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The Effects of Price onBrand Extension Evaluations:The Moderating Role ofExtension SimilarityValerie A . TaylorUniversity o f Tennessee at C hattanooga

William O. BeardenUniversity of South Carolina

This research explores the effects of price information o nbrand extension evaluations ac ross different levels of simi-larity. Bran d extension similarity is prop osed a s a modera-tor of the effects o f price on brand extension perceivedquality, perceived value, and purch ase intentions. Spe-cifically, price is hypothesized to have a larger positive im-pact on perceived qual i ty evaluat ions of dissimilarextensions, but a larger negative impact on perceivedvalue and purchase intentions fo r sim ilar extensions. Re -sults indicate that a high-price introductory strategy usedto suggest a high-quality produ ct w ill likely be more effec-tive fo r dissim ilar extensions than simi lar extensions. Theresults of this research suggest a number of implications

for new product pricing. Directions for subsequent re-search are offered as well.

Brand ex tens ion s t ra teg ies are widely employedbecause o f bel iefs that they bui ld and communicate s t rongbrand positioning, enhance aware ness and quality associa-tions, and increase the probability o f tyial by lessening newproduct risk for consumers. Research has shown that thestrategy can have a positive impact on market share (S mithand Park 1992; Sullivan 1992), stock market return (Laneand Jacobson 1995), and advertising efficiency (SmithJournal of the Academy o f Marketing Science.Volume 30, No. 2, page 131-140.Copyright 9 2002 by Academy of M arketing Science.

1992; Smith and Park 1992). Furthermore, brand exten-sions can be used to take advantage of marketplace grow thopportunities (Dawar and Anderson 1994; Lane 2000) andto exploit positive brand equity (Keller 1993; K uma r andGanesh 1995; C. S. Park and Srinivasan 1994; Shocker,Srivastava, and R uekert 1994), all at a cost lower than thatrequired to successfully introduce a new brand. In study-ing consum er perceptions of brand extensions, researchershave investigated the determinants of consumers' brandextension evaluations, focusing largely on brand affect(Aaker and K eller 1990) and brand extension similarity tothe core brand (Aaker and Keller 1990; Bous h and Loken1991; C. W. Park, Milberg, and La wson 1991).

Brand extension similarity to the core brand has beenconceptua lized in nume rous ways (Keller and Aaker 1992;C. W. Park et al. 1991). For example, Smith and Park(1992) discussed both supply-side and demand-sideeffects of similarity. Supply-side similarity effects resultfrom synergies between existing product offerings andnew products in terms of firm characteristics, such aschannels o f distribution, sales systems, and expertise. Thedeman d-side effects of similarity relate to consum er per-ceptions of new brand extensions. Aake r and K eller (1990)considered similarity in terms of whether the core andextension products are substitute or compleme ntary prod-ucts , whether they have common manufacturing pro-cesses, or whether they require the same expertise in man-ufacturing. Others have considered similarity in terms ofthe number of product features shared between the corebrand and the ex tens ion (Kel ler and Aaker 1992) .

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Taylor, Bearden / BRANDEXTENSIONEVALUATIONS 133

a udgm ent a bout the global excellence or superiority of aprod uct offering. Thus, whe n a similar extension is consid-ered, additional extrinsic quality cue information, such asprice, is less likely to affect perceived quality extensionevaluations because information perceived to be morediagnostic in the judgment (i.e., the core brand associa-tions) has been recognized. Conversely, when faced w ithan extension that is jud ged to be dissimilar or less related tothe core brand, core brand association s have less relevanceto the extension and, therefore, shou ld be perceived as lessdiagnostic of extension quality. Since core brand associa-tions are perceive d to be less diagnostic, additional qualitycues, su ch as price, are more likely to be perceived as diag-nostic and enter into the quality judgment. Nonetheless,although core brand associations are perceived to be lessdiagnostic, they still may enter into the perceived qualityjudgment. In the case of dissimilar extensions, then, addi-tional cues to quality, such as price, sho uld affect the per-ceived quality judgment along with relevant core brandassociations.

A consequence of the difference in the proposed pro-cessing of cue information between similar and dissimilarextensions is that price information should have a largerpositive impact on the perceived quality evaluation of dis-similar extensions than similar extensions. An importantimplication that follows is that the price-quality inferenceaspects of pricing strategies are potentially more usefu l fordissimilar extensions than for similar extensions. That is,the impact of high-price positioning information on evalu-ations of similar extensions may prove ineffective in sug-gesting high quality to consumers. This interaction isformally hypothesized as follows:

Hypothesis 1: Price and extension similarity will interactsuch that price information will have a larger posi-tive influence on perceived quality evaluations ofdissimilar extensions than on evaluations of similarextensions.

The result of the hypothesized difference in processingof price information between similar and dissimilar exten-sions is also likely to influence other outcome variables,such as perceived value and purchase intentions (cf. Bu-chanan, Simmons, and Bickart 1999; Dodds et al. 1991;Grewal, Monroe, and Krishnan 1998; Teas and Agarwal2000). Whereas perceived quality evaluation represents ajudgment about the global excellence or superiority of aproduct offering (Zeithaml 1988), perceiv ed value is con-ceptualized as a trade-off between perceived quality andmonetary sacrifice and can be theoretically described asthe ratio of perceived quality:perceived price ( Dodds et al.1991; Grewal et al. 1998; Monroe and Krishnan 1985;Zeitham11988). This conceptualization of perceived valuerepresents a global evaluation of long-term worth and is

composed of the buyer's perceived net gain from theacquisition incorporating inputs of perceived price andperceived quality. Moreover, although perceived qualityserves as an input in the perce ived value judgment, the twoconcepts differ substantially as the former represents per-ceptions regarding product superiority, while the latterrepresents perceptions of the worth of the product o ffer interms of what is sacrificed compared to what is acquired(Grewal et al. 1998; Monroe an d Krishnan 1985; Zeitham l1988). While research indicates that perceived quality is apositive function of perceive d price, perceived value is as-sumed to be a negative function of perceived price and alsoa positive function of perceived quality (Dod ds et al. 1991;Mon roe and Krishnan 1985). In turn, purch ase intentions,which represent a consumer's willingness to buy, are alsoinfluenced by perceived value. Research supports a posi-tive relationship b etwe en perceived value and purchase in-tentions, suggesting that price has a negative impact onperceived value and purchase intentions (Dodds et al.1991; Grewal et al. 1998; Monroe and Krishnan 1985).

Because extension similarity is expected to affect theperceived diagnosticity of price information and conse-quently the degree to which price information has animpact on the perceived quality judgment of the extension(i.e., Hypothesis 1), subsequent perceptions of value andpurchase intentions are also likely to be moderated byextension similarity. For dissimilar extensions, as pre-dicted by Hypothesis 1, price information is expected topositively affect perceived quality. Given that perceivedvalue is conceptualized as a trade-off between perceivedquality and perce ived price, as price increases, for dissimi-lar extensions, both perceptions of quality and price areexpec ted to increase. Conseq uently, as price increases, theconceptual trade-off leading to perceived value should belargely unchanged since the perceptions of both qualityand price increased.1 Therefor e, for dissimilar extensions,perceptions of value should remain relatively unchangedas price increases. As extant research supports a positiverelationship between perceived value and purchase inten-tions, purchase intentions should remain unchanged fordissimilar extensions as price increases as well.

Perceived value and purchase intentions of similar ex-tensions are expected to be influenced by price informa-tion. For similar extensions, as price increases, theperceived price component in the conceptual perceivedvalue trade- off should increase per the given level of qual-ity. The perceive d quality compo nent in the trade-o ff is ex-pected to remain relatively unchanged because priceinformation is less likely to affect perceived quality evalu-ations of similar extensions (cf. Hypothesis 1). Therefore,for similar extensions, because perceived value is in-versely related to price, perceived value and purchase in-tentions should decrease as price increases. The followinghypotheses summarize these expectations:

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134 JOURNALOF TH E ACADEMY OF MARKETINGSCIENCE SPRING 2002

Hypothesis 2: Price and extension sim ilarity will interactsuch that pr ice information wil l have a larger nega-t ive inf luence on perceived value for s imilar exten-sions than dissimilar extensions.Hypothesis 3: Price and extension similar i ty wil l interactsuch that pr ice information wil l have a larger nega-t ive inf luence on purchase intentions for s imilar ex-

tensions than dissimilar extensions.

METHODOverview and Design

The study was a 2 (brand extension similarity) x 2(brand extension pr ice) x 2 (core brand quali ty) between-subjects design. B rand extension similar i ty was m anipu-lated at two levels, similar and dissimilar. The brand ex ten-sion product category was held constant between the similarand dissimilar extensions, and similar ity was m anipuatedby varying the core produ ct ca tegor ies (cf. Morr in 1999).The p r ice of the brand extension was m anipula ted a t twolevels, low and high price. Four price-absent control con-dit ions were a lso included as par t of the exper imentaldesign to a l low for addit ional tests of the hy potheses as thelow-pr ice and high-pr ice condit ions could be comparedwith no-pr ice condit ions (cf . Olson 1977) . The pr icemanipula t ion was developed following a check of market-place clock radio prices. Prices at large national retailers(i.e., Wal-Mart, Bes t Buy, and S ervice Merchandise ) range dfrom $9.98 to $129.94. The price stimuli (i.e. , $9.39 and59.97) were se lected to be representa tive of c lock radioprices found in the marketplace. While the third factor,core brand quality, was not of direct theoretical interest,brand names were needed to create a rea lis tic brand exten-sion context. As such, nonfictitious brand names wereused to enh ance the ecological validi ty of the study, andtwo levels of core brand quali ty (high and m oderate) wereselected to enhance generalizabil ity (cf . Klink and Smith2001 ;Winer 1999).Pretests

A pretest (N = 45) was co nducted to identify productcategor ies and brands that met the requirements of the sim-ilarity manipulation. Constraints were that the brands andproduct ca tegory be re levant to most consu mers and thatthe category be one in w hich quali ty and pr ices vary withinthe marketplace (cf. Monroe and Krishnan 1985). Consis-tent with these cr i ter ia , c lock radios were ev entually cho-sen as the brand extension product ca tegory (cf . Milberget al. 1997). Pretes t participants were first presented with anumber of durable product brands across several productcategor ies and asked to indicate how dissimilar or s imilaran extension would be if introduced f rom one of the men-tioned brands. Subse quently, pretest participants were also

asked to ra te the quali ty of a ser ies of brand names w ithinseveral categories, as well as their familiarity with thebrands, using a series of 9-poin t scales. Based on the pre-test results, w rist watches were chosen as the core productcategory for the similar (SIM) extension, while cameraswere selected fo r the diss imilar (DIS) extens ion (XsxM =6.73 vs. XD~s = 3 .40; t43 = 9 .11, p < .01) (cf. M ilber g e t al.1997) . The watch brand names se lected for the similarextensions were Casio and Tim ex ( i .e. , the mo derate-qual-ity [MQ] and high-quality [HQ] core brands, respectively)(XMQ ~-6.10 vs . XHQ = 7.38; t38 = 5.74, p < .01). Th e cam erabrand nam es se lected for the dissimilar extensions werePolaroid and Canon ( i .e . , the m oderate- and high-quali tycore b rands, resp ectively) (XMQ= 6.51 VS. XHQ = 7.6 8; t40 =5.06, p < .01). These brand names were also chosen, inpar t , because pre test part ic ipants judged the brand namesto be similar with resp ect to familiarity.

MeasuresThe dependent var ia bles--p erceived extension quali ty,

perceived value , and purchase intentions--are shown inthe Appendix. Perceived extension quali ty i tems weresimilar to those used by B roniarczyk and Alba (1994) andKeller and Aaker (1992) . Measures of perceived value andpurchase intentions were adapted f rom those used byBuchanan et al. (1999), Dodds et al. (1991), and Grewalet a l . (1998) . Manipula t ion checks included a perceivedsimilar i ty measure that was the average of four 9-pointscales asking participants to rate the overall similarity ofthe brand extension to the core brand produ ct as dissimi-lar-similar, a bad fit for the compan y-good fit for the com-pany, not logical-very logical, not appropriate-veryappropriate (cf . Boush and Lo ken 1991; Broniarczyk andAlba 1994). A measure o f the degree that the pr ice of theextension was perceived as low or high and a measure o fthe perceived quali ty of the core brand (assessed as theaverage of the same i tems used to m easure perceived qual-i ty of the brand extensions) were a lso included as manipu-la t ion checks. Finally, a 9-point measure of core brandfamiliarity was included and was later considered as acovar ia te to examine the robustness of subsequen t results .Procedure

To enhance the exper imental rea l ism o f the study, par-ticipants were told that the object ive of the study was to aidin the development of a new product test ing service to beused in comm ercia l market research (cf . Keller and Aaker1992) . The target brand extension was presented in adesc r ip t ive pa ragraph d iscuss ing the produc t , and ascanned pic ture of the brand extension product was pro-vided. Par t ic ipants then worked through the dependentmeasures, a ser ies of manipula t ion check measures, andthe brand familiarity question.

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Taylor, Bearden BRAND EXTENSIONEVALUATIONS 135

Student interviewers who received course credit fortheir participation as part of a marketing research classproject collected the data. Guidelines fo r respondent eligi-bili ty were provided to ensure a varied sample and toexclude participation by family m embers (cf. Mick 1996).Interviewers were required to obtain responses from bothgenders and one fro m each o f three age-groups: 18 to 24,25 to 30, and older than 30. The surveys were accompaniedby a co ver le tter explaining the purpose o f the research andinstructions regarding how to respond using the scaleitems. Each responden t 's f irst name and telepho ne numberwere also obtained at the end of each survey and used inrandom checks to verify that the data were collected asreported. Fif ty-one percent of the study participants werefemale and the median age category was above 30.

estimates exceeded the square of the corresponding phicoefficient. Second, chi-square statistics for the two-co n-s t r u c t c o r r e l a t e d m o d e l a n d t h e c o r r e s p o n d i n gunidimensional model were obtained, and then chi-squaredifference tests were perform ed (cf . Bagozzi 1980). Evi-dence o f discr iminant validity among the three constructswas provided as each of the two-factor correlated modelsprovided a signif icant improvement in model f i t over thecorresponding unidimensional model ( i .e . , the smallest ofthe chi-square dif ference statistics with one deg ree of free-do m was 209.7). In the subsequent analyse~, indicators ofeach construct were averaged to form three operationaldependent measures.Manipulation Checks

RESULTSPreliminary Analyses

The f inal usable sample consisted o f 285 participants,with cell sizes ranging from 23 to 24. 2 Th e intercorrela-tions of the nine m easurement i tems ( i .e. , four perceivedquality items, three perceived value items, and two pur-chase intention items) designed to m easure the same con-struct were moderate to high (i.e. , intercorre- lationswithin items for each construct range from .60 to .93).Also, correlations of same-construct i tems were higherthan the correlations of different-construct i tems, provid-ing preliminary evidence of discr iminant validity. Theitems were further evaluated using confirmatory factoranalysis. First, a three-factor correlate d model resu lted in achi-square statistic of 116.41 (df= 24, p < .01). The Go od-ness-of-Fit Index (GFI) , the Adjusted Goodness-of-FitIndex (AGFI) , and the Relative Goodness-of-Fit Index(RGF I) were .92, .85, and .94, respectively. The Resc aledNoncentrali ty Index (RNI) was .96, and the Tucker-LewisIndex (TLI) w as .94. A comparison of the f i t statistics tothe sugges ted cut off values sugges ts that the model fits thedata well (cf. Sharm a 1996). All construct indicators weresignificant ( p < .01), and the construct reliabilities were asfollows: perceived quality, .91; perceived value, .94; andpurchase inten tion, .96.

Two tests of construct discr iminant validity were con-ducted. First, the shared variance estimate for each con-struct was calculated (perceived quality, .72; perceivedvalue, .84; and purchase intention, .91) and compared tothe square of the phi coeff icient representing the correla-tion between pairs of constructs (Fomell and Larcker1981). The phi estimates were as follows: perc eived qual-ity and perceiv ed value, . 11; perceived quality and pur-chase intention, .28; and perceived value and purchaseintention, .43. As such, each of the shared variance

One-way analyses of variance were conducted to assessthe im pac t o f the sim ilarity man ipul ation (F~. 28~ = 95 .61,p < .01), th e pric e man ipu latio n (F1. ~87 = 3 91.79 , p < .01),and th e two c ore br and q ualit y levels (FI, 280 = 103.61, p