing the original luxury brand image or

cannibalization among family brands.

From the past research, brand extension in the luxury industry was examined to find

influential factors that determine success or failure of the extended products. Exclusive luxury

brands that introduce an extension may produce negative opinions among original customers

(Keller, 1993). Dall'Olmo Riley, Pina, and Bravo (2013) examined the brand extension in luxury

fashion brands. Luxury companies need to make decisions based on an understanding of the

parent brand in order to increase the benefit of brand extension. The success or failure of luxury

brand extensions depends on the consumer evaluation, attitude, and perception of the extended

brand.

This study aims to identify significant factors of brand equity, which influence the

consumers’ future behavior related to the brand extension. The framework proposed in this study

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has merit in that it increases the understanding of luxury brand extensions by focusing on the

category extension from the product to the service category.

1.3 Research Purpose

The primary goal of this study was to examine and evaluate the impact of consumer

brand equity including perceived quality, brand association, and brand loyalty in the process of

luxury brand extension. The luxury high-tech brand Audi was selected for this study. It can be

differentiated from other research that focuses on luxury fashion brands. The luxury high-tech

segment is important to marketers and retailers, because the market volume is increasing with the

growth of the middle-income class. Consumers who have low income and can hardly meet their

basic needs, spend money on luxury brands (Van Kempen, 2007). Similarly, Hansen and Wänke

(2011) found that luxury brands are represented more abstractly for low-income consumers.

A secondary goal of this study was to assess the effects of the parent brand on the

horizontal brand extension. In this study, “Audi-Rent-a-Car” was used to develop and test a

model to determine whether the brand equity of the product brand influences consumer

evaluation of the service extended brand. Testing the proposed model in this study is important

in understanding the role of parent high-tech brands. The proposed model provides important

information that leads to the eventual success or failure of the horizontal brand extension. In

order to further clarify the relationship between brand equity and the horizontal brand extension,

the following hypotheses are formulated:

H1: There is a positive relationship between the perceived quality of the luxury parent

brand and brand loyalty to the luxury parent brand.

H2: There is a positive relationship between the perceived quality of the luxury parent

brand and the evaluation of the extended brand.

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H3: There is a positive relationship between the brand association of the luxury parent

brand and brand loyalty to the luxury parent brand.

H4: There is a positive relationship between the brand association of the luxury parent

brand and evaluation of the extended brand.

H5: There is a positive relationship between brand loyalty to the luxury parent brand and

the evaluation of the extended brand.

H6: There is a positive relationship between brand extension evaluation and purchase

intention of the extended brand.

Key drivers of the product parent brand which has influence on the horizontal brand

extension were found with these hypotheses. This research is related to the customer-based brand

equity of the high-tech luxury brand. The author developed a conceptual model to examine the

three different elements of brand equity, which might influence the service brand extension of

the luxury high-tech brand. The results of the study showed the differences among earlier

researchers who investigated the impact of the brand equity on the evaluation of brand extension.

1.4 Definition of Terms

The following definitions guided the work of this study:

Brand Association: Anything linked in consumer memory to a brand (Aaker, 1991).

Brand Equity : Aggregation of all accumulated attitudes and behavior patterns in the extended

mind of consumers, distribution channels and influence agents, which will enhance future profits

and long-term cash flow (Srivastava & Shocker, 1991).

Brand Extensions : Using the current brand name to enter a different product class (Aaker &

Keller, 1990).

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Brand Loyalty: The general commitment to re-buy or repertories a preferred product or service,

despite situational influences and marketing efforts (Oliver, 2010).

Horizontal Brand Extension: Brand extension is using the parent brand name to introduce a new

product in a different category with the parent brand (Kim, Lavack, & Smith, 2001).

Luxury Brand: Brand has superior functionality and emphasizes the status and image of an

individual (Nueno & Quelch, 1998).

Parent Brand : Company’s original or core brand which is extended (Aaker & Keller, 1990).

Perceived Quality: Consumers’ subjective judgment about a product’s overall excellence or

superiority (Zeithaml, 1988).

Vertical Brand Extension : Brand extension is launching new products in the same product

category with the parent brand at a different price or quality point (Keller & Aaker, 1992).

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Chapter 2. Review of Literature

2.1 Luxury Brand

There are several attempts at defining the concept of the luxury brand. Nueno and Quelch

(1998) suggested that luxury brand as that which has superior functionality and emphasizes the

status and image of an individual. They define the traditional characteristics of luxury: consistent

delivery of premium quality, a heritage of craftsmanship, a recognizable style or design, a

limited production run of any item to ensure exclusivity, a global reputation, uniqueness,

personality, and values. Similarly, the concept of ‘luxury’ was used to describe the prestige

brand, which has a higher level of quality and value in this study.

Another approach to defining luxury brands is differentiating between luxury and non-

luxury goods. Vigneron and Johnson (1999) provided distinction between prestige brands and

non-prestige brands as follows. The first element is perceived conspicuous value, which is

related to the consumption of prestige brand and regarded as a signal of status and wealth, and

whose price, expensive by normal standards, enhances the value of such a signal. Second,

perceived unique value means that if everyone has a particular brand it is by definition not

prestigious. Third, perceived social value refers to the role-playing aspects and the social value

of prestige brands, which can be instrumental in the decision to buy. Fourth, perceived hedonic

value means that the brand satisfies an emotional desire, such as a prestige brand, and the

product's subjective, intangible benefits such as aesthetic appeal. Last, perceived quality value is

related to the prestige that is derived partly from the technical superiority and the extreme care

that takes place during the production process. Choo, Moon, Kim, and Yoon (2012) also suggest

values of the luxury brand. Consumer perception about highly symbolic, economic, and

functional values for luxury brands has a positive impact on the relationship between the

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consumer and the brand. Therefore, the concept of luxury brand is a connection of the intrinsic

definitions of luxury and consumer experience luxury.

Consumers purchase luxury products or brands to show the owner’s success and social

status, as well as to provide the owner a sense of confidence in the ability to possess luxury

products. Sombart (1992) suggested that the concept of luxury buying is regarded as the

satisfaction of the demand beyond the ordinary or average standard of living. When the

consumer experiences satisfaction with the luxury consumption, it may influence repeated

intention to purchase. Phau and Prendergast (2000) identified the influence of awareness on the

purchase of luxury products. In order to increase brand exclusivity, luxury brands must sustain

high levels of awareness. This finding shows that the popularity of a brand may have positive

results in the value of the brand. In addition, they identified five main characteristics of luxury

brands: exclusiveness, well-known brand identity, excellent reputation, high levels of perceived

quality, and high levels of customer loyalty. These factors explain the significant evidence as to

why consumers purchase luxury brands, and marketers use these to attract more consumers.

Consumers purchase luxury products for different reasons: not only high-income consumers, but

also low-income consumers purchase luxury goods (Francese, 2002).

Special characteristics of luxury brands such as prestige and rarity, motivate consumers

to purchase luxury products, and increase the market size and competition. Now, because of

intense competition in the luxury market, companies need to investigate and develop new

products to leverage their assets and retain current customers. Many brands use brand extension

strategies to launch new products (e.g., Prada into handbags, Bulgari into timepieces, Louis

Vuitton into travel luggage, Giorgio Armani into Armani Casa and Armani branded Fiori, and

Mercedes Benz into Mercedes C class). Recently the luxury high-tech market is growing. The

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concept of the high-tech industry refers to the “the industry involved in creating, developing and

introducing new products and/or innovative manufacturing processes through the systematic

application of scientific and technical knowledge” (United States Congress, 1982). Thus, the

luxury high tech industry includes the information, hardware, software, consumer electronics,

and cars. Among these products, luxury car brands such as Audi, BMW, and Mercedes Benz

developed the extended brand to be able to target more consumers. In this study, the luxury high-

tech brand was investigated to find important factors that positively influence the evaluation of

the horizontally extended brand.

2.2 Brand Extension

Brand extension strategies are rapidly and widely applied in many industries including

luxury brands. Especially in the fast moving consumer goods category, the failure rate of brand

extension is about 80 percent compared to the 35 percent success rate for introducing new

products (Roll, 2005). Also, companies can take the benefits of utilizing brand extension

strategies to increase their marketing abilities with a lower cost than normal product

development. Sharon (2011) organized four advantages based on literature reviews. The main

advantages are the easiness to link the extended brand and the parent brand, using brand trust of

the parent brand, low cost of marketing, and the high revenue of the extended brand. According

to Keller, Parameswaran, and Jacob (2011), companies can reduce from 40 percent to 80 percent

of the estimated cost by using brand extension strategy. However, there is a negative effect of

brand extensions, such as diluting the original brand image and cannibalization. If the new

product is tagged with the parent brand, it may enhance the likelihood of cannibalization

occurring (Sharp, 1993). Therefore, it is necessary to predict the possible outcome of conducting

brand extension strategy.

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Brand extension is categorized into vertical and horizontal. Vertical brand extension

means launching new products in the same product category with the parent brand at a different

price or quality point (Keller & Aaker, 1992). In this vertical brand extension, the degree of

correlation between parent and the extended brand considerably influences consumers’

perception (Taylor & Bearden, 2002). The horizontal brand extension is usually regarded as a

strategy of using the parent brand name to launch a new product category. Vertical brand

extensions have been quite extensively examined already by researchers (Kim, Lavack, & Smith,

2001; Taylor & Bearden, 2002; Chung & Kim, 2014), thus this study focuses on the horizontal

brand extension in the luxury industry. The important drivers of brand equity of the parent brand

will be illustrated in the new product introduction using an existing luxury brand (Audi).

Perceived quality, brand association, and brand loyalty were selected based on literature reviews

previously conducted. In the next section, the definition of horizontal brand extension is

presented.

2.2.1 Horizontal Brand Extension

Horizontal brand extension is using the parent brand name to introduce a new product in

a different category with the parent brand (Kim, Lavack, & Smith, 2001). Chen and Liu (2004)

proposed horizontal brand extensions involve “developing a new product concept that provides

an attribute-based competitive advantage in its category”. For instance, Ferrari, the luxury

automaker, extended their line to perfume and cosmetics. Horizontal brand extension divides into

line extension and category extension. Line extension (e.g., Giorgio Armani and Emporio

Armani) refers to when the parent brand is used to introduce a new product into a new market

segment within a product category currently served by the parent brand, whereas category

extension (Marc Jacobs apparel and Marc Jacobs cosmetics) can be explained by the parent

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brand to create new products in a different product category of the parent brand (Sharon, 2011).

Line extension has a lower risk and less marketing costs than category extension.

In a study on horizontal brand extensions, many researchers focus on important factors

that have a positive impact on consumer evaluation of brand extension. Keller and Aaker (1992)

suggest that providing a small amount of information about an attribute of the brand extension

results in more favorable consumer evaluations. The differential impact of the parent brand

between vertical and horizontal brand extension was revealed. According to Chung and Kim

(2014), perceived fit has a negative impact on the evaluation of vertical extension, whereas, it

shows a positive impact on the evaluation of horizontal extension in luxury fashion brands

extension. Likewise, Chung (2011) also investigated luxury fashion brands and found that status

consciousness and perceived brand prestige only have an impact on the horizontal extension not

vertical extension evaluation. Specifically, the study investigated the brand equity in the

horizontal brand extension of the luxury high-tech brand. Thus, this study has highlighted

potentially differing roles of the brand equity of the parent brand between vertical and horizontal

brand extensions. In addition, testing the scenario using the luxury high-tech brand, Audi, will

show different results than the fashion and the fast moving consumer goods industry.

2.2.2 Luxury Brand Extension

In the context of the luxury brand extension, Albrecht, Backhaus, Gurzki, and

Woisetschläger (2013) revealed the differences between luxury and non-luxury brand extension

by investigating key elements of the parent brand, including value, fit, involvement, and

consumer evaluation toward the extended brand. They found that overall extension fit and

consumer involvement, toward the extended brand, showed a positive impact on both non-luxury

and luxury brand extensions. The hedonic value of the parent brand shows a significant impact in

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luxury brand extensions, whereas functional value plays a more important role in non-luxury

brand extensions. The different impact of brand extensions between luxury and fast moving

goods were also found in Riley, Lomax, and Blunden’s (2004) study. They examined the

decision process of brand extension for fast-moving consumer goods as relevant to the luxury

sector by investigating managers when extending their brands.The results show that growth and

marketing functions have a strong impact on luxury brand extension rather than on fast moving

consumer goods. For instance, growth of fast moving consumer good is the main driver for

extending brands, whereas the strongest influence on brand extension decisions is a marketing

function in the luxury sector. Due to the different characteristics of luxury brands with fast

moving products, luxury brand extensions need to be carefully developed and managed.

While brand extensions might be tempting for managers and retailers to enter into a new

market segment, this should be approached with caution. Based on the result of this study, they

would be well advised to think about the way to target new consumers. Expanding into similar or

different product categories can still generate significant profits of luxury products. Luxury

companies need to build marketing plans, in order to both gain market share and retain long-term

customer relationships. The marketing plan for the brand extension will play an important role in

its success. Thus, the results of this study provide an understanding of how consumers evaluate

the extended brand on the basis of what they know about the parent luxury brand. Most research

about luxury brand extensions focused on fashion brands and product category extensions. It is

not clear how consumers evaluate the high tech luxury brand and service category extensions.

This study will expand not only academic, but also the practical applications using horizontal

brand extensions of the luxury high-tech brand, Audi.

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2.3 Brand Equity

Brand equity is widely examined as a significant factor in market success. Also in a study

of brand extension, brand equity was investigated and played a significant role in the success of

brand extension endeavors (Rangaswamy, Burke, & Oliva, 1993; Shocker & Weitz, 1988, Dacin

& Smith, 1994, Keller & Aaker, 1992). In general, brand equity means the tremendous and

added value of the brand to the consumer. The definition of Srivastava and Shocker (1991) was

adopted for this study; they state, “Brand equity is the aggregation of all accumulated attitudes

and behavior patterns in the extended mind of consumers, distribution channels and influence

agents, which will enhance future profits and long-term cash flow”. In this study, brand equity

refers to the customer based brand equity and it is hypothesized to be a factor that influences

consumers’ perceptions of the horizontal brand extension.

A number of studies on brand extension have found that evaluations of a brand extension

may be affected by consumer perceptions of the original brand and the similarity between the

core brand and the extended brand (Park, Milberg, & Lawson, 1991; Taylor & Bearden, 2002;

Völckner, Sattler, Hennig-Thurau, & Ringle, 2010). Shocker and Weitz (1988) also examined

the impact of a brand’s equity in that a company can leverage a brand’s existing equity into new

categories. Some researchers have looked at the relationship between brand equity and brand

extension. The results are that a successful brand extension can bring a positive effect to the

parent brand by increasing the brand equity of the parent brand (Dacin & Smith, 1994; Keller &

Aaker, 1992). In contrast, a poor brand extension can affect brand equity by reducing such equity

(Loken & John, 1993). The purpose of this study is to explore brand equity by estimating the

physical attributes of the brand extension. Thus, the author assumes that consumer evaluation of

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the brand extension is positively or negatively affected by brand equity of the parent brand in the

luxury industry.

The perspectives and items used in studying customer-based brand equity varies by

different authors. Brand equity can consist of brand trust, brand loyalty, involvement, perceived

quality, self-image, brand concept, and perceived fit. According to Aaker (1991), brand equity is

a multidimensional concept that consists of brand loyalty, brand awareness, perceived quality,

brand associations, and other proprietary brand assets. Shocker and Weitz (1988) proposed brand

loyalty and brand associations as elements of brand equity. This study adopted three of Aaker’s

(1991) components, including perceived quality, loyalty, and brand association. Definitions and

relevant relationships of each item are presented in the following section.

2.3.1 Perceived Quality

The perceived quality is defined as a subjective judgment about a product’s overall

excellence or superiority (Zeithaml, 1988). The perceived quality means an intangible perception

of the consumer regarding the whole quality or superiority of a product or service (Ramaseshan

& Tsao, 2007). A consumer’s judgment about specific products or services means perceived

quality. High-perceived quality is related to good experiences with a product or brand and it may

provide differentiation and superiority of a specific brand. As perceived quality identifies a

component of brand value, high-perceived quality drives consumption of one brand rather than

other competing brands (Zeithaml, 1988). In the luxury industry, the brand name is also a signal

of perceived quality of products, and it has influence on reducing marketing costs and increasing

utility.

The consumer’s perceived quality of the brand will be associated with brand loyalty.

Yoo, Donthu, and Lee (2000) examined the relationships between marketing factors and the

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selected items of brand equity. They suggested that perceived quality and brand associations

have an influence on brand loyalty, and it might affect brand equity. Brand loyalty, perceived

quality, and brand associations were expected to have an influence on brand equity. In addition,

the perceived quality of the parent brand influences the success of the extension by increasing

the consumer’s parent brand conviction (Völckner et al., 2010). According to Aaker (1990), the

customer’s perceived quality is an important criterion that determines successful brand extension.

A high level of perceived quality plays a significant role in generating positive perceptions

toward the extended brand. Based on the above definition, and the possible relationship of

perceived quality and brand extension in the literature, the following hypotheses are formulated:

H1: There is a positive relationship between the perceived quality of the luxury parent

brand and brand loyalty to the luxury parent brand.

H2: There is a positive relationship between the perceived quality of the luxury parent

brand and the evaluation of the extended brand.

2.3.2 Brand Association

The second element is brand association. Brand association is important in determining

the different perceptions in the consumer’s memory and it also has the benefit of communicating

a well-established brand. The brand association helps the consumers to generate perceived fit

between the original and the extended brand, and remember the relevant information about the

parent brand (Aaker, 1991). Brand association has an impact on brand image, which is retained

in the consumer’s memory (Keller, 1993). This positive overall perception leads to positive

consumer attitudes toward a particular brand. Aaker (1991) defines brand associations as

“anything linked in memory to a brand” .

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Brand associations connect with various elements such as loyalty, ideas, episodes, and

instances, and brand associations are complicated. Brand association influences customer’s

buying decisions (Keller, 1993). In the luxury industry, significant relationships between brand

associations and brand loyalty were found in female fashion brands. Batra, Lenk, and Wedel

(2010) investigated a brand extension in three categories (jeans, magazines, and cars), and found

that there is a relationship between brand association and “atypicality”. The degree of brand

associations between a parent brand and the extended brand influences the success of the brand

extension strategy. When a strong brand association exists between two brands, brand extension

may be appropriate. Brand association generates a positive feeling and a positive attitude in

consumers, and it provides a basis for extensions (Aaker, 1991). Based on this, the following

hypotheses are posited:

H3: There is a positive relationship between the brand association of the luxury parent

brand and brand loyalty to the luxury parent brand.

H4: There is a positive relationship between the brand association of the luxury parent

brand and evaluation of the extended brand.

2.3.3 Brand Loyalty

The last element of this model is brand loyalty. Consumer-based brand loyalty refers to

the general commitment to re-buy a preferred product or service despite situational influences

and marketing efforts (Oliver, 2010). Loyalty plays a significant role in maintaining current

customers as well as increasing market share and revenue. Based on the relationship between

brand loyalty and consumer satisfaction, retailers focus on developing the extended brand with

the expectation of a related purchase by current customers. Brand loyalty motivates consumers to

repurchase a unique brand routinely. Examining the brand loyalty toward a particular brand help

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retailers and marketers to anticipate the repurchasing behavior. Repeat purchase means that the

consumer has a positive perception toward specific products or services.

When consumers are loyal to a brand, they tend to use or purchase that certain brand.

Level of brand loyalty shown by the customer has an influence on the tendency to switch to a

radical degree toward the brand extension. In addition, when the consumer has a high level of

loyalty and familiarity with a parent brand, a new product extension may be successful. In this

context, this research assumes that the luxury brand has a high level of brand loyalty, and it has a

positive effect on the evaluation of the horizontal extended brand. Hence, the following

hypothesis of the relationship between the brand loyalty and brand extension evaluation is

proposed:

H5: There is a positive relationship between brand loyalty to the luxury parent brand and

the evaluation of the extended brand.

This study hypothesized that each element of brand equity would be transferred and affected

from the original luxury brand to the extended brand. Perceived quality, brand loyalty, and brand

association all relate to the overall brand equity (Tong & Hawley, 2009). Brand equity influences

consumers’ purchase decision-making process. In this respect, consumers who perceived the

parent brand favorably could make purchasing decisions regarding the extended brand based on

a positive evaluation. Thus, the following hypothesis is posited:

H6: There is a positive relationship between brand extension evaluation and purchase

intention of the extended brand.

A conceptual model was developed to test the measurement of customer-based brand equity in

luxury brand extension, which is shown in Figure 1.

23

Figure 1. Proposed research model of horizontal brand extension in luxury high-tech products

H2

H5

H4

H6

Perceived

Quality of the

Parent Brand

Brand Loyalty

to the Parent

Brand

Brand Equity of Parent

Brand

Brand

Association

with the Parent

Brand

Overall

Evaluation of the

Brand Extension

Purchase Intention

toward the

Extended Brand

H1

H3

24

Chapter 3. Methods and Procedures

By using the Statistical Package for the Social Science (SPSS), reliability, validity, and

factor analysis were performed. After this stage, the proposed model in this study was tested

using Structural Equation Modeling (SEM) to build the measurement and structural models. The

SEM refers to a family of statistical procedures for testing whether collected data are consistent

with a theoretical model (Kline, 2011). The SEM technique is the combination of factor analysis,

multiple regression analysis, and path analysis and it is useful to analyze the structural

relationship between measured variables and latent constructs (Tenenhaus, Vinzi, Chatelin, &

Lauro, 2005; Muthén, 1984). Recently, many researchers have also used the structural equation

model to measure influential elements in brand extension (Sichtmann & Diamantopoulos, 2013;

Hsu, Oh, & Assaf, 2011; Wu, Yeh, Yeh, & Hsiao, 2011). In order to analyze the data of the

proposed model, AMOS software was utilized. AMOS is a software solution from SPSS that

extends the standard multivariate analysis or multiple regressions and shows the relationships

among the variables (Ahmad et al., 2010).

3.1 Data Collection

Data were collected using the online structured survey. The online survey is useful as a

design with low costs and high usability in order to increase the response rate. Since the purpose

of this study was to assess whether the elements of brand equity could be stretched to an

extended luxury brand, the questionnaire was designed utilizing the three dimensions of brand

equity including perceived quality, brand loyalty, and brand association. Participation will be

asked through a self-administered questionnaire related to the luxury brand and luxury brand

extension. The luxury automaker brand “Audi” was chosen, because “Audi” has never

experienced horizontal brand extension. “Audi- Rent-a-Car” which is a rental car service brand

25

of Audi, will be proposed in this survey. The target sample was 150 participants who are age

over 18 and live in the United States. Participants were provided information, including virtual

images about “Audi” and “Audi-Rent-a-Car” (see the Appendix, A1). The participants were

randomly sampled, and 190 responses were collected from October 1st to October 15th using the

Amazon Mechanical Turk (MTurk) website.

Amazon's Mechanical Turk (MTurk) is a marketplace that “gives business and

developers access to an on-demand, scalable workforce” (Amazon, 2014). According to

Buhrmester, Kwang, and Gosling (2011), “Amazon Mechanical Turk is a relatively new website

that contains the major elements required to conduct research: an integrated participant

compensation system; a large participant pool; and a streamlined process of study design,

participant recruitment, and data collection”. Amazon MTurk is a Web-based platform to help

various people such as marketers, retailers, and researchers who need to collect information

about the marketplace. The Amazon MTurk environment consists of workers and requesters (see

the Appendix, A2). Amazon MTurk requesters can create simple questionnaires, photos, or

survey links, and workers (users) can complete tasks, which are called HITs (human intelligence

tasks). Requesters can design the amount of compensation, completion time, and worker

qualifications. So Amazon MTurk is becoming popular as an online crowdsourcing marketplace.

Buhrmester, Kwang, and Gosling (2011) examined the potential contributions of MTurk and

found that MTurk can be used to obtain high-quality data at a low cost in a short time. Based on

positive literature reviews regarding Amazon MTurk, it was used in this study. Survey link was

posted on the Amazon MTruk website, and participants could get paid $0.05 after they finished

the survey.

26

3.2 Sample Selection

A self-administered questionnaire was developed and distributed to a sample of adult

consumers via online. The sampling chosen for this study was American consumers who are

over 18 years of age. In this study, the perception of the American consumer was investigated

without establishing income limits. The questionnaires were distributed on the Amazon MTurk

website. Consumers were responsible for completing the task and asked to fill in the

questionnaire. A total of 190 questionnaires was obtained. It is difficult to draw comparisons

among the studies and the general population. The age and gender structure was not found to be

significantly different from the population figures. The largest portion of respondents were ages

25 to 50. In addition, the level of income was similar to the general Internet user population (U.S.

Census). Thus, the sampling of the study represents the general population of American internet

users. An additional description of the population is in section 4.1 Descriptive Analysis.

3.3 Data Analysis

This study is suggests propositions to examine the differential impact of brand equity in

the process of the horizontal brand extension. With this goal in mind, a qualitative study was

conducted based on the online survey. Data were collected using the online structured survey. In

order to increase the response rate, the online survey is useful to design with low costs and high

usability. After collecting data, Kaiser-Meyer-Olkin was used to determine the adequacy of the

sample size, and Bartlet test of sphericity was applied to determine the meaningfulness of the

correlation matrix. The internal consistency of this construct was examined using Cronbach’s

Alpha values (Table 3). Confirmatory Factor Analysis (CFA) was used to identify dimensions of

this study. These dimensions were further subjected to Confirmatory Factor Analysis (CFA)

using Structural Equation Modelling (SEM) technique to verify their structure and examine the

27

underlining dimensionality. Subsequently, the proposed model was tested by using SEM

procedures.

3.4 Measurement Development

The questionnaire consists of four parts of 30 questions, including demographic questions.

The first part is related to the perception of the parent brand “Audi”. The second part is the

evaluation of the extended brand “Audi-Rent-a-Car”. The third part is the purchase intention of

the extended brand. The last part is the demographic information about the participants. Items

were developed for the attributes within the three dimensions of the brand equity (see the

Appendix, A3).

Questions regarding the perceived quality of the parent brand

These questions were asked to determine the consumers’ perception and attitude toward the

parent brand. Six items were adapted and combined from Ha (1996) and Wells, Valacich, and

Hess (2011)’s study.

I agree with the claim that Audi is stylish and good value. (Q1)

The quality of Audi is superior to other brands. (Q2)

Audi is most suitable to my needs. (Q3)

I perceive Audi is durable. (Q4)

Audi appears to me to be well crafted. (Q5)

Audi fits my personality. (Q6)

Questions regarding the brand association with the parent brand

Four items were used to capture brand association. These questions were adapted from Pappu,

Quester, and Cooksey (2005).

Audi has a unique brand image, compared to competing brands. (Q7)

28

I respect and admire people who use Audi. (Q8)

I like the brand image of Audi. (Q9)

I like and trust the company, which makes Audi products. (Q10)

Questions regarding brand loyalty to the parent brand

For items of the brand loyalty fit came from Delgado-Ballester et al., (2003).

I consider myself to be loyal to Audi. (Q11)

I am willing to pay more for Audi than for other automotive brand. (Q12)

If Audi is not available at the store, I will buy it in another automotive brand in the

store. (Q13)

I recommend buying Audi. (Q14)

Questions regarding the evaluation to the extended brand

The second part contains three questions to understand consumer evaluation to the extended

brand “Audi-Rent-a-Car”. Measurement for the overall evaluation of the brand extension came

from Hem, Chernatony, and Iversen (2003) and Jun, Mazumdar, and Raj (1999) studies.

Overall, I am very positive to extension Audi rent-a-car. (Q15)

I expect the “Audi-Rent-a-Car” to be of high quality. (Q16)

I expect the “Audi-Rent-a-Car” to be superior services. (Q17)

Questions regarding purchase intention toward the extended brand

In the third part, respondents were asked by purchase intention to the extended brand “Audi-

Rent-a-Car”. This section contains seven questions to measure the degree of consumers’ future

intention to use the extended service brand. Purchase intention was adopted from Czellar (2003)

and Dodds, Monroe, and Grewal (1991). Last part of a survey is related to the general

information of participants.

29

If I were going to use rental car service, I would consider using “Audi-Rent-a-Car”.

(Q18)

If I were using for a rental car service, the likelihood I would use “Audi-Rent-a-Car”

is high. (Q19)

My willingness to use “Audi-Rent-a-Car” would be higher if I were using a rental car

service. (Q20)

I will use “Audi-Rent-a-Car” at the same prices. (Q21)

I will recommend friends to purchase “Audi-Rent-a-Car”. (Q22)

I will purchase “Audi-Rent-a-Car” even at higher prices. (Q23)

I will recommend friends to purchase“Audi-Rent-a-Car” even at higher prices. (Q24)

A Likert scale was used and all items have seven possible answer options scored from 1

(strongly disagree) to 7 (strongly agree). The Likert rating scale is useful to standardize

measurement. In this questionnaire, Q1-Q24 were used to evaluate the level of perceived quality,

brand association, and brand loyalty of the parent brand. Q15-Q24 were asked to measure the

degree of evaluation and purchase intention toward the extended brand. The last section asks

general information. The original questionnaire was modified and expanded to three sections in

the questionnaire for luxury brand extension (see the Appendix, A4)

30

Chapter 4. Analysis of Data

4.1 Descriptive Analysis

Descriptive analysis is appropriate to examine valuable information regarding the survey

method. The results of the descriptive analysis are presented in table 1. Most of the respondents

(43.7%) ages were from 25 to 34, the second largest group (28.7%) was 35 to 50 years old, and

the third largest group was from 18 to 24 years old (18%). This sample reflects the American

Internet User Survey from the US census in 2013. US census data showed that 22.7 percent of

the 18-34 age group and 21.8 percent of the 35-50 age group are internet users. The income level

of 31.7% of the respondents was less than $25,000. US census data also indicate that nearly 23.9

percent of consumers’ income is lower than $25,000. Table 1 shows the demographic

distribution of the total respondents. The survey sample was expected to be representative of the

distribution in the United States.

Table 1. Results of descriptive analysis

Items Fre. % Items Fre. %

Gender Ethic

Male 90 53.9% Caucasian American 56 33.5%

Female 77 46.1% Native American 45 26.9%

Asian/Asian American 32 19.2%

Age

African American 8 4.8%

18-24 30 18.0% Hispanic American 6 3.6%

25-34 73 43.7% Others 20 12.0%

35-50 48 28.7%

50- 16 9.6% Marital Status

Married 89 53.3%

Income

Never married 66 39.5%

Under $25,000 53 31.7% Divorced 10 6.0%

$25,000-39,999 31 18.6% Widowed 2 1.2%

$40,000-54,999 31 18.6%

$55,000-69,999 18 10.8%

$70,000-84,999 15 9.0%

$85,000-99,999 7 4.2%

Over $100,000 12 7.2%

31

4.2 Reliability and Validity Test

Confirmatory factor analysis(CFA) was used to determine the patterns the structure of

each measurement in the proposed model (Anderson & Gerbing, 1988; Churchill, 1979; Gerbing

& Anderson, 1988). The KMO and Bartlett’s sphericity test has been widely used to measure the

proportion of variance data (Kim, Kang, & Park, 2004; Adan, Natale, Caci, & Prat, 2010; Li &

Zhang, 2011). The guidelines of KMO should be ranged from 0.70 to 0.92, and show a

significant probability level (p<0.001) for the Bartlett's test of all constructs. The KMO value of

this study was 0.92, and the Bartlett's x2 was 3705.37 (p<0.001). Thus, the results indicate that

the samples met the criteria for factor analysis (Hair, Anderson, Tatham, & Black, 1998).

Table 2. The results of factor analysis

Construct name Item label Factor

loading

Perceived Quality of the Parent Brand

I agree with the claim that Audi is stylish and good value.

The quality of Audi is superior to other brands.

Audi is most suitable to my needs.

I perceive Audi is durable.

Audi appears to me to be well crafted.

Audi fits my personality.

PQ1

PQ2

PQ3

PQ4

PQ5

PQ6

0.774

0.728

0.672

0.754

0.731

0.651

Brand Association with the Parent Brand

Audi has a very unique brand image, compared to competing brands.

I respect and admire people who use Audi.

I like the brand image of Audi.

I like and trust the company, which makes Audi products.

Brand Loyalty to the Parent Brand

I consider myself to be loyal to Audi.

BA1

BA2

BA3

BA4

BL1

0.705

0.657

0.742

0.773

0.705

32

I am willing to pay more for Audi than for other automotive brand.

If Audi is not available at the store, I would buy it in another automotive

brand in the store.*

I recommend buying Audi.

Overall Evaluation of the Brand Extension

Overall, I am very positive to extension Audi rent-a-car.

I expect the “Audi-Rent-a-Car” to be of high quality.

I expect the “Audi-Rent-a-Car” to be superior services.

Purchase Intention toward the Extended Brand

If I were going to use the rental car service,

I would consider using “Audi-Rent-a-Car”.

If I were using for a rental car service,

the likelihood I would use “Audi-Rent-a-Car” is high.

My willingness to use “Audi-Rent-a-Car” would be higher

if I were using for a rental car service.

I will use “Audi-Rent-a-Car” at the same prices.

I will recommend friends to purchase “Audi-Rent-a-Car”.

I will purchase “Audi-Rent-a-Car” even at higher prices.

I will recommend friends to purchase“Audi-Rent-a-Car” even at higher

prices.

BL2

BL3*

BL4

OE1

OE2

OE3

PI1

PI2

PI3

PI4

PI5

PI6

PI7

0.657

0.242

0.773

0.670

0.752

0.737

0.692

0.703

0.617

0.469

0.723

0.773

0.751

KMO=0.927, Bartlett's x2=3705.370 (p<0.001)

*BL3 is deleted.

All measures of this study were assessed using seven-point Likert scales (1=Strongly

Disagree / 2=Disagree /3=Somewhat Disagree / 4= Neutral / 5= Somewhat Agree / 6=Agree / 7=

Strongly Agree). The internal consistency reliability of items was measured by Cronbach’s alpha.

All measurements used in this study showed high reliability. Scale reliabilities along with mean

and standard deviation for each structure are presented in Table 3. When Cronbach's alpha is

33

over 0.60, the instrument is considered to have an acceptable internal consistency (Burns &

Grove, 2008). In this study, Cronbach's alpha for each construct was computed and showed

acceptable reliabilities ranging from 0.822 to 0.903. This means that the reliability levels of the

variables are high enough to justify the factors. Then Confirmatory Factor Analysis (CFA) was

used with the maximum likelihood (ML) estimation of the covariance matrix. Table 3 presents

the means, standards deviations and correlations among the constructs analyzed (in the

confirmatory stage). CFA involves a separate estimate of the measurement model by establishing

relationships between latent constructs and measured variable. Item-to-item correlations within

each construct inspected and all coefficients fell within the range of 0.40 to 0.80 (O’Cass & Lim,

2002), except the third items of brand loyalty, which was removed.

Table 3. The results of reliability test

Construct name No. of

Items Mean

Standard

deviation

Cronbach’s

alpha

Perceived Quality of the Parent Brand (PQ) 6 5.582 1.297 0.899

Brand Loyalty to the Parent Brand (BL) 3 4.663 1.739 0.822

Brand Association with the Parent Brand (BA) 4 5.515 1.239 0.903

Overall Evaluation of the Brand Extension

(OE) 3 5.785 1.075 0.870

Purchase Intention toward the Extended Brand

(PI) 7 5.089 1.533 0.894

A correlation analysis was performed between each construct and presented in Table 4. In

addition, all items exhibit the construct reliability and the average variance extracted (AVE)

(Fornell & Larcker, 1981) that values exceed recommended standards for reliability and

dimensionality (Table 4). Fornell and Larcker (1981) suggested that if AVE is greater than 0.50

34

of the total variance, convergent validity is established for dimension measures in research. The

AVE range of all measurements is from 0.514 to 0.736. In this study, all five convergent

validities were confirmed.

Table 4. The results of correlation analysis

Variable name/No.of items Correlation coefficient

PQ BL BA OE PI AVE

Perceived Quality of the Parent Brand (PQ) 1

0.736

Brand Loyalty to the Parent Brand (BL) .714** 1

0.575

Brand Association with the Parent Brand (BA) .772** .685** 1

0.710

Overall Evaluation of the Brand Extension

(OE) .517** .406** .566** 1

0.618

Purchase Intention toward the Extended Brand

(PI) .631** .692** .682** .591** 1 0.514

** Correlation is significant at the 0.01 level (2-tailed).

4.3 Test Hypothesis

A variety of fit indices was used to measure for model fit. Hair et al (2006) suggested

using fit indices from various categories. Absolute-fit measures consist of chi-square (p-value),

goodness-of-fit index (GFI), and root of mean square error of approximation (RMSEA) value.

Incremental-fit measures mean adjusted normed fit index (NFI). Parsimonious-fit measures

consist of comparative fit index (CFI). The results of the analysis of the model goodness-of-fit

are shown in Table 5. The chi-square values were statistically significant at the 0.000 level. GFI

values in this model indicated 0.860, respectively, which are greater than the guideline of 0.8 for

the GFI (Ahmed et al., 2010). CFI value was acceptable with criteria, 0.9 as well (Hair et al.,

2006). About RMSEA, the fit index is 0.078, which is below the recommended by Browne and

35

Cudeck (1993). The goodness-of-fit of this study indicates the appropriateness of the model to

the data.

Table 5. The results of the Goodness-of-fit

Goodness-of-fit measures Fit Guideline Model

Chi-square = 234.287, Degrees of freedom = 112 P < 0.05 0.000

Goodness-of-fit index (GFI) > 0.8 0.860

Comparative fit index (CFI) > 0.9 0.941

Normed fit index (NFI) < 0.9 0.893

Root of mean square error of approximation (RMSEA) < 0.08 0.078

The results of the SEM analysis are presented in Figure 2. Hypothesis1 suggested that

there is a positive relationship between the perceived quality of the luxury parent brand and

brand loyalty to the luxury parent brand (0.150, p>0.10), not supported, and Hypothesis 2 also

fails to prove that there is a positive relationship between the perceived quality of the luxury

parent brand and evaluation of the extended brand (-0.020, p>0.10), Hypothesis 5 stated that a

positive relationship between brand loyalty on the luxury parent brand and evaluation of the

extended brand (0.004, p>0.10), not supported. The significant relationship impact of perceived

quality and brand loyalty to the parent brand was not investigated in the horizontal brand

extension of “Audi”.

However, the positive impact of brand association was supported. Hypothesis 3 was

confirmed, demonstrating a positive relationship between brand association and brand loyalty to

the parent brand (0.824, P<0.001). The brand association of the parent brand was also positively

related to the evaluation of the extended brand (0.636, p<0.01), thus confirming Hypothesis 4.

The positive brand extension evaluation was related to the purchase intention of the extended

36

brand (0.846, p<0.001), providing support for Hypothesis 6. The results imply that strong brand

association with the parent luxury brand has a positive impact on the evaluation and purchase

intention of the extended service brand.

Figure 2. The results of testing of proposed model

***p<0.001, **p<0.01

Perceived

Quality of the

Parent Brand

Brand Loyalty

on the Parent

Brand

Brand Equity of Parent

Brand

Brand

Association

with the Parent

Brand

Overall

Evaluation of the

Brand Extension

Purchase

Intention toward

the Extended

Brand

H1 : 0.150

H3 : 0.824*** H4 : 0.636**

H5 :

0.004

H6 :

0.846***

H2 : -0.020

37

Chapter 5. Discussion

Table 6 shows the result of the structural equation modeling (SEM) analysis of this

research model by AMOS.

Table 6. The results of the structural equation model

No Structural path Result

H1 There is a positive relationship between the perceived quality of the luxury

parent brand and brand loyalty to the luxury parent brand. Rejected

H2 There is a positive relationship between the perceived quality of the luxury

parent brand and the evaluation of the extended brand. Rejected

H3 There is a positive relationship between the brand association of the luxury

parent brand and brand loyalty to the luxury parent brand. Supported

H4 There is a positive relationship between the brand association of the luxury

parent brand and evaluation of the extended brand Supported

H5 There is a positive relationship between brand loyalty to the luxury parent

brand and the evaluation of the extended brand Rejected

H6 There is a positive relationship between brand extension evaluation and

purchase intention of the extended brand. Supported

5.1 Effect of perceived quality of the parent luxury brand on horizontal brand extension

Perceived quality refers to the consumer's subjective judgment about the superiority or

excellence of a product or brand (Zeithaml, 1988). When consumers evaluate that the brand has a

high quality, it may have a positive influence on the purchase (Cronin & Taylor, 1992). In the

same context, Olson (1976) found that a strong brand name is a positive signal for consumers to

evaluate the overall quality. As the most successful luxury brand has a strong brand name and

logo (Quelch, 1987), a strong parent name may have an impact on the evaluation of the extended

brand. A study in the automotive industry showed consumers’ perception of perceived quality

has a positive influence on the brand loyalty and purchase intention (Devaraj, Matta, & Conlon,

38

2001). Thus, the following hypotheses were developed. H1: There is a positive relationship

between the perceived quality of the luxury parent brand and brand loyalty to the luxury parent

brand. H2: There is a positive relationship between the perceived quality of the luxury parent

brand and evaluation of the extended brand.

The result of this study indicated that the perceived quality of the parent luxury brand

does not directly relate to the brand loyalty of the parent brand. This finding is the opposite of

what Jung, Lee, Kim, & Yang (2014) found. They examined the positive impact of perceived

quality of consumer brand loyalty in the luxury fashion industry. However, in the horizontal

brand extension from product to service category, perceived quality of the parent luxury brand

does not directly affect consumers’ loyalty. Bloemer, De Ruyter, & Wetzels (1999) also found

that there is no direct relationship between the perceived quality and performance. Similarly Yoo,

Donthu, & Lee (2000) determined high product quality does not mean high brand equity.

More surprising is the fact that perceived quality does not have any impact on the

evaluation of the service brand extension. It supports that when the extension is perceived to be

outside the perceived area of the parent brand by potential customers, brand extensions may fail

(Andrew, 1998). One possible explanation regarding this lack of relationship between perceived

quality and brand loyalty is that there is a gap of perception between the product and service

category. The perceived service quality is different from the quality of the product because it

involves a higher level of abstraction rather than a specific attribute of a product (Zeithaml,

1988). Consumers in this study do not trust the extended brand based on the information and

perception about the parent luxury brand. Perceived quality of the product fails to be transferred

to service brand extensions, because the quality of service is a more complicated concept which

is made up of various factors based on experience.

39

5.2 Effect of brand association of the parent luxury brand on horizontal brand extension

Brand association refers to any information about the brand that is linked to the brand

node in memory (Keller, 1993). Brand association means many things that are related to the

brand, such as brand awareness, identity, and purchase intention. Brand association has been

regarded as the important factors that have an influence on the brand equity (Tong & Hawley,

2009). Brand associations create positive attitudes toward specific brand, and this information

may affect the purchased intention. When consumers have a high level of association with the

brand, they also have a strong and favorable attitude to the brand. In the context of the consumer

behavior, brand equity can impact the brand extension. According to Keller (1993), positive

customer-based brand equity can lead to the effectiveness of marketing communications and the

success of brand extensions. Based on the above literature reviews, relationship of brand

association and brand loyalty and evaluation of the extended brand, the following hypothesis are

formulated: H3: There is a positive relationship between brand association of the luxury parent

brand and brand loyalty to the luxury parent brand. H4: There is a positive relationship between

brand association of the luxury parent brand and evaluation of the extended brand.

The empirical data and statistical tests in this study support the positive and direct impact

of the brand association on the brand loyalty to the extended brand. The findings are consistent

with the result of the Baldauf, Cravens, and Binder (2003) study, in which there is a significant

relationship between brand association and brand loyalty, and this is related to brand

performance. In addition, this result shows that brand association with the parent brand can be

transferred to a different category. It indicates that the brand's associations have a positive

influence on brand extension not only product category but also service category. Therefore, a

40

higher level of brand association with the parent brand can provide consumer differentiation and

an advantage for the luxury brand extension into the service area.

5.3 Effect of brand loyalty to the parent luxury brand on horizontal brand extension

Aaker (1991) defines brand loyalty as “the attachment that a customer has to a brand.”

Brand loyalty refers to the tendency to be loyal to a specific brand, which is demonstrated by the

intention to buy the brand as a primary choice (Oliver, Rust, & Varki, 1997). Consumers who

have loyalty to a brand are more likely to try the extended brand (Swaminathan, 2003). Similarly,

a high level of brand loyalty has a positive impact on extension attitude (Park & Kim, 2001).

Hansen and Hem (2004) also suggest that a high level of brand loyalty will motivate consumers

to have a positive evaluation toward the extended brand. Thus, the following hypothesis is

advanced. H5: There is a positive relationship between brand loyalty on the luxury parent brand

and evaluation of the extended brand.

The results of the analysis indicate that the brand loyalty to the parent luxury brand does

not influence the evaluation of the service brand extension. In the psychological research, brand

loyalty also does not guarantee the identification of the specific brand (Kim, Han, & Park, 2001).

As the consumer does not recognize and identify the horizontally extended brand as the similar

product with the parent brand, a high level of brand loyalty does not influence the evaluation.

Oyeniy (2011) also found that brand loyalty does not support a positive relationship with the

service performance in the hospitality industry. In this study, the author also found that the brand

loyalty to the parent brand does not have a positive relationship with the evaluation of the

horizontal brand extension from product to service category.

41

5.4 Effect of the overall evaluation of the extended brand and purchase intention

The results of this study showed that once the consumer has a positive brand association

of the parent brand that is directly related to brand loyalty and positive evaluation of brand

extensions. In addition, the high level of evaluation leads the consumer to purchase specific

products. The following hypothesis developed. H6: There is a positive relationship between

brand extension evaluation and purchase intention of the extended brand.

The result supports the hypothesis that positive brand evaluation has an influence on the

high level of purchase intention toward the service brand extension. A positive brand association

of the consumers’ memory leads to the purchase intention toward the service brand extension by

creating a positive attitude toward the extended brand. However, the perceived quality and loyal

attitude toward the luxury parent brand does not have a direct link with the extended brand in the

process of the horizontal brand extension.

42

Chapter 6. Conclusion and Implication

6.1 Theoretical Implication

This research has several theoretical contributions. First, previous research focused on the

impact of the brand equity on vertical brand extension. In this study, the key drivers of the parent

luxury brand which have an influence on the horizontal brand extension was demonstrated.

Earlier research has provided the empirical evidence and theoretical framework to develop the

basic structure for this study. The author developed a conceptual model to examine the three

different elements of the brand equity, which might have an influence on the horizontal brand

extension of the luxury brand. Brand equity, including perceived quality, brand association, and

brand loyalty to the parent brand were measured, and the significant impact of the brand

association was revealed.

Second, in the past, research focused on the brand extension of luxury fashion brands. In

this study, horizontal brand extension from high-tech product to service category was

investigated. Horizontal brand extension of the luxury car brand “Audi” into the car rental

service “Audi-Rent-a-Car” was suggested. The results of the survey indicate differences with

earlier researchers who found a positive impact of the brand equity on brand extension of the

fashion brand. Among the investigated constructs, brand association of the high-tech luxury

brand was only contributed to 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 brand. For the

two remaining constructs, perceived quality and brand loyalty, this study could not find any

significant relationship between high-tech luxury brands and extended service brands.

43

6.2 Managerial Implication

Managerial implications of this study must be highlighted. The direct relationship

between brand association of the parent luxury brand and extended service brand are important.

The results suggest that marketers and retailers of the luxury brand should focus their

investments on marketing activities, which increase the brand associations of the luxury product

brand when they make a decision to develop the service brand. Companies can create the strong

extended brand by focusing on the positive role of the brand association of the parent brand. The

brand association consists of various elements such as brand image and feeling in the customer's

mind. In order to increase brand associations in the minds of customers, the company needs to

consider using offline stores and service providers who can provide better associations to

customers. In addition, companies should use promotional activities and motivate word of mouth

advertising to customers. Increasing the brand association with the brand might lead to the

success of brand extensions based on the benefits of the brand extension, such as reducing costs

and risks of brand extension strategies.

It is recognized that high level brand loyalty and perceived quality cause positive brand

equity. However, this research confirmed that perceived quality and brand loyalty are not

transferred to the extended service brand. This result can explain why a Versace, the Italian

luxury fashion brand, did not succeed with their brand extension to jet design service. Although

high levels of the perceived quality and brand loyalty are the main characteristics of the luxury

brand, they should be more careful when they consider the horizontal brand extension. The

company thought that they could utilize the brand equity of the parent brand, yet as is seen this

might not be transferred to the service category. In the horizontal brand extension, especially

product to service category extensions, there is a gap in the consumer perception between the

44

parent brand and the extended brand. Thus, this is a very important factor for future research to

distinguish the different types of brand extensions, such as vertical and horizontal, to predict the

future consumer behavior.

45

Chapter 7. Limitation and Future Study

The current research has several limitations that should be considered when examining

the results. First, this study used a survey method by recruiting online participants through

Amazon MTurk. This sampling procedure is represented by young consumers; the age of the

participants in the current study ranged from 18 to 34 (61.7 percent). The sampling process of

this study was close to recent reports about Internet users in the United States (e.g., US census).

The author suggested minimizing the sampling bias in future studies. Another limitation is

random sampling. Random sampling has been used in a number of studies. If the respondents of

the survey differ from this study, they might have different attitudes and perceptions toward both

the parent brand and the extended brand. Brand loyalty is related to the conviction and purchase

of the brand. It is suggested that future research should concentrate on actual consumer luxury

purchases related to the horizontal brand extension.

A comparison of different impacts of brand equity dimensions on horizontal brand

extension is important. Researchers should consider the brand extension between product and

service categories of luxury brands. In addition, more mediating elements such as customer

satisfaction needs to be investigated. Although brand equity is an important role in marketing

mix efforts, customer satisfaction may cause a significant impact on consumer attitudes and

perceptions toward specific brands. Longitudinal analysis may be helpful to reveal such dynamic

relationships between brand equity and brand extensions. The cultural difference in the consumer

mind also needs to be considered. Consumer attitude and perception are affected not only by

brand but also by culture. Thus, this stream of thought needs to be further elaborated upon. In

this study, horizontal brand extension into the rental car service category of the high tech luxury

brand was investigated. Brand extensions to various other service categories, such as tourism and

46

social media services, might provide depth of understanding of horizontal brand extension.

Future studies should examine both vertical and horizontal brand extensions into various product

and service categories to compare the role of the brand equity of the luxury brand.

47

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Appendix

A1. Information about “Audi-Rent-a-Car”

This survey is designed to learn about your preferences regarding the luxury brand extension of

“Audi”. Audi is owned by Audi AG, which is a German automobile manufacturer that designs,

engineers, produces, markets and distributes automobiles. Audi is a member of the "German Big

3" luxury automakers, along with BMW and Mercedes-Benz, which are the three best-selling

luxury automakers in the world. “Audi-Rent-a-Car” is suggested as the extended service brand of

Audi. “Audi-Rent-a-Car” is a subsidiary of Audi AG, and it is an American car rental company

with international locations worldwide. This company rents automobiles for short periods of time

(generally ranging from a few hours to a few weeks) for a fee. “Audi-rent-car” consists of a wide

majority of vehicle manufacturers, with the majority being AUDI products. Luxury cars are also

provided by Mercedes, Infiniti, and Cadillac. “

Virtual Store Image. “Audi-Rent-a-Car”

58

A2. Working Environment of Amazon Mechanical Turk

Screenshot of the worker environment

Screenshot of the requester environment

59

A3. Survey Questionnaire

Perceived Quality of parent brand

1. I agree with the claim that Audi is stylish and good value.

2. The quality of Audi is superior to other brands.

3. Audi is most suitable to my needs.

4. I perceive Audi is durable.

5. Audi appears to me to be well crafted.

6. Audi fits my personality.

Brand association of parent brand

7. Audi has a very unique brand image, compared to competing brands.

8. I respect and admire people who use Audi.

9. I like the brand image of Audi.

10. I like and trust the company, which makes Audi products.

Brand loyalty to parent brand

11. I consider myself to be loyal to Audi.

12. I am willing to pay more for Audi than for other automotive brand.

13. If Audi is not available at the store, I would buy it in another automotive brand in the store.*

14. I recommend buying Audi.

Overall Evaluation of the Brand Extension

15. Overall, I am very positive to extension Audi rent-a-car.

16. I expect the “Audi-Rent-a-Car” to be of high quality.

17. I expect the “Audi-Rent-a-Car” to be superior services.

Purchase Intention toward the extended brand

18. If I were going to use rental car service, I would consider using “Audi-Rent-a-Car”.

19. If I were using for a rental car service, the likelihood I would use “Audi-Rent-a-Car” is high.

20. My willingness to use “Audi-Rent-a-Car” would be higher if I were using for a rental car

service.

21. I will use “Audi-Rent-a-Car” at the same prices.

22. I will recommend friends to purchase “Audi-Rent-a-Car”.

23. I will purchase “Audi-Rent-a-Car” even at higher prices.

24. I will recommend friends to purchase“Audi-Rent-a-Car” even at higher prices.

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A4. Original Items in Survey

Original items in survey Author

Perceived quality of the parent brand

Ha (1996);

Wells,

Valacich, &

Hess (2011)

I agree with the claim that --products are simple, stylish, and of good value.

The quality of this brand is superior to other brands.

Spiegel is most suitable to my needs.

I perceive the products (e.g., tote bags, accessories, etc.) offered at

totebags.com to be durable.

Totebags.com products (e.g., tote bags, accessories, etc.) appear to me to be

well crafted.

I perceived the products (e.g., tote bags, accessories, etc.) offered at

totebags.com to be of high quality.

Brand association with the parent brand Pappu,

Quester, &

Cooksey

(2005).

X has a very unique brand image, compared to competing brands.

I respect and admire people who wear X.

I like the brand image of X.

I like and trust the company, which makes X products.

Brand loyalty to the parent brand

Delgado-

Ballester, et

al (2003)

I consider myself to be loyal to brand X.

I am willing to pay more for brand X than for other brands on the market.

If brand --is not available at the store, I would buy it in another store.

I recommend to buy brand X.

Overall evaluation of the extended brand Hem, de

Chernatony,

& Iversen

(2003)

Overall, I am very positive to extension xyz.

What attitude do you have towards extension xyz.

Overall evaluation of the potential extension relative to existing brands in the

extension category.

Purchase intention toward the extended brand Czellar

(2003);

Dodds,

If I were going to purchase a luxury product, I would consider buying this

brand.

61

If I were shopping for a luxury brand, the likelihood I would purchase this

luxury brand is high.

My willingness to buy this luxury brand would be high if I were shopping for

a luxury brand.

The probability I would consider buying this luxury brand is high.

Monroe, and

Grewal

(1991)

Will purchase at the same prices.

Will recommend friends to purchase.

Will purchase even at higher prices.

Will recommend friends to purchase even at higher prices.