The beverage sector, especially with the launch of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Phenomena of local food and beverage concepts
using Brand Extensions in the Kuwait market:

1.     Background:

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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).

Brand
extension is classified into two categories: width and depth of a parent brand
(Keller, 2003). Keller (2003, p.581) claimed that “brand extensions can
come in all forms”. A core brand is replaced by sub-brand (Collange, 2008)
or using a new feature added to the parent product (Densai and Keller, 2002). Edward
classified brand extension into some categories, what he calls a
franchise-extension based on the brand extension characteristics and its
correlation to the parent brand.

 

 

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.

Explanation

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. First, it affects the extent to which
consumers transfer their core brand awareness to an extension (Densai and
Keller, 2002). Second, consumers may fit as a cue to make their inferences
about an extension (Hou, 2003). Besides, 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). Historically, similarity is understood in
terms of internal operating synergies that arise when a new product can
leverage on an existing market (Hem, Gronhaug, and Lines, 2002). 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. 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). 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).

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.

3.     Implications:

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.