THE INFLUENCE OF BRAND EXTENSION STRATEGIES ON

BRAND IMAGE AMONG PHARMACEUTICAL FIRMS IN

NAIROBI, KENYA

BETTY MUTHONI MWANGI

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT

OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION (MBA), SCHOOL OF

BUSINESS, UNIVERSITY OF NAIROBI

OCTOBER 2013

ii

DECLARATION

This research project is my original work and has not been presented for the award of

degree in any other university or institution for any other purpose.

Signature …………………………………….. Date ……………………….

BETTY MUTHONI MWANGI

D61/63048/2010

This research project has been submitted for examination with my approval as University

supervisor.

Signature …………………………………….. Date ……………………….

CATHERINE NGAHU

Lecturer

Department of Business Administration

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ABSTRACT Over the past two decades, the retail landscape has experienced remarkable changes due to macro- and micro-environmental forces. Technological advancement and a saturated domestic market, combined with increasingly demanding and sophisticated consumers, as well as escalating competition, have all played critical roles, posing challenges for many firms to revamp their existing marketing strategies. Firms invest heavily in developing a brand since brands are valuable assets. They offer an opportunity for organizations to capitalize on their corporate competences and harness their unique organizational cultures to own a place in consumers’ minds and hearts. As a result, an important task within a firm’s brand strategy is to encourage a favourable image for its brands. However, firms do not always have the financial strength or do not want to invest so heavily in creating a new brand name each time they develop a new product and therefore a more economical strategy is used to introduce a new product. The objective of the study was to determine the influence of brand extension strategies on brand image among the pharmaceutical firms in Nairobi. The research design was a census survey. The population of the study consisted of all the 50 pharmaceutical firms operating in Nairobi. The study will use primary data which will be collected through self-administered questionnaires. The data was analyzed by the use of tables, pie charts, percentages, mean and standard deviations to summarize and relate variables which were attained from the administered questionnaires. The findings of the study was that all the pharmaceutical firms uses brand extension strategy that results in brand knowledge achieved in the current markets, brand meaning clarification to consumers and define the boundaries of the domain in which it competes, customer trend and need, increase brand value, immediate consumer awareness by a quick and new way to enter a market, growth of current and new segments, meet changing market, economies of scale in communication, lower cost and risk than new brand, defense tool against competitors, increased profitability and decrease communication costs. The quality perceived by the customer in relation to the original brand, customer familiarity with the parent brand and the customer’s attitude towards this brand contribute favorably to the final brand image after extension, whether it is the general brand or product image. Also, the fit between the original and extended product category benefit the general brand image after extension. Attitude toward brand extension, brand loyalty, image fit and final brand image are among the factors being influenced by initial brand image. This reveals the importance of paying attention to initial brand image completely.

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TABLE OF CONTENTS

Declaration ..................................................................................................................... ii

Abstract ......................................................................................................................... iii

List of tables ..................................................................................................................vii

CHAPTER ONE: INTRODUCTION ........................................................................... 1

1.1 Background of the Study ............................................................................................ 1

1.1.1 Brand Extension Strategies ..................................................................................2

1.1.2 Brand Image ........................................................................................................3

1.1.3 Pharmaceutical Firms in Nairobi .........................................................................5

1.2 Research Problem ...................................................................................................... 6

1.3 Research Objectives ................................................................................................... 8

1.4 Value of the Study ..................................................................................................... 8

CHAPTER TWO: LITERATURE REVIEW ............................................................ 10

2.1 Introduction ............................................................................................................. 10

2.2 Brand Extension Theories ........................................................................................ 10

2.3 Brand Extension Strategies ...................................................................................... 12

2.4 Influence of brand extension strategies on product brand image ............................... 14

2.4.1 Perceived quality ............................................................................................... 15

2.4.2 Brand fit ............................................................................................................ 16

2.4.3 Customer Attitudes toward the extension ........................................................... 20

2.4.4 Familiarity ......................................................................................................... 22

2.5 Risks Associated with Brand Extension Strategies on Product Brand Image ............ 23

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CHAPTER THREE: RESEARCH METHODOLOGY ............................................ 25

3.1 Introduction ............................................................................................................. 25

3.2 Research Design ...................................................................................................... 25

3.3 Target Population .................................................................................................... 26

3.4 Data Collection ........................................................................................................ 26

3.5 Data Analysis .......................................................................................................... 26

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION................. 27

4.1 Introduction ............................................................................................................. 27

4.2 Demographic and Respondents Profile ..................................................................... 27

4.2.1 Highest level of education ................................................................................. 27

4.2.2 Length of service with the pharmaceutical firm ................................................. 28

4.2.3 Number of Employees ....................................................................................... 29

4.2.4 Duration of pharmaceutical firm existence ......................................................... 29

4.3 Brand extension strategies........................................................................................ 30

4.3.1 Band extension strategy used ............................................................................. 30

4.3.2 Benefits of brand extension strategy .................................................................. 32

4.3.3 Brand image of firm’s product ........................................................................... 33

4.4 Role of brand extension strategies on product brand image ...................................... 35

4.4.1 Influence of perceived quality on product brand image ...................................... 35

4.4.2 Influence of brand fit on product brand image ................................................... 36

4.4.3 Influence of customer attitude toward the extension on product brand image ..... 37

4.4.3 Influence of familiarity on product brand image ................................................ 39

4.5 Brand extension strategies problems on product brand image ................................... 40

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CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS ......... 42

5.1 Introduction ............................................................................................................. 42

5.2 Summary of Findings ............................................................................................... 42

5.3 Conclusion ............................................................................................................... 45

5.3 Recommendations.................................................................................................... 46

5.4 Recommendations for Future Research .................................................................... 47

REFERENCES .............................................................................................................. 48

APPENDIX I : AUTHORITY REQUEST LETTER .........................................................i

APPENDIX II : QUESTIONNAIRE .............................................................................. ii

APPENDIX II : LIST OF PHARMACEUTICALS COMPANIES IN NAIROBI ......... viii

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LIST OF TABLES Table 4.1: Highest level of education ............................................................................. 27

Table 4.2: Number of Employees................................................................................... 29

Table 4.3: Duration of pharmaceutical firm existence .................................................... 29

Table 4.4 : Band extension strategy used ....................................................................... 31

Table 4.5: Benefits of brand extension strategy .............................................................. 32

Table 4.6: Brand image of firm’s product ...................................................................... 34

Table 4.7: Influence of perceived quality on product brand image.................................. 35

Table 4.8: Influence of brand fit on product brand image ............................................... 36

Table 4.9: Influence of customer attitude toward the extension on product brand image. 38

Table 4.10: Influence of familiarity on product brand image .......................................... 39

Table 4.11: Brand extension strategies problems on product brand image ...................... 40

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CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Over the past two decades, the retail landscape has experienced remarkable changes due

to macro- and micro-environmental forces. Technological advancement and a saturated

domestic market, combined with increasingly demanding and sophisticated consumers, as

well as escalating competition, have all played critical roles, posing challenges for many

firms to revamp their existing marketing strategies (Watchravesringkan et al., 2010).

Fierce competition forces firms to adopt strategies that create a competitive advantage for

the firm and creating a brand name with well-established associations is one way of

achieving this aim. Firms invest heavily in developing a brand since brands are valuable

assets. They offer an opportunity for organisations to capitalize on their corporate

competences and harness their unique organisational cultures to own a place in

consumers’ minds and hearts (Keller, 2008). As a result, an important task within a firm’s

brand strategy is to encourage a favourable image for its brands. However, firms do not

always have the financial strength or do not want to invest so heavily in creating a new

brand name each time they develop a new product and therefore a more economical

strategy is used to introduce a new product.

Today, many products of one category are not significantly different from each other, but

it is brands which cause important distinctions and the preference for one product over

the other. These differences are so important that nowadays many market leaders view

their brand as a means to create competitive advantages (Mohammadian and Ronaghi,

2010). In present age, because of a great diversity in people's interests and preferences,

2

organizations are increasing seeking to provide new products which respond to these

interests (Keller, 2008). On the other hand, increasing costs of introducing new products

with new brands drives managers toward employing appropriate strategies in order to

reduce those costs. One of such strategies is product brand extension and from every 10

products, 8 ones are introduced to the market in this way (Fedorikhin, 2008). Also in

present competitive market retaining current customer is less costly than recruiting new

ones. Thus encouraging current customers toward using firm products more frequently is

an obvious and rational thing. This forces the firms to use strategies which lead

customers to purchase more frequently inaddition to retaining them. On the other hand,

accepting a new brand by consumers and establishment of it in the market take too long

while success of introducing a new product with a previous known brand is more likely

because the product is quickly recognized in market, faces with early acceptance and can

enter new product classes easily.

1.1.1 Brand Extension Strategies

Brand extension involves the use of a brand name established in one product class to

enter another product class (Tauber, 2008). Launching of a new product is usually done

through brand extensions. The newly introduced brand extension capitalizes on the equity

of the already established (core) brand name or even the company or corporate name (e.g.

panadol extra of GSK). Consumer familiarity with the existing core brand name aids new

product entry into the market place and helps the brand extension to capture new market

segments quickly (Milewicz and Herbig, 2004). This strategy is often seen as beneficial

because of the reduced new product introduction marketing research and advertising

costs and the increased chance of success due to higher preference derived from the core

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brand equity. In addition, a brand extension can also produce possible reciprocal effects

that enhance the equity of the parent brand (Chen and Liu, 2004).

Successful brand extensions depend on consumers’ perceptions of fit or similarity

between the new extension and the parent brand (Volckner and Sattler, 2006). Many

companies adopt brand extension as strategy with the aim of benefiting from the brand

knowledge achieved in the current markets. When a company launch a new product and

market under the umbrella of well - known brand name, failure rates and marketing costs

are reduced (Keller, 2008). Keller (2008) states that more than 80 per cent of firms resort

to brand extensions as a way of marketing goods and services. Competition forces firms

to adopt strategies that create a competitive advantage for the firm. Creating a brand

name with well-established association is one way of achieving this aim. Firms invest

heavily in developing a brand. It is a very costly process but has many returns once

success is achieved (Keller, 2008).

1.1.2 Brand Image

Brand image is defined by Keller (2008, p. 3) as “the perceptions about a brand as

reflected by the brand associations held in consumer memory”. In other words brand

image is what comes to the mind of the consumer when a brand name is mentioned.

Hsieh et al., (2004) argued, brand image helps consumer in recognizing their needs and

satisfaction regarding the brand, it also distinguishes the brand from other rivals

motivating customer to buy the brand. Keller (2008) goes on to explain that there are

three important aspects of image: favorability, strength and uniqueness of brand

associations. Moreover, the associations may be formed in one of the following

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categories: attributes of the product, benefits achieved from the product or attitudes

towards the brand. The aim of every firm is to create favorable and positive associations

about the brand which results in a positive image of the brand (Keller, 2008). Some

marketing tools that may be used to create brand image are, the product itself, its

packaging/labeling, the brand name, the logo, the colors used, the point of purchase

promotions, the retailer, the advertisements and all types of other promotions, pricing,

owner of the brand, country of origin, even target market and users of product.

Brand image is a simple perceptual phenomenon which is influenced by the company's

activities. A positive brand image reduces the consumer's perceived risk about the brand

and increases the level of consumer's satisfaction and loyalty. Similarly, a brand which

has a good image in the consumer's mind will facilitate the process of determining the

product's line, because a strong and positive brand image is easier to be carved in the

consumer's mind (mohammadian and ronaghi, 2010). In fact, a brand' value is obtained

from a general brand image which is perceived by individual consumer through

associations (Michell et al., 2001). Therefore, insistence on a positive image based on

core values and other values which distinguish one brand should be a top priority for any

company (Sang-Lin and Hyung, 2008). While the brand image might be improved

through the use of brand extension strategy, product naming literature acknowledges that

negative effects of brand extension also are possible and John et al., 2008). These

negative effects consist of, fading of the extended brand and sales split among a firm's

products. Based on what was mentioned, it is possible that brand extension leaves both

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positive and negative effects on brand position and offers a vague image of the brand

concept and customers’' image of the brand (Vazife dust et al., 2009).

1.1.3 Pharmaceutical Firms in Nairobi

The pharmaceutical industry in Nairobi consists of three segments namely the

manufacturers, distributors and retailers. All these play a major role in supporting the

country’s health sector,

The pharmaceutical sector includes local manufacturing companies and large Multi

National Corporations, subsidiaries or joint ventures. Most are located within Nairobi and

its environs. These firms collectively employ over 20,000 people, about 65% of who

work in direct production. The number of companies engaged in manufacturing and

distribution of pharmaceutical products in Kenya continue to expand, driven by the

Government’s efforts to promote local and foreign investment in the sector.

Pharmaceutical products in Kenya are channeled through pharmacies, chemists, health

facilities and specialised shops. There are about 700 registered wholesale and 1,300 retail

dealers in Kenya, manned by registered pharmacists and pharmaceutical technologists.

The drugs on sale in Kenya are sold according to the outlet categorization, which can be

described as free sales, over the counter and prescription only. The market for

pharmaceutical products in Kenya is estimated at KShs 8 billion per annum. The

government, through Kenya Medical Supplies Agency (KEMSA) is the largest purchaser

of drugs manufactured both locally and imported, in the country. It buys about 30% of

the drugs in the Kenyan market through an open-tender system and distributes them to

government medical institutions.

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1.2 Research Problem

In today’s highly competitive retail environment, building strong brands is one important

goal to any organization because strong brands have proved to enhance firms’ economic

performance (Colucci et al., 2008). Although launching new products to sustain their

stand in the market seems to be an attractive marketing strategy, disadvantages of

conducting such a strategy may overweigh benefits. Furthermore, it is reported that

nearly 35% of newly launched products failed to successfully capture their market

(Calantone and Montoya-Weiss, 2004). The contributing factors for these failures include

high advertising expenditures and increasing competition. Altogether, this leads to a

situation where it is difficult for the new product to sustain and be successful in the

market. As a result, many firms have adopted the concept of brand extension which

involves utilizing and applying the established core brand name to new products to

capture new and unexplored market segments as their strategic tool to generate more

revenues, reduce marketing costs and product failure rates (Keller, 2007).

The pharmaceutical sector in Kenya is expanding at an increasing rate and is becoming

intensely competitive. As such, every organization needs to adopt some strategies which

will enable it to have a competitive edge over the others. As competition intensifies,

many firms continue to seek profitable ways in which to differentiate themselves from

competitors. The consumers have become familiar with the brands of different, so

develops higher effect to the extension as compared to an entirely new brand name. In

addition, when an existing brand name is used for a new product, less investment is made

in advertising, point of purchase promotions, distribution channels.

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Several studies have been undertaken on brand extension strategies. Martinez and Pina

(2003) researched on the negative influence of brand extension on parent brand image

and found out that brand managers should keep in mind that brand extension strategy via

offering high quality products similar to previous products is supported and it can

strengthen brand image and in turn increase brand equity which is a valuable asset in

today hostile environment for managers. Rabiei (2003) researched on the influence of

brand extension strategy on consumer’s attitude toward new product and the results were

that various kinds of subjective features in relation to brand major products were mainly

functional features. Indeed functional features e.g. quality and benefits were more

important to consumers than symbolic ones. Hongo (2001) researched on the practice of

brand extensions of fast moving consumer goods in Kenya and established that brand

extension increases the main association of the product, strengthening instead of

weakening the brand image of the manufacturers of the goods. Extensions also strengthen

specific brand associations that share the same benefit with the brand name and,

consequently, increase the values of the brand in the original product category. Therefore,

an appropriate extension can cancel out such a dreaded dilution of the brand. The studies

offer several works that analyses aspects related to brand image from an international

perspective. However, there are no studies locally that address brand extension strategies

and this therefore is an opportunity to develop a study that analyses the impact of brand

extension strategies on brand image in a local context, particularly since international

brands frequently make use of this strategy. This research will seek to establish the role

of extension strategies on product brand image among pharmaceutical firms in Nairobi.

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This therefore leads to the following question: what is the influence of extension

strategies on product brand image among pharmaceutical firms in Nairobi?

1.3 Research Objectives

To determine the influence of brand extension strategies on product brand image in

pharmaceutical firms in Nairobi.

1.4 Value of the Study

Brand extension can be a very challenging strategy as it puts the status and image of the

core brand at stake. Hence, it is highly important that any newly extended brands must

have all the necessary marketing elements and its target market correctly evaluated. The

study will be of value to brand managers of the pharmaceutical companies in decision

making processes as to how parent brand image may have an impact on their decisions to

determine whether a brand extension strategy is appropriate. Furthermore, the study will

provide information regarding the effect of brand extension on the core brand concept

and parent brand image. More specifically, the study offers additional information

regarding the impact of the types of extension (horizontal versus vertical) on the core

brand concept and parent brand image. Other brand managers can utilize findings

obtained from the current study to determine whether newly extended brands should be

introduced in the market place and if so decide further as to what types of brand

extension should be executed for any newly extended products to successfully secure

market share, and, at the same time, sustain the equity of the parent brand.

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This study will benefit the government especially the Ministry of health for making

policy decisions whose overall objectives are to accelerate the rate of growth in the

pharmaceutical industry and take advantage of the growing world markets. This study is

expected to increase body of knowledge to the scholars on the benefits of extension

strategies used by pharmaceutical companies and especially make them in touch with the

internal and external factors influencing extension strategies by the pharmaceutical

companies.

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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This chapter provides information from publications on topics related to the research

problem. It examines what various scholars and authors have said about the concept of

brand extension strategies. The chapter covers: theoretical foundation of brand extension,

brand extension strategies, influence of brand extension strategies on brand image, and

brand extension strategies challenges on product brand image.

2.2 Brand Extension Theories

Many factors determine the extent to which consumers will embrace a brand extension.

One widely recognized factor is the degree of “fit” between the extension and the parent

brand (Völckner and Sattler 2008). The role of implicit theories of the self in the

interpretation and understanding of human behavior is gaining increasing acceptance

among cognitive and social psychologists. Dweck, Chiu, and Hong (1995) identify two

distinct implicit theories that refer to assumptions people make about the malleability of

personality, intelligence, and morality and have been shown to influence a variety of

judgments about the self and about others.

The associative-network memory theory serves as the overarching theory for

understanding brand extension evaluations and their feedback effects. Knowledge of a

brand in consumer memory is held as network of brand information nodes, referred to as

schema (Keller, 2007). Consumers generally have positive associations about a parent

brand prior to a brand extension launch that get evoked once an extension is introduced.

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As a result, favorable attitudes and beliefs transfer to the extension due to the

interconnectedness among the memory nodes. If consumers are satisfied (dissatisfied)

with an extension, positive (negative) extension-derived associations are created that flow

over to a parent brand scheme, thus leading to a feedback effect (Sheinin, 2000).

Parent brand evaluation is operationalized as consumer-perceived parent brand equity,

which refers to consumers’ overall knowledge of brands that is composed of brand

associations held in memory. Brand extensions capitalize on equity inherent in a parent

brand. Favorable brands possess greater positive attitudes among consumers, facilitating

acceptance of a new product bearing the brand name (Bhat and Reddy, 2001). The

literature reveals a direct positive impact of initial parent brand evaluations on

consumers’ brand extension evaluations.

The entity theorists believe that ability, intelligence, and moral character are fixed,

whereas incremental theorists believe that these aspects can change (Butler 2000. The

entity theorists are likely to believe that intelligence is a fixed trait, and though people

can learn new things, their underlying intelligence remains the same. In contrast,

incremental theorists are likely to believe that people can become more intelligent

through their efforts. People call on their implicit theories regarding personality traits to

interpret, explain, and predict human behavior (Hong, Levy, and Chiu 2001). In other

words, entity theorists believe that knowing a person’s traits can lead to confident

predictions about that person’s behaviors in new situations and knowing how a person

behaved in the past can lead to confident inferences about this person’s traits.

Conversely, incremental theorists are less prone to such rapid, global evaluations. For

12

them, really knowing a person would involve seeing him or her repeatedly. In other

words, entity theorists rely on initial trait information when making causal attributions or

subsequent judgments, whereas incremental theorists focus less on dispositional factors

and more on psychological or behavioral mediators, such as the person’s needs,

emotions, goals, or intentions. A significant outcome of these divergent viewpoints is that

prior beliefs remain more stable for entity theorists than for incremental theorists, with

the former being more likely to construe a purported personality change negatively.

2.3 Brand Extension Strategies

A brand extension strategy can be beneficial because it reduces the new product

introduction cost and also increases the chance of success (Pina and Martinez, 2009).

Brand extension as a marketing strategy has become even more attractive in today’s

environment where developing a new product costs a lot of money and can be time

consuming. Launching of a new product is usually done through brand extensions. The

newly introduced brand extension capitalizes on the equity of the already established

(core) brand name or even the company or corporate name. Consumer familiarity with

the existing core brand name aids new product entry into the market place and helps the

brand extension to capture new market segments quickly (Milewicz and Herbig, 2004).

This strategy is often seen as beneficial because of the reduced new product introduction

marketing research and advertising costs and the increased chance of success due to

higher preference derived from the core brand equity. In addition, a brand extension can

also produce possible reciprocal effects that enhance the equity of the parent brand.

Swaminathanet al., (2001) study affirms that the use of a brand extension strategy can

13

result in induced trial due to brand awareness and equity among existing consumers of

the parent brand.

Kim (2006) posits that a brand extension benefits a firm by transferring brand equity that

has already been well established to the extended brand. In this way, the firm can save the

money, time, and effort involved in building a new brand image and, at the same time,

increase consumers’ awareness level of the new brand. Sales of the parent brand product

and the extended brand product can usually be expected to increase. Additionally, by

extending the brand, a firm can take advantage of the distribution channels and

advertising efficiency utilized by the parent brand and activates consumers’ purchase

intention with little effort (Kim, 2006). Lassar et al., (2005) point out that brand extension

is considered to be an attractive marketing strategy due to the following reasons. First, it

can reduce the introductory cost of launching new products by compensating with the

consumers’ awareness and perception of the parent brand. Therefore, manufacturers are

likely to benefit by gaining a higher profile in the consumer’s mind and hold more shelf

space for their brands after a successful brand extension. Another benefit of the brand

extension strategy is that the extended brand will have lower advertising costs and higher

sales when compared to a new brand because of the existing knowledge that a consumer

may possess about the original brand. It has also been found that the extended brand is

likely to be accepted easily by consumers when the quality variations across the product

line are minimal and indistinguishable (Dacin and Smith, 2004). Therefore, it is evident

that consumers do not accept products whose quality is inconsistent with the core brand

product (Lassar et al., 2005). Managers have to be cautious in launching new products

and have assurance that quality of the extended brands are not below acceptance

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standards (Lassar et al., 2005). Similarly, customers tend to accept products that are

associated closely with the core value of the original brand.

Brand extension strategy comes in two primary forms: horizontal and vertical. In a

horizontal brand extension situation, an existing brand name is applied to a new product

introduction in either a related product class or in a product category completely new to

the firm (Sheinin and Schmitt, 2004). A vertical brand extension, on the other hand,

involves introducing a brand extension in the same product category as the core brand,

but at a different price point and quality level (Keller and Aaker, 2002). There are two

possible options in vertical extension. The brand extension is introduced at a lower price

and lower quality level than the core brand (step-down) or at a higher price and quality

level than the core brand (step-up). In a vertical brand extension situation, a second brand

name or descriptor is usually introduced alongside the core brand name in order to

demonstrate the link between the brand extension and the core brand name.

2.4 Influence of Brand Extension Strategies on product brand image

To manage brand extensions effectively, marketers need to understand the relations

between the variables constituting the brand extension strategy and the effect they may

have on the brand image. Most studies on brand extensions have focused on aspects

relating to consumers’ evaluations of the extension rather than the impact on the brand

image. Furthermore, they tend to focus on a small number of variables and do not

examine the relations between the independent variables (Sattler et al., 2002).

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2.4.1 Perceived Quality

Perceived brand quality is one of the brand equity assets (value given to a brand by the

customers, in addition to the functional characteristics of a product), hence, a determining

factor of the brand image. This is the customer’s decision based on intangible knowledge

of quality, not necessarily based on specific attributes (Zeithaml, 1988). Very often the

use of established brand names is a good way to reach quality perception and this

perception may take different forms for different types of industry. Perceived quality

directly influences buying decisions; especially when a customer is motivated or

capacitated to make a detailed analysis of the purchase. It may also sustain a premium

price, increasing the brand’s profitability and its brand equity (Aaker, 2008, p. 20).In

their study, Loken and Roedder (2003) found that quality perceptions on the parent brand

was negatively affected when the extension was in a similar product category with the

parent brand and almost unaffected when it was in a dissimilar product category with the

parent brand. In other words if the unsuccessful extension is similar to the parent brand it

has a more negative impact on the parent brand compared with an unsuccessful extension

that is distant (dissimilar) from the parent brand.

Swaminathanet al., (2001) found that, in the failure of brand extensions, there are

potential reciprocal effects, namely, interference from the reputation of the parent brand

in assessing brand extension and vice-versa. A brand with strong perceived quality rating

can still be unaffected by failed extensions provided that the parent brand’s degree of

quality is maintained in the extensions, the higher the number of extended goods, the

better the brand evaluation. The perceived quality of the brand extension has a direct

16

positive effect on the corporate image after the extension. Pina et al.,(2006) an

individual’s interactions with an organization may affect their quality perceptions, which

may in turn modify the corporate image. Consequently, as attitudes towards brands have

an effect on brand image, perceived quality of the brand extension is likely to affect post

extension corporate image (Martinez and Pina, 2003).For customers the quality of the

brand/product is an important aspect when forming a perception about the brand. The

customer evaluates the brand according to his/her perceptions of quality which is

“sometimes more difficult than actually delivering high quality” (Aaker, 2008, p. 48).

Customers who have strong attitudes about the quality of a brand tend to transfer these

positive attitudes to the brand extension (Pinaet al., 2006). In other words, consumers’

acceptance of the extension increases if the parent brand is perceived to be of high quality

and therefore, perceived quality of the brand highly impacts the image of the extension.

Hence, the perceived quality of the brand will positively affect the product brand image

following extension.

2.4.2 Brand fit

Brand fit is how closely related (or similar/congruent) an extension is with the parent

brand. Brand fit is not only restricted to product category similarity. Park et al., (1991, p.

185) also stress the fact that: “two different bases that consumers may use to evaluate an

extension’s goodness of fit with the brand category are product feature similarity and

brand concept consistency” where brand concept consistency implies consistency with

brand associations. A fit may exist in any one of the associations that are made about the

brand. Product associations may be based on product category, product

17

attribute/functional benefits, application, technology, channel, user and brand

personality/self-expressive benefits (Aaker, 2008, pp. 205-206). The strength of a brand

highly depends on the associations that the consumers make when they come across the

brand name. If a brand has strong associations, it will evoke positive attitudes in

customers. It is important to note that how a business is defined affects the direction the

brand extension is going to take. The definition of the business actually affects the

associations made about the brand.

Perceived fit between the extension and the parent brand may depend on the transferal of

current skills or assets to making the extension; the perceived product class

complementarity; and the perceived product class substitutability (Keller and Aaker,

1990). In the same study Keller and Aaker (1990) also stress the fact that the customer's

perceptions of the difficulty of making the extension has a positive relationship with the

evaluations of the extension – i.e. if it is more difficult to manufacture an extension, the

consumer has a more favorable attitude towards the extension as compared to an easily

manufactured extension. There is considerable evidence that category similarity (fit) is

related to brand extension evaluation (Keller and Aaker, 1990). Similarity between the

categories (the original and extended) is an important condition in the customer’s

evaluation of brand extensions. When they are very similar, customers more easily

transfer parent brand attributes to the extended brand. However, they find that some

factors, such as local environment and degree of customer knowledge about the parent

brand, act as determining agents to expand or reduce the influence of similarity

(Broniarczyk and Alba, 2004).

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A brand has greater elasticity when the new category is similar to the original (Aaker and

Keller, 1990), but this relationship can be relative to the perception of brand prestige or

functionality. On the other hand, Broniarczyk and Alba (2004) showed that the attributes

are the prime determining factor of brand elasticity and that they are not only restricted to

prestige or functionality. The importance of the fit for extension has two motives: the first

is that perceived quality can be transferred more from one brand when the two classes of

goods are consistent with each other; the second is because a poor fit not only weakens

the transfer of positive associations but also may encourage undesired associations and

opinions. When the fit is low, the customer can question the company’s skill in making a

good new product, and if it is confusing, the customer may ridicule the extension (Aaker

and Keller,1990).If, on one hand, fit is required in an extension, extremely easy

extensions may be less accepted by the customer (Aaker; Keller,1990), or because the

extension would not justify the price charged or because it would be inconsistent to apply

a quality name to such a trivial product class (Aaker and Keller, 1990). Moreover, Dacin

and Smith (2004) found that successive extensions, successful in a number of categories,

can reduce the effect of the fit in the next extensions (the customer would understand that

everything that the company does, it does it well.

On examining brand extensions in a competitive context, Han (2008) found that when

there is a low fit between the extension and the parent brand the extension is perceived to

be of lower quality as compared to extensions with higher fit and “neither the ad format

nor the type of attribute could overcome the negative effects of low fit”. There is a

bidirectional link between corporate image and fit. Service extensions with good fit lead

19

to an image improvement, whereas extensions with poor fit result in dilution. More

generally, the degree of perceived fit is related to the corporate image. (Pina et al., 2006)

found that high fit extensions help consumers remember parent brand associations for

non-dominant brands, and this reinforces the parent’s image. On the other hand,

consumers’ brand attitudes are weakened after extensions which are perceived as

belonging to a different category or about which the information is inconsistent with the

image consumers hold (Milberg et al., 2007).

If a brand is extended to a new product category, this product is typically viewed as a

new instance and consistent with the brand and its existing products (Czellar, 2003).This

consistency factor between the extended brand and the parent brand is mainly due to the

concept called “perceived fit.” There are two main dimensions of a consumer’s perceived

fit construct that have been discussed in previous studies; product category fit and brand-

level fit or brand image fit (Park et al., 2011). While the perceived product category fit

refers to the perceived fit between the extension category and the existing product

category of the parent brand, the brand-level fit or brand image fit refers to the match

between the specific image of the extended brand and the parent brand (Czellar, 2003). If

consumers’ perceived fit (both perceived category and brand image) is high and the

perceived quality of the core brand is high, then the attitude towards the extension is

likely to be positive(Aaker and Keller, 1990).

In a situation where a new extension is launched and consumers encounter a situation

where he/she possesses information or experience of both the parent brand and the

extended brand. In this particular situation, a consumer is likely to process information

20

related to both the parent brand and the extended brand to see whether any fit (product

category and brand image) between the two brands exist (Czellar, 2003). In this case,

consumers will evaluate the extended brand based on his/her attitude toward the parent

brand and the extension category. Researchers have suggested some marketing strategies

that firms can employ, such as advertising techniques and marketing mix variables to

improve perceived fit of the newly extended brand. By means of continuous exposure to

advertising, one can retrieve information easily and eventually aid in improving fit

perceptions (Klink and Smith, 2001).

2.4.3 Customer Attitudes Toward the Extension

Attitudes are the overall evaluations of the brand by the consumer (Keller, 1993, p. 4).

The attitude the consumer has about a brand determines whether he/she will like the

product, buy the product, and become loyal to the product. When a negative attitude is

formed, it is almost unchangeable and usually leads to the avoidance of the brand by the

consumer. Therefore, attitude towards the extension is an important variable in

determining whether the extension is accepted by the consumer or not. If the attitude

towards the extension is high, this will have positive effect on the product brand image, if

it is low, there will be a negative or negligent effect on product brand image. Therefore, it

could easily be said that the success of a marketing program depends on creating

favorable brand associations (Keller, 2008, p. 5) and these positive attitudes have a

positive impact on product brand image. Attitude towards products is important because

it is the basis of the brand choosing process (Keller, 2008). Brand attitudes form a model

defined as the sum of customer opinions about a product or service, multiplied by the

21

strength of the evaluation of each of these opinions. An important implication of this

model is that many positively assessed opinions can be defeated by a few strongly

negative opinions (Pitta et al., 2005). For example, if a customer tries a diet juice and

likes the taste, it can be evaluated as positive due to these two attributes (low calories and

taste), but, depending on the type of sweetener used, it may be evaluated as a health

hazard and the product is rejected. Customer attitudes towards brand extension alter

associations with the parent brand. Faircloth et al. (2001) found that the attitude towards

the brand has a direct effect on brand image and indirect effect on brand equity. Bhat

(2004), through four experiments, evidence that an extension enhances the attitude

toward the parent brand or keeps it intact, regardless of the variation in quality and fit of

the extension.

Before a brand extension of any product category takes place, consumers generally would

have established an attitude, either favorable or unfavorable, towards the parent brand

(Czellar, 2003). These attitudes reflect both associated cognitive and affective dimensions

of attitudes. On one hand, the cognitive dimension is brand/category knowledge defined

in terms of the product-related and non-product-related associations linked to a brand or a

product category in the long-term consumer memory (Keller, 2008). On the other hand,

the affective dimension refers to the feelings associated with a brand name or a product

category (Loken and John, 2003). Based on the cognitive component of attitude, product-

related associations mainly refer to the functional and experimental attributes such as fit,

style, color, and durability of the existing products, and non-product-related association

mainly refers to the symbolic benefits of the brand name such as prestige and status

22

(Czellar, 2003). According to the cognitive component of attitude, consumers evaluate

both the parent brand and the extended brand based on their brand or product category

knowledge. However, based on the affective component of attitude; feelings are mainly

associated with a brand name or a product category (Loken and John, 2003). The

consumers’ evaluations of the parent and the extended brand are solely based on the

feelings associated with the parent brand. These feelings are the possible outcome of their

positive or negative long term experience with that brand.

2.4.4 Familiarity

Familiarity refers to brand knowledge in the customer’s mind (Campbell and Keller,

2003). Familiar brands are different from non-familiar brands according to the recall of a

customer. Customers make different associations with familiar brands: whether for their

own or family use, through friends or a contact in the press or advertising. Familiarity,

especially when addressing goods with low involvement, can guide the buying decision.

Where there is no motivation for deeper evaluation, this insight may be fundamental

(Aaker, 2008, p.68).

How well a customer knows a brand shows how familiar he/she is with the brand. Keller

(2008, p. 10) defines brand familiarity as “the number of product related experiences that

have been accumulated by the consumer (through product usage and advertising)”. Any

type of experience with and exposure to the brand increases familiarity. Research shows

that customers tend to buy brands that they are familiar with. Experiments show that even

if customers are shown some words that have no meaning and later are motivated to

“pick” the names that they like, most of them choose the nonsense words they have been

23

shown before (Aaker, 2004, p. 203). The same applies to brand names. When a customer

is familiar with a brand name, he/she has more favorable attitudes towards it as compared

to brand names he/she is not aware of. “Knowledge of the brand-specific association is

required for consumers to appreciate the appropriateness of the brand in the extension

category”, (Broniarczyk and Alba, 2004, p. 216). Therefore, if a customer is familiar with

the brand, this will have a positive effect on the image of the extended product.

If, on one hand, the role of familiarity in forming brand image is clear, its role on the

other in the customer’s evaluation of extensions is still unclear. When there is a low

degree of brand information, the customers trust in the brand’s quality and familiarity to

make their evaluations. According to John et al., (2008), flagship products are less

susceptible to the effects of diluting parent brand extension due to the customers’

widespread exposure, familiarity and experience with such goods. Variation in the

measure of brand image may depend on brand familiarity and customer reaction to an

extension may be affected by customer familiarity with brand products (Klink and Smith,

2001).

2.5 Risks Associated with Brand Extension Strategies on Product Brand Image Despite the many advantages gained by using brand extensions, they also have the

potential of creating some problems for the firm, such as cannibalization, failure, partial

failure and dilution even if the extension is successful (Pitta and Katsanis, 2005, p. 51).

When a brand is extended into product categories that are not consistent with the original

product or if different associations are created by the extension, this can damage the

brand’s image. In other words, even successful extensions may harm the core brand

24

image if the associations created by the extension alter existing associations (Keller,

2008, p. 16). Especially if excessive extensions are made, the differentiating association

may be lost which may cause dilution of the image of the brand (Aaker, 2004, p. 211).

Brand extensions, especially unsuccessful ones, may dilute brand names by “diminishing

the favorable attribute beliefs consumers have learned to associate with the family brand

name” (Loken and Roedder John, 2003, p. 79). The result of an extension may be the

cannibalization of sales of existing products and the dilution of the current image of the

parent brand.

There is also the potential that the extension could harm the equity which has been

developed by the parent brand (Loken and John, 2008).According to Loken and John

(2008), sometimes brand extension creates negative perception in consumer mind, which

effect the reputation of parent brands as well. Keller (2008) found out that inconsistent

brand extension (product not relevant with parent brand category) leads towards brand

dilution. The main reason of brand extension failure is lack of new brand linkage in

respect of its functions, similarity and familiarity with parent brand. Failure to meet

customer expectations creates negative perception about parent brand which results weak

brand association and disturb the original brand as well as related products.

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CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter describes the proposed research design, the target population, data collection

instruments and the techniques for data analysis.

3.2 Research Design

The research design adopted was descriptive research design. According to Cooper and

Schindler (2000), a descriptive research design is concerned with finding out the; who,

what, where, when and how much. Furthermore, a research design is structured, has

investigative questions and part of formal studies. The design is deemed appropriate

because the main interest will be to explore the viable relationship and describe how the

role of brand extension strategies on brand image among pharmaceutical firms in

Nairobi.

A descriptive research design provides a snapshot of the sample at a single point in time.

This kind of study was used for the research as it enabled the researcher to have an

insight of the brand extension strategies employed by Pharmaceutical firms and factors

contributing to. Descriptive design method will provide quantitative data from cross

section of the chosen population. This design provided further insight into research

problem by describing the variables of interest.

26

3.3 Target Population The population of the study consisted of 50 pharmaceutical firms operating in Nairobi.

As a result, the study was a census survey.

3.4 Data Collection The study used primary data which was collected through self-administered

questionnaires. The questionnaire was administered through “drop and pick later” method

to the brand managers. The structured questionnaires were used to collect data on the role

of brand extension strategies on brand image among pharmaceutical firms in Nairobi.

The questionnaires consisted of both open and closed ended questions designed to elicit

specific responses for qualitative and quantitative analysis respectively.

3.5 Data Analysis The data collected was analyzed using descriptive statistics (measures of central tendency

and measures of variations). Once the data is collected, the questionnaires were edited for

accuracy, consistency and completeness. However, before final analysis was performed,

the data was cleaned to eliminate discrepancies and thereafter, classified on the basis of

similarity and then tabulated. The responses were coded into a numerical form to

facilitate statistical analysis. Data was analyzed using statistical package for social

sciences based on the questionnaires. In particular, the descriptive analysis employed

tables, pie charts, percentages, mean and standard deviations to summarize the

respondent answers. A Pearson correlation was undertaken to establish the relationship

existing between different independent variables.

27

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION

4.1 Introduction

The research objective was to establish the influence of brand extension strategies on

brand image among the pharmaceutical firms in Nairobi. This chapter presents the

analysis, results and discussions. The findings are presented in percentages and frequency

distributions, mean and standard deviations. A total of 50 questionnaires were issued out

and only 38 were returned. This represented a response rate of 76%.

4.2 Demographic and Respondents Profile

The demographic and respondents profile considered in the study were highest level of

education attained, length of continuous service, number of employees and the duration

the company has been in existence in Kenya.

4.2.1 Highest level of education

The respondents were requested to indicate the highest level of education and the results

are presented in table 4.1.

Table 4.1: Highest level of education Level of education Frequency Percent Cumulative

Percent

Post graduate level 12 32.4 32.4

University 23 59.5 91.9

Tertiary college 3 8.1 100.0

Total 38 100.0

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The results presented in Table 4.1 indicate that 59.5% of the respondents had attained

university level, 32.4% of the respondents had attained post graduate level while 8.1% of

the respondents were tertiary college level holders. The results indicates that majority of

the respondents were university degree holders and above an indication that the

pharmaceutical firms employees’ are mostly graduates.

4.2.2 Length of Service with the Pharmaceutical Firm

The respondents were asked to indicate the duration they have continuously worked in

the pharmaceutical firms and the results are presented in Figure 4.2.

Figure 4.1: Length of service with the pharmaceutical firm

The results presented in Figure 4.2 indicate that 51.4% of the respondents had worked in

the organization for a period of less than 5, 40.5% of the respondents indicated that they

have worked for 5 to 10 years while 8.1% of the indicated that they have worked for over

10 years. Majority of the respondents have worked in the organization for a longer

duration of time and thus there is high level of understanding of the influence of brand

extension strategies.

29

4.2.3 Number of Employees The respondents were asked to indicate the number of employees in the pharmaceutical

firm and the results are presented in Table 4.2.

Table 4.2: Number of Employees Number of Employees Frequency Percent Cumulative Percent

Less than 100 12 33.0 30.0

100 – 499 18 45.6 75.6

300 - 999 8 21.4 100.0

Total 38 100.0

The results indicate that 45.6% of the pharmaceutical firms employ between 100 and 499

employees, 33.0% of the firms employ less than 100 employees while 21.4% of the firms

employ between 300 and 999 employees. The results indicate that the number of

employees in the firms varies with the size of the firm.

4.2.4 Duration of Pharmaceutical Firm Existence

The respondents were requested to indicate the duration the pharmaceutical firm has been

in existence and the results are presented in table 4.3.

Table 4.3: Duration of Pharmaceutical Firm Existence Years Frequency Percent Cumulative Percent Under 5 3 7.8 7.8 6 – 10 2 4.9 12.7 10 – 20 16 42.7 55.4 20 – 30 7 18.4 73.8 Over 30 10 26.2 100.0 Total 38 100.0

30

The results indicate that 42.7% of the pharmaceutical firms have been in existence for 10

to 20 years, 26.2% of the firms have been in existent for over 30 years, 18.4% of the

firms was indicated to have been in existence for 20 to 30 years, 7.8% of the firms have

been in existence for less than 5 years while 4.9% of the firms were indicated to have

been in existence for 6 to 10 years. The results indicate that majority of the firms have

been in existence for a long duration of time and thus they understand the need of brand

extension strategies.

4.3 Brand Extension Strategies

Brand extension involves the use of a brand name established in one product class to

enter another product class. Launching of a new product is usually done through brand

extensions. The newly introduced brand extension capitalizes on the equity of the already

established (core) brand name or even the company or corporate name. The result on the

use of brand extension strategies by the firms was that all the firms use the strategy and

this will enable the firms to attract and maintain customers by riding on the firm brand

name.

4.3.1 Band Extension Strategy Used

The respondents were requested to indicate the extent to which they use brand extension

strategies in a five point Likert scale. The range was ‘not at all (1)’ to ‘very great extent’

(5). The scores of not at all have been taken to represent a variable which had mean score

of 0 to 2.5 on the continuous Likert scale; (0≤ S.E <2.4). The scores of ‘moderate’ have

been taken to represent a variable with a mean score of 2.5 to 3.4 on the continuous

Likert scale: (2.5≤ M.E. <3.4) and the score of both great extent and very great extent

31

have been taken to represent a variable which had a mean score of 3.5 to 5.0 on a

continuous Likert scale; (3.5≤ L.E. <5.0). A standard deviation of >0.7 implies a

significant difference on the impact of the variable among respondents. The results are

presented in Table 4.4.

Table 4.4 : Band Extension Strategy Used

Brand extension strategy used Mean Std. Deviation Target adjustment (brand is extended to target and

encompass more diverse groups of consumers) 3.9405 1.2155

Usage adjustment (products from the extended brand are

designed to be worn in obviously different situations (i.e.,

time, place, occasion)

3.7534 1.3123

Distribution channel adjustment (Main brands are

extended in order to utilize new distribution channels such

as discount stores, direct mail)

2.8378 1.3847

Product class adjustment (Main brands are extended to

cover other product classes) 3.6182 1.3743

Table 4.4 findings indicate that the brand extension strategy used by the pharmaceutical

firms is target adjustment (brand is extended to target and encompass more diverse

groups of consumers) (mean 3.9405), usage adjustment (products from the extended

brand are designed to be worn in obviously different situations (i.e., time, place,

occasion) (mean 3.7534) and product class adjustment (Main brands are extended to

cover other product classes) (mean 3.6182). Distribution channel adjustment (Main

brands are extended in order to utilize new distribution channels such as discount stores,

direct mail) (mean 2.8378) was used by the firms to a moderate extent. The low variation

32

of standard deviation indicates that the respondents were unanimous on the brand

extension strategy used by the pharmaceutical firms. Keller (2008) states that more than

80 per cent of firms resort to brand extensions as a way of marketing goods and services.

4.3.2 Benefits of Brand Extension Strategy

The respondents were requested to indicate the benefits of brand extension strategies to

the pharmaceutical firms.

Table 4.5: Benefits of Brand Extension Strategy

Benefits of brand extension strategy Mean Std. Deviation Brand knowledge achieved in the current markets 3. 9347 1.1403 Lower cost and risk than new brand 3.5892 1.3710 Growth of current and new segments 3.6324 1.1911 It provides immediate consumer awareness by a quick and new way to enter a market

3.6595 1.1924

Decrease communication costs 3.5162 1.1089 Increase brand value 3.6934 1.2369 Economies of scale in communication 3.5946 1.1657 Results in increased profitability 3.5405 1.1689 Meet customer trend and need 3.7027 1.1270 Meet changing market 3.6149 1.0939 It acts as a defense tool against competitors 3.5676 1.1435 Brand extensions can clarify the brand meaning to consumers and define the boundaries of the domain in which it competes

3.7568 1.0112

The findings indicate that the benefits of brand extension strategies are brand knowledge

achieved in the current markets (mean 3.9347), brand meaning clarification to consumers

and define the boundaries of the domain in which it competes (mean 3.7568), meet

customer trend and need (mean 3.7027), increase brand value (mean 3.6934), provides

immediate consumer awareness by a quick and new way to enter a market (mean 3.6595),

33

growth of current and new segments (mean 3.6324), meet changing market (mean

3.6149), economies of scale in communication (mean 3.5946), lower cost and risk than

new brand (mean 3.5892), acts as a defense tool against competitors (mean 3.5676),

results in increased profitability (mean 3.5405) and decrease communication costs (mean

3.5162). The results indicate that the use of brand extension strategies result in several

benefits to the firm and this is consistent with Chen and Liu (2004) findings that brand

extension is often seen as beneficial because of the reduced new product introduction

marketing research and advertising costs and the increased chance of success due to

higher preference derived from the core brand equity. In addition, a brand extension can

also produce possible reciprocal effects that enhance the equity of the parent brand.

4.3.3 Brand Image of Firm’s Product

The respondents were requested to indicate the effect of brand image on firm products in

a five point Likert scale. The range was ‘strongly disagree (1)’ to ‘strongly agree’ (5).

The scores of strongly disagree/disagree have been taken to represent a variable which

had mean score of 0 to 2.5 on the continuous Likert scale; (0≤ S.E <2.4). The scores of

‘moderate’ have been taken to represent a variable with a mean score of 2.5 to 3.4 on the

continuous Likert scale: (2.5≤M.E. <3.4) and the score of both agree and strongly agree

have been taken to represent a variable which had a mean score of 3.5 to 5.0 on a

continuous Likert scale; (3.5≤ L.E. <5.0). The results are presented in Table 4.6.

34

Table 4.6: Brand image of Firm’s Product

Brand image of firm’s product Mean Std. Deviation The brand provides good value for money 4.3784 .9818 There is a reason to buy the brand instead of others 4.2973 .8776 The brand has personality that distinguish itself from competitors’ brands

4.3243 .9444

The brand is interesting 3.7297 1.1217 Companies have a clear impression of the type of people who consume the brand

4.0541 1.0259

This brand is different from competing brands 3.7568 1.2562 The brand is very consolidated in the market 4.1146 .9428 It’s a brand that doesn’t disappoint its customers 4.2432 .9546 The brand is nice 3.9189 1.1637 The products have a high quality 4.5676 .8673

The results indicate that the products have a high quality (mean 4.5676), the brand

provides good value for money (mean 4.3784), the brand has personality that distinguish

itself from competitors’ brands (mean 4.3243), there is a reason to buy the brand instead

of others (mean 4.2973), it does not disappoint its customers (mean 2432), it is very

consolidated in the market (mean 4.1146), have a clear impression of the type of people

who consume the brand (mean 4.0541), the brand is nice (mean 3.9189), the brand is

different from competing brands (mean 3.7568) and that the brand is interesting (mean

3.7297). The results indicate that the image of the firm differentiates the firm products

and others thus enabling the firms to achieve competitive advantage. Hsieh et al., (2004)

argued, brand image helps consumer in recognizing their needs and satisfaction regarding

the brand, it also distinguishes the brand from other rivals motivating customer to buy the

brand

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4.4 Role of Brand Extension Strategies on Product Brand Image

To manage brand extensions effectively, marketers need to understand the relations

between the variables constituting the brand extension strategy and the effect they may

have on the brand image.

4.4.1 Influence of Perceived Quality on Product Brand Image

The respondents were requested to indicate the influence of perceived quality on product

brand image.

Table 4.7: Influence of Perceived Quality on Product Brand Image

Influence of perceived quality on product brand image Mean Std. Deviation Attitudes towards brands have an effect on brand image 3.9459 1.0526

Good corporate image is likely to give trustworthiness and credibility to consumers thus an increase in the perceived quality of a brand

4.2973 1.0237

The quality of the product is credible 4.1622 .9863 The product of the company must be of very good quality 4.2162 1.0310 The company’s product has a higher quality than other brands

4.0811 1.0640

The findings indicate that the influence of quality was that good corporate image is likely

to give trustworthiness and credibility to consumers thus an increase in the perceived

quality of a brand (mean 4.2973), the product of the company must be of very good

quality (mean 4.2162), the quality of the product is credible (mean 4.1622), the

company’s product has a higher quality than other brands (mean 4.0811) and that

attitudes towards brands have an effect on brand image (mean 3.9459). The results

indicate that the quality of the product influence firm image and the results are in line

36

with Pina et al., (2006) findings that an individual’s interactions with an organization

may affect their quality perceptions, which may in turn modify the corporate image.

Consequently, as attitudes towards brands have an effect on brand image, perceived

quality of the brand extension is likely to affect post extension corporate image.

4.4.2 Influence of Brand Fit on Product Brand Image

The respondents were asked to indicate the influence of brand fit on product brand image

and the results are presented in table 4.8.

Table 4.8: Influence of Brand Fit on Product Brand Image

Influence of brand fit on product brand image Mean Std. Deviation High fit extensions help consumers remember parent brand associations for non-dominant brands

3.7297 1.1462

Service extensions with good fit lead to an image improvement

4.0541 .9985

The extension is similar to the brand’s products 3.8108 .8109 The firm's resources are helpful to make the product extension

3.8919 .9062

Probability of using together the extension and present services (Complement)

3.8378 .9578

Perceived ability of the firm to make brand extension (Transfer)

3.5946 .9848

Communication strategy used for extension by the company

3.7568 .8946

The similarity or dissimilarity of new product to the products usually offered by the company

3.5295 1.0953

Use of two brand names as a branding strategy creates an extension that reduces the negative impact of an extension with poor fit as the customer associates the extension to the positive aspects of the core brand

3.5743 .9562

The fewer the number of product categories with which the core brand is associated the greater the impact of fit

3.6216 .9818

37

The findings in table 4.8 indicate that service extensions with good fit lead to an image

improvement (mean 4.0541), the firm's resources are helpful to make the product

extension (mean 3.8919), probability of using together the extension and present services

(Complement) (mean 3.8378), extension is similar to the brand’s products (mean 3.8108),

communication strategy used for extension by the company (mean 3.7568), high fit

extensions help consumers remember parent brand associations for non-dominant brands

(mean 3.7297), the fewer the number of product categories with which the core brand is

associated the greater the impact of fit (mean 3.6216), perceived ability of the firm to

make brand extension (transfer) (mean 3.5946), creates an extension that reduces the

negative impact of an extension with poor fit as the customer associates the extension to

the positive aspects of the core brand (mean 3.5743) and that the similarity or

dissimilarity of new product to the products usually offered by the company (mean

3.5295). The results indicate that the consumers will accept the product when they

perceive that there is some consistency between the brand and the new product. The

results are consistent with Park et al. (1991) findings that if there is a high degree of

perceived fit (both product category and image fit) accompanied by a high degree of

perceived quality of the parent brand, it is likely that consumers will display positive

evaluations toward brand extension.

4.4.3 Influence of Customer Attitude Toward the Extension on Product Brand

Image

The respondents were requested to indicate the effect of customer attitude toward the

extension on product brand image.

38

Table 4.9: Influence of Customer Attitude Toward the Extension on Product Brand Image

Influence of customer attitude toward the extension on product brand image Mean Std. Deviation The core brand associations (attributes, benefits and attitudes) are transferred to the extension thus fitting the new category

3.7568 .92512

Consumer knowledge will result in that a customer will be more likely to discriminate between the core brand and the extension

3.5703 1.04479

Consumer exposure to brand extensions will increase parent brand awareness in terms of recognition and recall

3.6376 1.16763

The results indicate that the influence of customer attitude toward the extension was that

the core brand associations (attributes, benefits and attitudes) are transferred to the

extension thus fitting the new category (mean 3.7568), consumer exposure to brand

extensions will increase parent brand awareness in terms of recognition and recall (mean

3.6376) and that consumer knowledge will result in that a customer will be more likely to

discriminate between the core brand and the extension (mean 3.5703). The results

indicate that customer attitude affects the image of the firm and this is consistent with

Keller (2008) findings that if the attitude towards the extension is high, this will have

positive effect on the product brand image, if it is low, there will be a negative or

negligent effect on product brand image and therefore the success of a marketing

program depends on creating favorable brand associations and these positive attitudes

have a positive impact on product brand image.

39

4.4.3 Influence of Familiarity on Product Brand Image

The respondents were asked to indicate the influence of familiarity on product brand

image in the pharmaceutical firms.

Table 4.10: Influence of Familiarity on Product Brand Image

Influence of familiarity on product brand image Mean Std. Deviation Consumer familiarity with the existing core brand name

aids new product entry into the marketplace and helps the

brand extension to capture new market segments quickly

3.8108 1.1507

Consumers’ relations with the brand affects their purchase

intention for a brand extension, in both similar and

dissimilar extensions

3.6739 1.0597

Consumers’ reactions to brand extensions are affected by

their familiarity with the brand’s product category 3.7568 1.0112

Consumers’ previous brand experience was shown to

influence trial of extended products, but not repeat

purchases

3.6486 1.0059

Consumers of products from the parent brand were found

to respond more positively to line extensions 3.8378 1.1429

The results indicate that consumers of products from the parent brand respond more

positively to line extensions (mean 3.8378), consumer familiarity with the existing core

brand name aids new product entry into the marketplace and helps the brand extension to

capture new market segments quickly (mean 3.8108), consumers’ reactions to brand

extensions are affected by their familiarity with the brand’s product category (mean

3.7568), consumers’ relations with the brand affects their purchase intention for a brand

extension, in both similar and dissimilar extensions (mean 3.6739) and that consumers’

40

previous brand experience was shown to influence trial of extended products, but not

repeat purchases (mean 3.6486). The results show that consumers will evaluate the broad

similarity between the extended product and the exemplars to determine the degree of

categorical fit. The results are consistent with Klink and Smith (2001) findings that

consumers’ reactions to brand extensions are affected by their familiarity with the brand’s

product category.

4.5 Brand Extension Strategies Problems on Product Brand Image

The respondents were requested to indicate the brand extension strategies problems on

product brand image among the pharmaceutical firms.

Table 4.11: Brand Extension Strategies Problems on Product Brand Image

brand extension strategies problems on product brand image Mean Std. Deviation The new product can create confusion and negative connections and thus harm the core brand

2.3784 1.13899

Brand extensions may obscure the identification of the brand with its original categories, reducing brand awareness

2.3857 1.15600

Brand extension creates negative perception in consumer mind, which effect the reputation of parent brands as well

2.1351 1.27284

Lack of new brand linkage in respect of its functions, similarity and familiarity with parent brand

2.3514 1.18360

Failure to meet customer expectations thus creating negative perception about parent brand

2.2027 1.48819

The findings indicate that brand extension creates negative perception in consumer mind,

which effect the reputation of parent brands as well (mean 2.1351), failure to meet

41

customer expectations thus creating negative perception about parent brand (mean

2.2027), lack of new brand linkage in respect of its functions, similarity and familiarity

with parent brand (mean 2.3514), the new product can create confusion and negative

connections and thus harm the core brand (mean 3.3784) and that brand extensions may

obscure the identification of the brand with its original categories, reducing brand

awareness (mean 2.3857). The results indicate that although brand extension strategies

results in several benefits to the firm, it brings problems at the same time to the firm

brand image. The results are in line with Pitta and Katsanis (2005) findings that despite

the many advantages gained by using brand extensions, they also have the potential of

creating some problems for the firm, such as cannibalization, failure, partial failure and

dilution even if the extension is successful.

42

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction

This chapter gives the summary, conclusion and recommendations of the study. The

suggestion for further research was also highlighted.

5.2 Summary of Findings

The study found out that majority of the respondents had attained university level and

above an indication that in order to be able to undertake their duties well, the employees

in the industry has to have sufficient knowledge of the products. The duration the

respondents have worked varied though majority have worked for a longer duration of

time and thus there is high level of understanding of the industry dynamics that

necessitates the adoption of brand extension strategies. The number of employees

employed in by the pharmaceutical firms varied and this could be attributed to the size of

the firms. The duration the pharmaceutical firms have been in existence varied though

majority of them have been in existence for more than ten years and therefore they

understand the need of brand extension strategies.

The study established that the pharmaceutical firms’ uses brand extension strategies

although the extension used varied as some use target adjustment, usage adjustment and

product class adjustment while distribution channel adjustment was used though not

majorly. Brand extensions allow consumers to draw conclusions and form expectations

about the potential performance of a new product based on their existing knowledge

43

about the product. The benefits of pursuing brand extension strategy by the firms was

found to be brand knowledge achieved in the current markets, brand meaning

clarification to consumers and define the boundaries of the domain in which it competes,

customer trend and need, increase brand value, immediate consumer awareness by a

quick and new way to enter a market, growth of current and new segments, meet

changing market, economies of scale in communication, lower cost and risk than new

brand, defense tool against competitors, increased profitability and decrease

communication costs.

Brand image helps consumer in recognizing their needs and satisfaction regarding the

brand, it also distinguishes the brand from other rivals motivating customer to buy the

brand. The study established that the pharmaceutical firms image is as result of products

have a high quality, the brand provides good value for money, personality that distinguish

itself from competitors’ brands, reason to buy the brand instead of others, it does not

disappoint its customers, it is very consolidated in the market, have a clear impression of

the type of people who consume the brand, the brand is nice, the brand is different from

competing brands and that the brand is interesting.

Perceived quality offers a firm competitive advantage by differentiating the brand from

competing brands. Perceived quality is highly essential as it provides value to consumers

and also provides an opportunity and reason for the consumers to engage in purchase

behavior. The study found out that the firm perceived quality influence brand image

through good corporate image which is likely to give trustworthiness and credibility to

consumers thus an increase in the perceived quality of a brand, the product of the

44

company that is of very good quality, the quality of the product being credible, the

company’s product has a higher quality than other brands and attitudes towards brands

having an effect on brand image. The strength of a brand highly depends on the

associations that the consumers make when they come across the brand name. The study

found out that brand fit in the pharmaceutical industry lead to an image improvement, the

firm's resources are helpful to make the product extension, probability of using together

the extension and present services (Complement), extension is similar to the brand’s

products, communication strategy used for extension by the company, high fit extensions

help consumers remember parent brand associations for non-dominant brands, the fewer

the number of product categories with which the core brand is associated the greater the

impact of fit, perceived ability of the firm to make brand extension (transfer), creates an

extension that reduces the negative impact of an extension with poor fit as the customer

associates the extension to the positive aspects of the core brand and that the similarity or

dissimilarity of new product to the products usually offered by the company.

The study found out that the attitude the consumer has about a brand determines whether

he/she will like the product, buy the product, and become loyal to the product. Customer

attitude toward extension influence was found in the core brand associations (attributes,

benefits and attitudes) are transferred to the extension thus fitting the new category,

consumer exposure to brand extensions will increase parent brand awareness in terms of

recognition and recall and that consumer knowledge will result in that a customer will be

more likely to discriminate between the core brand and the extension. Knowledge of the

brand-specific association is required for consumers to appreciate the appropriateness of

45

the brand in the extension category. The study found out that familiarity influences brand

image through consumers of products from the parent brand respond more positively to

line extensions, consumer familiarity with the existing core brand name aids new product

entry into the marketplace and helps the brand extension to capture new market segments

quickly, consumers’ reactions to brand extensions are affected by their familiarity with

the brand’s product category, consumers’ relations with the brand affects their purchase

intention for a brand extension, in both similar and dissimilar extensions and that

consumers’ previous brand experience was shown to influence trial of extended products,

but not repeat purchases.

5.3 Conclusion The importance of brands in a highly competitive branch of high-volume products will

continue to increase and the survival will be possible only for those brands that are strong

enough and sufficiently differentiated from the competition. A company’s key to success

is to determine what makes its brand so different from the competition and to continue

with its mission as successfully in the future as well. A brand that has quality and is well-

established ensures a competitive advantage on the market and, at the same time, requires

good management and treatment of its identity. An important element in the process of

brand management is brand extension.

The study herein demonstrated that the brand extension strategy influences brand image.

The quality perceived by the customer in relation to the original brand, customer

familiarity with the parent brand and the customer’s attitude towards this brand contribute

favorably to the final brand image after extension, whether it is the general brand or

46

product image. Also, the fit between the original and extended product category benefit

the general brand image after extension. Attitude toward brand extension, brand loyalty,

image fit and final brand image are among the factors being influenced by initial brand

image. This reveals the importance of paying attention to initial brand image completely,

because lack of attention to this variable can lead to failure of new product and huge costs

incurred by the company. The results also showed that the customer’s interest in the

original product category can be affected negatively after extension, showing that the

diluting effect of extension spreads not only to the extended brand but to its entire

category. It is evident that an unsuccessful brand extension would harm an entire

category and it is possible that this unsuccessful extension harms future launchings.

5.3 Recommendations

Firstly, the study found out that perceived fit between parent and extended brand and also

perceived quality on corporate image influence brand image and therefore it is

recommended that the pharmaceutical firms with good image do not use extension with

low fit and quality, because it’s negative effects will damage that good image.

Secondly the study established that the success or failure of brand extension strategies

and its influence on customer attitudes toward brand image, in a great extent is related to

customer mental image to the company. It is therefore recommended that, in order to

have a good market position, the pharmaceutical firms use its sources to save and

promote its image on customer’s insight because if customers do not have a good mental

image of this company, its customer-based brand image will decrease. A strong brand

image distinguishes the brand from others. Thus just like brand loyalty, brand image is

47

also a main factor in managing firm brand. By awareness of this fact, managers should

keep in mind that maybe a customer prefers a brand just because having a distinct brand

image of it. Therefore it is recommended that managers try to improve brand image

continuously.

The study shows that one factor being effective in improving brand loyalty is brand

awareness. In other words brand loyalty increases with increase in brand loyalty. Thus

managers can enhance their firm brand awareness via marketing activities e.g.

advertising, informing, public relations and other tools. Also marketing managers can

obtain customer loyalty by providing services other competitors are not able to offer.

The study found out that brand extension is affected by several factors that might be

detrimental to the firm image and it is recommended that the pharmaceutical firms must

also be alert to poorly done extensions on brands originating from categories in decline,

since the effect may also be detrimental not only to the brand but also to the overall

category, curbing its possible future launchings.

5.4 Recommendations for Future Research

Future studies may consider the impact of extension on the customer’s choice, evaluating

the effects of extension on the sales of that brand and its products, both in traditional and

online shopping. The relation between extension and advertising should be made clearer

in order to define the possibility of reversing the decline in brand image, besides the long

term effects of extension.

48

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i

APPENDIX I

AUTHORITY REQUEST LETTER

Betty Mwangi

P.O. Box 4156, 0102

Thika

July, 2013

Dear Respondent,

RE: PERMISSION TO CARRY OUT RESEARCH IN YOUR INSTITUTION

My name is Betty a student at University of Nairobi pursuing a Master of Business

Administration degree. I am currently conducting research in pursuance of my degree, entitle;

INFLUENCE OF BRAND EXTENSION STRATEGIES ON A BRAND IMAGE IN THE

PHARMACEUTICAL FIRMS IN NAIROBI.

In this regard, I am kindly requesting for your support in term of responding to the attached

questionnaire. Your accuracy in response will be critical in ensuring objective research.

Confidentiality and anonymity will be exercise. Thanks in advance.

Yours sincerely,

Betty Mwangi

ii

APPENDIX II

QUESTIONNAIRE

Please give answers in the spaces provided and tick ( ) in the box that matches your response

to the questions where applicable.

PART A: Demographic and Respondents Profile

1. Name of the pharmaceutical company…………………………………………………….

2. What is your job title ………………………………………………………………………

3. What is your highest level of education qualification?

a) Post graduate level ( ) b) University ( )

c) Tertiary College ( ) d) Secondary ( )

4. Length of continuous service with the company?

a) Less than five years ( )

b) 5-10 years ( )

c) Over 10 years ( )

5. How many employees are there in your company?

a) Less than 100 ( ) b) 100 – 499 ( )

c) 300 – 999 ( ) e) Above 1000 ( )

6. For how long has your company been in operation in Kenya?

a) Under 5 years ( ) b) 6 – 10 years ( )

c) 10 – 20 years ( ) d) 20 – 30 years ( )

e) Over 30 years ( )

Part B: Brand Extension Strategies

7. Does your company uses brand extension strategy?

Yes ( ) No ( )

iii

8. To what extent does your company uses the following brand extension strategies? Use Not at

all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very great extent.

Brand extension strategy 1 2 3 4 5

Target adjustment (brand is extended to target and encompass more

diverse groups of consumers)

Usage adjustment (products from the extended brand are designed to be

worn in obviously different situations (i.e., time, place, occasion)

Distribution channel adjustment (Main brands are extended in order to

utilize new distribution channels such as discount stores, direct mail)

Product class adjustment (Main brands are extended to cover other

product classes)

9. To what extent do your company benefits from using brand extension strategies? Use Not at

all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very great extent.

Benefits of brand extension strategies 1 2 3 4 5

benefiting from the brand knowledge achieved in the current markets

Lower cost and risk than new brand

Growth of current and new segments

It provides immediate consumer awareness by a quick and new way to enter a market

Decrease communication costs

Increase brand value

Economies of scale in communication

Results in increased profitability

Meet customer trend and need

Meet changing market

iv

It acts as a defense tool against competitors

Brand extensions can clarify the brand meaning to consumers and define the boundaries of the domain in which it competes

By improving the favorability of an existing brand association, adding a new brand association, or a combination of these, a brand extension can enhance the parent brand image

10. To what extend do you agree with the following regarding the brand image of your

company’s products? Use 1- Strongly Disagree, 2- Disagree, 3- Moderate, 4- Agree and 5-

strongly agree.

Brand image of company’s products 1 2 3 4 5

The brand provides good value for money

There is a reason to buy the brand instead of others

The brand has personality that distinguish itself from competitors’ brands

The brand is interesting

I have a clear impression of the type of people who consume the brand

This brand is different from competing brands

The brand is very consolidated in the market

It’s a brand that doesn’t disappoint its customers

The brand is nice

The products have a high quality

v

Part C: Role of brand extension strategies on product brand image

11. To what extent do the following factors influence the company’s brand image? Use Not at

all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very great extent.

Perceived quality 1 2 3 4 5

Attitudes towards brands have an effect on brand image

Good corporate image is likely to give trustworthiness and credibility to consumers thus an increase in the perceived quality of a brand

The quality of the product is credible

The product of the company must be of very good quality

The company’s product has a higher quality than other brands

Brand fit 1 2 3 4 5

High fit extensions help consumers remember parent brand associations

for non-dominant brands

Service extensions with good fit lead to an image improvement,

The extension is similar to the brand’s products

The firm's resources are helpful to make the product extension

Probability of using together the extension and present services

(Complement)

Perceived ability of the firm to make brand extension (Transfer)

Communication strategy used for extension by the company

The similarity or dissimilarity of new product to the products usually

offered by the company

Use of two brand names as a branding strategy creates an extension that

reduces the negative impact of an extension with poor fit as the

customer associates the extension to the positive aspects of the core

brand

vi

The fewer the number of product categories with which the core brand is

associated the greater the impact of fit

Customer Attitudes toward the extension 1 2 3 4 5

The core brand associations (attributes, benefits and attitudes) are transferred to the extension thus fitting the new category

Consumer knowledge will result in that a customer will be more likely to discriminate between the core brand and the extension

Consumer exposure to brand extensions will increase parent brand awareness in terms of recognition and recall

Familiarity 1 2 3 4 5

Consumer familiarity with the existing core brand name aids new

product entry into the marketplace and helps the brand extension to

capture new market segments quickly

Consumers’ relations with the brand affects their purchase intention for

a brand extension, in both similar and dissimilar extensions

Consumers’ reactions to brand extensions are affected by their

familiarity with the brand’s product category

Consumers’ previous brand experience was shown to influence trial of

extended

products, but not repeat purchases

Consumers of products from the parent brand were found to respond

more positively to line extensions

vii

Part D: Brand Extension Strategies Problems on Product Brand Image 12. To what extent does the following brand extension affects product brand image of the

company? Use Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very

great extent.

Challenges 1 2 3 4 5

The new product can create confusion and negative connections and thus harm the core brand

Brand extensions may obscure the identification of the brand with its original categories, reducing brand awareness

Brand extension creates negative perception in consumer mind, which effect the reputation of parent brands as well

Lack of new brand linkage in respect of its functions, similarity and familiarity with parent brand

Failure to meet customer expectations thus creating negative perception about parent brand

viii

APPENDIX II

LIST OF PHARMACEUTICALS COMPANIES IN NAIROBI

1) Abbott Laboratories 2) Eli-lilly 3) Wyeth 4) Boehringer Ingelheim 5) Takeda Pharmaceutical 6) Teva Pharmaceutical 7) Novo Nordisk 8) Ranbaxy Laboratories 9) 108) IPCA Laboratories 10) 109) Schering Plough 11) 110) Torrent Pharmaceuticals 12) Cipla 13) Wessex Phamaceutical 14) Aura Labaratories

Source of information: Pharmacy and Poisons Board Website

15) Mentholatum 16) Synermed 17) Simba Pharmaceutical 18) UCB Pharma 19) Prisma 20) Adcock Ingram 21) Servier international Johnson and Johnson 22) Ricket and Benkenser 23) Dafra Pharma 24) Almirall Prodesfama 25) Mepha Pharma 26) Medrich 27) Denkpharma 28) Menarini 29) BMS 30) Roche 31) Novartis 32) Gsk 33) Pfizer 34) Harley’s Limited 35) Philips Pharmaceutical 36) Kulal International 37) Astra-zeneca 38) Sanofi – Aventis 39) Safoni – Pastuer 40) Galaxy 41) Surgilinks 42) Glenmark 43) Surgipharm 44) MSD 45) Bayer 46) Europa 47) Sunpar 48) Alkem 49) Intas 50) Janse Cilag Pharma