The Effects of Brand Extensions on Market Share and Advertising Efficiency

Abstract

The authors examine the effects of brand strategy (i.e., brand extensions vs. individual brands) on new product market share and advertising efficiency, and the degree to which these effects are moderated by characteristics of the brand, the product to which it is extended, and the market in which that product competes. The findings indicate that brand extensions capture greater market share and realize greater advertising efficiency than individual brands. The strength of the parent brand is related positively to the market share of brand extensions but has no effect on advertising efficiency. Neither the market share nor the advertising efficiency of extensions is affected by the number of products affiliated with the parent brand. The relative effect of brand extensions on market share is not moderated by the degree of similarity between the extension and other products affiliated with the brand. Advertising efficiency effects, however, are elevated when similarity is high, but only when it is based on intrinsic attributes. Market share and advertising efficiency effects are elevated when the extension is composed primarily of experience attributes and competes in markets where consumers have limited knowledge of the product class. Competitive intensity does not moderate advertising efficiency effects; however, market share effects are elevated when the extension competes in markets comprising few competitors. Finally, both market share and efficiency effects diminish as the extension becomes established in the market.