The Phenomena of local food and beverage concepts using Brand Extensions in the Kuwait market:
In recent years Kuwait has witnessed a boom in the food and beverage sector, especially with the launch of the governments National Fund for SME’s AND THE Industrial Bank SME fund. It has become the number one choice for young investors and entrepreneurs, mostly focusing on restaurants and coffee shops. Dining is the number one form of entertainment in the country and is a mouthwatering prospect for the young entrepreneurs and as a result the term serial entrepreneur is often used to describe the large number of youth entering the food and beverage market. As a result, some of these start ups have invested and employed brand extension strategies for their brands, a phenomena that has increased considerably in recent years. Three main reasons are behind this phenomena, mainly being the need to cut costs, maximise taking advantage of customer loyalty and the need to increase market share. Examples of this are Canteen by Brothers, a burger concept venturing into the coffee shop segment, Raha by Naturerland; an organic food products retail shop venturing into the dining in restaurant segment and Pick a spin off from a frozen yoghurt concept to a retail dining in outlet serving a vast range of food options such as readymade healthy meals. These are just examples and there are many more.(appendix…). All the aforementioned have adopted a brand extension strategy capitalizing on brand loyalty and their customer base. There have also been failure stories due to incorrect implementation of brand extension and bad timing of the brand extension type and strategy by eager young entrepreneurs whose rush and rapid expansion has led to their loss. In this paper, the brand extension phenomena in Kuwait food and beverage SME’s will be covered with a literature review of the concept from academic literature, an explanation of the phenomena linked to the literature review and a discussion of the implications and recommendations for businesses to succeed in this booming and very competitive market.
2. Literature Review
Over the two decades, introducing new products as brand extensions has become popular (Maoz and Tybout; Hou, 2003). Brand extension is considered paramount to develop a brand. It is widely used as eighty percent of new products are introduced as a brand extension in the market ( Keller 2003; Simms, 2005; Volckner and Sattler, 2006). This strategy is broadly applied in order to reduce marketing expenses in launching new products in the market and to enhance the quality of the core brand.
Exploiting valuable core brand to build up brand extensions are an obvious strategy for growth (Keller and Aaker, 1992) but it is not without risks for businesses in the new economic environment. Prior studies on brand extension have indicated that a successful brand extension depends a lot on firm characteristics (Hou, 2003) and core brand characteristics (Keller and Aaker, 1992; Park and Kim, 2001; Hou, 2003), customer characteristics (Keller, 1993; Swaminathan, et al., 2001), extended brand characteristics (Hou, 2003), and marketing strategies (Desai and Keller, 2002; K.L Washburn, Till and Priluck, 2000; Park and Kim, 2001; Hou, 2003).
Understanding brand extension in terms of core brand, characteristics and customer behaviors are very important for marketers and companies in order to expand and increase sales revenue.
2.1 Types of brand extension
Brand extension can be classified into many types. The need to clearly differ brand substitutions and changes in brand design has led to define brand name extension as the replacement of at least one of the verbal denominations of a product by another, accompanied by the disappearance of the former denomination (Collange, 2008). Brand extension is also defined as “a product whose nature and function differ from those of products currently commercialized under the brand name” (Cegarra and Merunka, 1993 cited in Collange, 2008). In other words, brand extension is defined as using an established brand name so-called parent brand or core brand (Volckner and Sattler, 2006) to introduce a new product (Keller, 2003).
2.2 Advantages of brand extension
As an efficient strategy, brand extensions have become popular over the last twenty years. There are a lot of firms like Apple, which has succeeded with the extension of the Apple iPod digital music player. It is considered as a tool for a firm to improve brand image when consumers’ inferences to the performance of a new product is based on what they really know about the brand. These inferences are noted by Keller (2003) that can improve the strength and uniqueness of the core brand.
Many firms are using this way in order to generate quicker positive reciprocal effects and heavier purchase by consumers (Swaminathan, et al., 2001). Another expected benefit is to ease the acceptance of the extended brand. Extending brands both within and beyond the original product category can be profitable. In a competitive economic environment, extending a brand is often seen as a popular (Maoz and Tybout, 2002) and beneficial strategy to introduce different products into the market in order to reduce costs, risk of failure and to increase successful opportunity cost (Taylor and Bearden, 2002).
Risk of brand extension
Similar to cost of opportunity, the success of brand extensions is uncertain (Nkwocha, Bao, Johnson, and Brotspies, 2005). A brand extension can create negative reciprocal consequences that enhance or diminish the equity of the parent brand (Swaminathan, et al., 2001). In some specific circumstances, it is extremely risky for firms and could be doubted (Collange, 2008).. Extending a brand in the marketplace today is more challenging (Hansen and Hem, 2004) and needs to be managed and selected very carefully. It really requires companies to have knowledge and understanding of how customers evaluate brand extensions and research further into how customers react upon brand extensions in order to maximize profit.
Extended brands sometimes cause consumers to feel not appreciated, this may lead consumers to question the integrity of the brand. It is one of the most popular reasons for the failure of brand extension (Park, Milberg and Lawson, 1991). Besides, the worst possible consequence with a brand extension is that not only does it fail, but it also diminishes the parent brand.. Similarly, brand name extension is extremely risky for firms because consumers may no longer recognize it and doubt its quality.
2.3 Parent brand and brand extension
· Core brand equity
According to previous researchers, the parent brand characteristics have influence on brand extension (Hou, 2003) and play an important role in successful brand extension (Keller and Aaker, 1992). Particularily, the relationship between the core and extended brand is linked to the dominance and nature of the core brand (Bridges, Keller and Sood, 2000). Extended brands from high equity core brands will shape more favorable attitudes (Washburn, Till and Priluck, 2000
The literature on brand extension has shown the essential role of brand equity in shaping consumer attitudes about an extension (Collange, 2008). Later research has revealed that the stronger the parent brand equity is, whether formed by the brand’s quality (Keller and Aaker, 2000) or its awareness, the more brand extension is appreciated and deemed to be successful. Core brand equity has not disappeared, and is engraved in customers’ minds even though replaced by the extended brand and is demonstrated by the fact that many companies continue to refer a new product by its former name as a guarantee for success.
· Quality of parent brand
Brand extensions are perceived by customers’ perceive about the quality of the core brands (Densai and Keller, 2002; Taylor and Bearden, 2002). An existing brand name provides an assurance of quality, thereby reducing the risks involved in purchasing a new product (Swamanithan, et al., 2001). Due to the importance of quality, brand extensions which are from a strong quality brand are benefited more than those from the weak brands (Park, et al., 2002). Extension brands from high quality parent brands perceived as substitutes tend to be less favorably received than those from lower quality brands (Bottomley and Holden, 2001). Also, in later research, those effects should depend on the level of perceived quality of the core brand and a high level of both perceived core brand quality between the original and extension product categories is necessary (Keller and Aaker, 1992).
· Customer-brand relationship
Customer-brand relationship quality interacts significantly and positively with brand extension evaluation (Park, et al., 2002). During introduction of new brand extensions, this strong relationship helps to obtain customers’ acceptance of the new extensions (Park, et al., 2002) and the extended brand will be formed better in a customers’ mind (Densai and Keller, 2002). In addition, customers with a greater perception of core brand will accept the proposed extension more favorable (Keller and Aaker, 1992).
2.4 Brand extension characteristics
There are some important brand extension characteristics which are considered by customers in evaluating brand extension.
· Brand attachment
Due to the limitation of knowledge about new offerings (Taylor and Bearden, 2002), customers may evaluate extended brands by their experience about the core brand (Swamanithan, et al., 2001). Furthermore, brand attachment is defined as an emotional relationship of the consumer with the parent brand (Lacoeuilhe, 2001 cited in Collange, 2008). It means the consumer who is emotionally attached to the core brand will be unhappy if it disappears, regardless of the qualities of the substitution brand. It was claimed that the stronger the consumer’s attachment to the extended brand the more purchase intention will deteriorate. Indeed, the third condition for the extended brand to be a success is that consumers must not be too attached to the brand that will eventually disappear (Collange, 2008).
· Perceived fit
Another characteristic of brand extension, which is recognized as one of the keys to the success of brand extension is perceived fit of the extended brand to the core brand (Hou, 2003). According to previous research, perceived fit can impact brand extension evaluations in some ways. Firstly it affects the extent to which consumers transfer their core brand awareness to an extension (Densai and Keller, 2002) and secondly consumers may fit as a cue to make their inferences about an extension (Hou, 2003). Perceived fit of brand extension is an important component of extension evaluations (Bridges, et al., 2000). In other words, brand extension fit with the core brand is considered as the first condition (Collange, 2008). It leads to evaluate brand extension as more positive (Michel and Cegarra, 2002; Collange, 2008). Earlier research has shown that perceived fit between a brand and an extension is high; consumers are more likely to base their evaluations of the new product on their attitudes towards the parent brand (Bridges, et al., 2000). Therefore, as one of the key success factors of brand extension, it is urgent to manage and emphasize carefully the transfer of the brand in terms of a customer’s perspective (Collange, 2008).
Perceived fit is not only the extension’s functional similarity to the brand category but also its relevance to abstract brand benefits (Broniarczyk and Alba, 1994). Furthermore, consumers may evaluate a brand extensions perceived fit on deep features or surface features (Zhang and Sood, 2002). It might be the main reason leading to the mixed results above.
· Perceived similarity
Perceived similarity is a factor which influences consumer’s acceptance of extensions (Hem and Iversen, 2008). Also, similarity has been found to be a major determinant of brand extension evaluations (Hansen and Hem, 2004). It is defined in terms of the features shared by the core product and extension product (Keller and Aaker, 2000).. Perceived similarity is found to be the most relevant variable that can influence the successful result of extensions (Volckner and Sattler, 2006; Hem and Iversen, 2008).
The similarity between the parent and extended brand might influence perceptions of customers to brand extension and a similar extension of a brand is evaluated more favorably than a dissimilar one. Besides, a customer perception of new brand extensions is related to similarity (Taylor and Bearden, 2002).. The higher the similarity between the extension and the core brand, the more favorable brand extensions are assessed, the higher purchase intention will be (Collange, 2008). In addition, the extension information must be deemed relevant in the parent category and the similarity between the extension and parent brand is necessary for the extension information to be considered relevant (Swaminathan, et al., 2001)
When the extension is seen as unrelated to the core brand, it will not be evaluated favorably and will not be seen as relevant to judging the extension (Boush and Loken, 2003). In contrast, a number of successful extensions that lack an overall perceived similarity with the parent brand have been launched into the market (Maoz & Tybout, 2002). For example, the Virgin brand has been extended to a huge range of products, such as magazines, a music retailing chain, music label, airlines, trains, holidays, personal computers, wine, cola, financial services, radio stations, bridal services, movie theatres, perfume and cellular phones (Keller, 2003). The role of similarity is to influence both positive and negative reciprocal effects (Swaminathan, et al., 2001).
2.5 Customer attitudes towards brand extension
· Attitudes and purchase intention
Customer attitudes towards brand extension may be affected and varied in terms of age, mood and culture (Hou, 2003). As consumers are heterogeneous, they may evaluate differently brand extensions. This difference caused mixed results in previous studies. Zhang and Sood (2002) measured brand extension in terms of customer’s age groups and they found that teens evaluate brand extensions by relying more on surface cues and less on deep cues. Customers from Eastern cultures, characterized by holistic thinking, perceive higher brand extension fit and evaluate brand extensions more favorably than those in Western cultures, characterized by analytic attitudes (Monga and John, 2007).
Therefore difference in culture can lead customers to uncommon responses to brand extensions. In terms of customer intent to purchase an extended brand, there are some opinions about the dependent on customer relationship and satisfaction in the core brand (Park, et al., 2002). An important factor that leads to customer purchase intention is a lower affective commitment to the parent brand (Hansen and Hem, 2004). This means the parent brand experience has no impact on repeat purchase of the brand extension (Swaminathan, et al., 2001) On the other hand, consumers’ willingness to buy is influenced by perceived value of the core brand (Taylor and Bearden, 2002). Similarly, purchase decision to buy an extended brand depends on consumer level of involvement in the core brand (Hansen and Hem, 2004).
· Customer knowledge
Customer knowledge is considered as the most important factor that might influence on their attitudes towards brand extension (Hou, 2003). Brucks (1985) described three categories of consumer knowledge: subjective knowledge, objective knowledge and prior experiences with the product category. In the further research, subject knowledge is considered as the strongest motivation of purchase intention for an extended product (Hem, et al., 2002). Also, when consumers encounter a new product in the marketplace, they are unlikely to engage in extension cognitive deliberation. Meaning that they might base their evaluations of an extended brand on their subjective opinion of the core brand without considering any specific or different features that the extended brand might have (Yeung and Wyer, 2005). For instance, perceived subjective knowledge about the extension category was found to have a negative effect on brand extension evaluation, meaning the evaluation of brand extensions are more positive when perceived subjective knowledge of a consumer is low than when it is high (Park and Smith, 1992). However, in the past, research of brand extension showed mixed results for the effects of consumer knowledge on brand extension. Customer attitudes and the characteristics of brand extension
When a strong relationship exists between an extended brand and the core brand, customer attitudes on brand extension might transfer from the parent brand (Keller and Aaker, 1992; Volckner and Sattler, 2006). Besides, brand extension characteristics have the most weight in the evolution of purchase intention for the brand that has changed name (Collange, 2008). Purchase intention toward the extension is directly influenced by the perceived similarity (Swaminathan, et al., 2001). However, this influence of perceived similarity will be mediated by a categorization construct, called brand meaning (Martin and Stewart, 2001).
Along with the importance of perceived similarity in the studies of brand extension, researchers have suggested that explaining how and why similarity is important for successful brand extension is necessary as well. Consumers first consider if there is a match between what they know and experience about the parent brand and what they believe to be true about the parent brand in a new product category (Hem, et al., 2002). If the match is perceived good, consumers might expect to transfer their attitudes to the extended brand.
In order to implement a brand extension strategy business owners must address the disadvantages and advantages of this method. As a phenomena that is spreading in the local Kuwaiti food and beverage market local brands must be vigilant in their approach. Many local businesses are expanding and implementing brand extension with no clear vision or plan, availability of funds from sources such as The National Fund and The Industrial Bank giving them a sense of unreal safety to spend. As a result it is expected as stated by officials in both institutions that many are expected to default on their first payments in 2018.
There are several disadvantages of a brand expansion strategy, the major one being the possibility that the parent brand image gets diluted. Even a single mistake during extension can hurt the brand image. In some cases a brand extension succeeds only to negatively affect the parent brand. Furthermore, when there is a lack of similarity and familiarity, the entire brand family image gets negatively affected. Customers also get confused due to over information when there are many brand extensions for the same family brand. Loyal customers in particular start having a negatively perceived value towards brands if brand extensions are unsuccessful.
As for the advantages, for they are many. Mainly making customers purchase and repurchase the same brands products and increasing market share by taking advantage of the economies of scale also being a staple. Of course cutting cost especially in promotional activities is a also a plus. Furthermore, parent brand image can be enhanced, product lines and mix can be increased and a stronger market position may be achieved. Finally, but not least the creation of a competitive advantage to face severe competition is possible.
In conclusion, in order for a brand extension strategy to be successful for local food and beverage concepts, business owners must first invest in branding at the start, as there is no use of extending a brand image that is not successful in market. Product quality and consistency must be monitored so as to win customer loyalty before trying to sell them other sister brands or products through brand extension. Timing of the brand extension and whether it will be vertical or horizontal must be carried out based on strong market due diligence and not on ego or aspirations of growth for growth reasons only. Last but not least the use of economies of scale can be the foundation for success in this competitive market as costs are high, especially rental space and food cost, which must be tackled from day one.