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The Research has been undertaken in order to reveal the unique strategies that the Virgin Group employed in its extensions, and to examine whether it is really successful through strategies and how far it can go in the future. To better answer this question six study objectives are derived. The three most important ones are : to show the whole extension history of the Virgin brand, its success and failures ;to demonstrate the unique strategies Virgin employed in its brand extensions; to discover the consumers attitude towards Virgin's extensions and how far Virgin can go.
In order to answer these questions, this research contains a literature review, the field research, as well as analysis and conclusion. The literature review explains the concept and main issues of brands, brand equity, and brand extension. Then the methodology is started and justified, and the investigated company and its brand extension strategies are introduced. After that the results of the survey are presented. And the conclusion is drawn according to academic literature, primary data , and secondary data.
For decades the value of a company was measured in terms of its buildings and land, and then its tangible assets (plant and equipment). The 1980s marked a turning point in the conception of brands. Management came to realize that the principal asset of a company was in fact its brand name ( Kapferer , 1997 ) The brand is not the product but it gives the product meaning and defines its identity in both time and space.
Brand equity is regarded as a very important concept in business practice as well as in academic research because marketers can gain competitive advantage through successful brands. The competitive advantage of firms that have brands with high equity includes the opportunity for successful extensions, resilience against competitors promotional pressures, and creation of barriers to competitive entry( Farquhar, 1989 ) . However, the cost of introducing a brand in to a consumer market can be considerable ranging from about $ 100 million ( ourusoff , 1992) , with a 50% probability of failure ( Crawford, 1993 ).
Thus, it not a surprise that companies seeking growth opportunities may prefer to extend existing brands. Brand extension has been hailed as the way to achieve in a cost controlled environment. By capitalizing on the reputation of an established brand, companies save the high cost of creating new brands. New products which piggyback on favorable brands drive an immediate advantage by entering from a position of strength, thus reducing the risk in failure; while the parent brand gains some synergy through the heightened awareness that is generated in successful new product launches ( Pitta and Katsanis, 1995 ).
While successful brand extensions can reap benefits, management should not forget the risk of extension failure. History shows the potential of brand extension problems, which range from out right failure to partial failures. Instead of success, the failed extension might tarnish the image and reduce the market share of the parent product. Since the brand extension decision in fact a strategic one, it is important to think strategically beyond the first extension to future growth areas. Further more, it is also important to manage those extensions strategically.
Virgin group was chosen as the subject of this study because it offers great potential for studying the issue of brand extension, perhaps the best known example of successful unrelated diversification. Virgin started out as a publisher and retailer of popular music. Its brand was built up on the qualities expressed by its products. The virgin brand is now so powerful that it can be applied to diverse fields including airline, cola, financial services and even commercial space shuttles in the future. The Virgin group has a unique strategy in extending and managing its brand. They have remarkable success and some failure as well . However , to date , its successes have outweighed its failures .
Research Aims and Objectives
This study is an attempt to investigate a company , Virgin group, to gain an insight in to the brand management and brand extension theory.. The researcher seeks to understand brand extension management both in general and in a particular organization. The researcher does not seek to gather statistical data for generalizations, but intends to make an in-depth study in order to highlight issues within this single organization.
The research has been undertaken in order to reveal the unique strategies that the Virgin Group employed in its extensions, and to examine whether it is really successful through its strategies and how far it can go in the future . In detail , the research investigates the recognition of the virgin brand name , the recognition of the products / services under this brand name , the impact of extensions on brand name , and the perception of the brand by the customers.
The research aims to generate the following detailed research objectives.
1 To define brand image and brand extension
2 To demonstrate the consequences of brand extension.
3 To clarify the brand extension strategies.
4 To show the whole extension history of virgin brand including its successes and failures..
5 To demonstrate the unique strategies Virgin employed in its brand extensions..
6 To discover the consumers , attitude towards Virgin's extensions and how far Virgin can go.
All these objectives will be addressed through academic literature review, analysis of existing organisation data, analysis of the organisation survey and interview, and combination of the results.
The following research content can be divided into four sections: literature review, research methodology, primary and secondary research, and conclusion.
The first section is concerned with the literature review. Before expounding the concept of brand extension, the researcher initially demonstrates the definitions of brand extension as one of the strategies in brand management emerged when brands were regarded as intangible assets gaining more attention. Brand extensions are closely linked with brand equity. Successful brand extensions result from good understanding of brand equity. Successful brand extensions result from good understanding of brand equity. After that the researcher clarifies the definition of brand extension, the consequences of brand extension, criteria in brand extension decisions, and evaluations of brand extensions.
In the second section the researcher illustrates the research methodology from three dimensions: research philosophy, research approach, and research strategy. Then the collection methods of primary data and secondary data and the limitation of the methodology will be addressed.
The third section is about the primary and secondary research. Secondary data will be collected and illustrated as the basis of primary research. Primary data will be collected from a standardized questionnaire survey and the data would be analyzed.
Contribution to Research
The prior literatures on brand extensions at Virgin Group clearly illustrated the unique strategies Virgin group employed to extend their brand and weighed its success and failures. This topic has been researched and represented on the basis of biographies and case studies in brand extension theories. Most of the literature has expressed doubts regarding how far the Virgin group can go with its brand.
The purpose of this research is to explore those doubts mentioned above and determine how justified they are. The researcher will conduct a survey from consumers point of view to obtain the answer. The findings will show the awareness of the virgin brand and its products/services, and the attitudes of consumers towards those extensions in Virgin.
Of course, all these aspects are just starting points for further research. It was impractical for the present research to obtain a comprehensive overview of Virgins extensions in general, nor was it practical to consider all existing documents, initiatives and other related information.
Chapter 1 Literature Review
In this chapter, various perspectives of brand extension theories have been reviewed as the basis of the further research. Firstly, the researcher clarifies the general concepts of brand equity. Then brand extension, one of the brand management strategies, is explained in details. The chapter ends with a summery of the literature review.
1.2 What is a Brand?
1.2.1 Definitions of Brand
Keller (1998) explained the origin of the word “brand” by using the research of Interbrand group. The word “brand” is derived from the Old Norse word “brandr, which means “to burn” as brands were and still are the means by which owners of livestock mark their animals to identify them. The different approaches to defining brand partly stem from differing philosophies and stakeholder perspectives, i.e. a brand may be defined from the consumers ‘ perspective and / or from the brand owner's perspective .In addition , brands are sometimes defined in terms of their purpose, and sometimes described by their characteristics(Wood,2000).
The American Marketing Association (1960) proposed the following company - orientated definition of a brand as:
“A name , term , sign, symbol, or design , or a combination of them , intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.”
The definition has been criticized for being too product -oriented, with emphasis on visual features as differentiating mechanisms (Arnold, 1992; Crainers, 1995).
Despite the criticisms, the definition has endured to contemporary literature, albeit in modified from .Aaker (1991) adopt this definition. “A brand is a distinguishing name and / or symbol (Such as a logo, trade mark, or package design) intended to identify the goods or services of with one seller or a group of sellers, and to differentiate those goods or services from those of competitors.”
Ambler (1992) takes a consumer oriented approach in defining a brand as:
“The promise of the bundles of attributes that someone buys and provide satisfaction….The attributes that make up a brand may be real or illusory, rational or emotional, tangible or invisible.”
These attributes emanate from all elements of the marketing mix, and are subject to interpretation by the consumer. They are highly subjective. Brand attributes are essentially what are created through brand description (one interpretation of brand equity) mentioned previously.
Many other brand definitions and descriptions focus on the methods used to achieve differentiation and/or emphasize the benefits the consumer derives from purchasing brands. These include definitions and descriptions that emphasize brands as an image in the consumer's minds, brand personality, brands as value systems, and brands as added value (Wood, 2000)
It is possible to draw together many of the approaches to brand definition, An integrated definition can be achieved that highlights a brands purpose to its owner, and considers how this is achieved through consumer benefits. Added value is implicit to this definition (wood, 2000) that is:
“A brand is a mechanism for achieving competitive advantage for firms, through different (purpose). The attributes that differentiate a brand provide the customer with satisfaction and benefits for which they are willing to pay (Mechanism).”
According to Philip Kotler ( 1984) , A product is anything that can be offered to a market for attention , acquisition , use , or consumption that might satisfy a need or want. Thus a product may be a physical good, service, retail store, person, organization, place or idea. A Brand is a product , then , but one that adds other dimensions to differentiate it in some way from other products designed to satisfy the same need, These differences may be rational and tangible - related to product performance of the brand - of more symbolic, emotional, and intangible - related to what the brand represents ( Keller,1998)
1.2.2 Functions of Brands
Brands play different roles to consumers and firms (Keller, 1998). To consumers, brands identify the source of maker of a product and allow consumers to assign responsibility as to which particular manufacturer or distributor should be held accountable. Most importantly, brands take on special meaning to consumers. Because of past experiences with the product and its marketing program over the years, consumers learn about brands. They find out which brands satisfy their needs (Keller, 1998). Thus, Brands Provide a short hand device or means of simplification for their product decisions (Jacoby et al., 1971). From an economic perspective , Brands allow consumers to lower search costs for products both internally (in terms of how much they have to think ) and externally ( in terms of how much they have to look around) brands can serve as symbolic devices, allowing consumers to project their own self - images. Certain brands are associated with being used by certain types of people and thus reflect different values or traits (Keller, 1998).
Brands also provide a number of valuable functions to firms (Chernatony and William, 1998). Fundamentally, they serve an identification purpose to simplify product handling or tracing for the firm. Operationally, brands help to organize inventory, accounting, and other records. A brand also offers the firm legal protection for unique features or aspects of the product. A brand can retain intellectual property rights, giving legal title to the brand owner (Bageley, 1995). The brand name can be protected through registered trade marks, manufacturing processes can be protected through patents, and packing can be protected through copy rights and designs. Brands can signal a certain level of quality so that satisfied buyers can easily choose the product again ( Erdem ). This brand loyalty provides predictability and security of demand for the firm and creates barriers of entry that make it difficult for other firms to enter the market. Thus, to firms, brands represent enormously valuable pieces of legal property, capable of influencing consumer behavior, being bought and sold , and providing the security of sustained future revenues to their owners ( Bymer , 1991).
1.2.3 Brand Architecture
A company that wants to get behind its corporate brand and use it more proactively must decide on the most appropriate brand architecture for its business or businesses (Mottram, 1998). There are three alternatives:
* A monolithic structure
* An endorsed brand architecture
* A hybrid structure (Mottram, 1998).
A monolithic structure has the corporate brand right at the center. All products and services are branded with the same name, identity and set of brand values. The advantage of this sort of structure include a seamless transfer of goodwill to the center, cheaper brand building and instant credibility when launching new products or extending into new markets. The difficulty with the monolithic approach is that the corporate brand's personality has to be flexible enough to cover different products and markets while being precise enough to compete with specialist brands in each segment. When a company uses an endorsed brand architecture, it aims to add the higher values of the corporate brand to the specific values of product and service brands in its portfolio in the interest of competitive advantage. Thus the corporate brand can add security, trust and credibility to the positioning of the product or service brand. Brand owners have adopted a number of ‘hybrid' approaches. For instance, Nestle has pulled all of its products under ten global ‘banner' brands. Each banner brand is targeted at a specific market or closely linked markets but, crucially all will continue to benefit from the Nestle corporate endorsement as well. Other companies have adopted the name of one of their brands as the corporate brand, in the hope of leveraging specific product brand attributes across the group and increasing the intangible value of the entire business in the process (Mottram, 1998).
1.3.1 From Brand Image to Brand Equity
Brands have been a major aspect of marketing reality for over a hundred years. The theory of branding came sometime later (Feldwick, 1996). David Ogilvy was discussing the importance of brand image as early as 1951 (Biel, 1993). It was first fully articulated by Burleigh Gardner and Sidney Levy in their classic Harvard Business Review paper of 1955. But despite such distinguished origins the concept of ‘brand image' remained - until recently - peripheral to the mainstream of advertising theory and evaluation (Feldwick, 1996). Although it was endorsed from the 1960s onward by the British Account Planning movement (e.g. King, 1970; Cowley, 1989), it was also seen by many advertisers and researchers as a rather woolly theory - the sort of thing advertising agency people talk airily about when they failed to ‘get a hard product message across' or to ‘convert prospects' or to ‘make sales', as they were supposed to be doing (Feldwick, 1996). ‘Brand image' was associated with expressions like the ‘soft sell' (Reeves, 1961) and the ‘weak theory of advertising' (Jones, 1991), which gave it, for many, the air of a whimsical luxury that a businesslike advertiser could hardly afford (Feldwick, 1996).
In the nineteen -eighties, the hardnosed business people began to notice that brands appeared to be changing hands for huge sums of money. As take-over fever spread, the difference between balance sheet valuations and the prices paid by predators was substantially attributed to ‘the value of brands'. Suddenly, the brand stopped being an obscure metaphysical concept of dubious relevance. It was something that was worth money (Feldwick, 1996).
This shift of perception was reflected in the way that the traditional expression ‘brand image' was increasingly displaced by its solid financial equivalent, ‘brand equity'. It is not clear who invented the expression, but few uses of it have been traced before the mid- eighties (Ambler and Styles, 1995). It achieved respectability when it was taken up by the prestigious Marketing Science Institute, which held a major seminar on the subject in 1988 and has been going strong ever since (Feldwick, 1996).
1.3.2 Definitions of Brand Equity
Since the term “brand equity” emerged in the 1980s (Cobb- Walgren et al, 1995), it is regarded as a very important concept in business practice as well as in academic research because marketers can gain competitive advantage through successful brands (Lassar et al, 1995). However, there are a number of alternative methods have been suggested for defining the concept of brand equity, which results in some confusion and even frustration with the term(Keller, 1998).
Generally brand equity has been viewed from two major perspectives. The first perspective has used the concept of brand equity in the context of marketing decision-making. The second perspective has focused on the financial aspects of brand equity, more pertinent to determining a brand's valuation for accounting, merger, or acquisition purposes (Pitta and Katsanis, 1995).
The financial-market-value-based technique presented by Simon and Sullivan (1993) has been quoted in Motameni and Shahrokhi (1998) for estimating a firm's brand equity. The stock price is used as a basis to evaluate the value of the brand equities. Brand equity is defined as “the incremental cash flows, which accrue to branded products over unbranded products (Simon and Sullivan, 1993).” The estimation technique extracts the value of brand equity from the value of the firm's other assets. First, the macro approach assigns an objective value to a firm's brands and relates this value to the determinants of brand equity. Second, the micro approach isolates changes in brand equity at the individual brand level by measuring the response of brand equity to major marketing decisions (Motameni and Shahrokhi, 1998). Simon and Sullivan (1993) believe that financial markets do no ignore marketing factors and stock prices reflect marketing decisions.
Financial World uses one of the most publicised financial approaches in its annual listing of worldwide brand valuation (Cobb-Walgren et al,!995).They used a brand-earnings multiplier or weights to calculate brand equity, The brand weights are based on both historical data and individuals' judgments of other factors. The brand equity is the product of the multiplier and average of the past three years' profits (Motameni and Shahrokhi, 1998).
Within the marketing literature, operationalisations of brand equity usually fall into two groups: those involving consumer perceptions and those involving consumer behaviour
.Keller (1998) offered a perceptual definition of customer-based brand equity: “the differential effect that brand knowledge has on consumer response to the marketing of that brand”. A brand with positive customer-based brand equity might result in consumers being more accepting of a new brand extension, less sensitive to price increases and withdrawal of advertising support, or more willing to seek the brand in a new distribution channel. Customer-based brand equity occurs when the consumer has a high level of awareness and familiarity with the brand and holds some strong, favourable, and unique brand associations in memory (Keller, 1998). The latter consideration is critical. For branding strategies to be successful and brand equity to be created, consumers must be convinced that there are meaningful differences among brands in the product or service category. Brand awareness is created by increasing the familiarity of the brand through repeated exposure and strong associations with the appropriate product category or other relevant purchase or consumption cues (Alba and Hutchinson, 1987). Marketing programs that link strong, favourable, and unique association to the brand in memory create a positive brand image. The definition of customer-based brand equity does not distinguish between the source of brand associations and the manner in which they are formed; all that matters is the resulting favourability strength, and uniqueness of brand associations (Keller, 1998).
Cobb-Walgren, Ruble and Donthu (1995) introduced Kamakura and Russell's approach relying more on consumer behaviour in their article. They used scanner data to come up with three measurements of brand equity. First is perceived value-was defined as the value of the brand that cannot be explained by price and promotion. Second is brand dominance-provided and objective value of the brand's ability to compete on price. Third is intangible value-was operationalised as the utility perceived for the brand minus objective utility measurements (Kumakura and Russell, 1993).
Aaker (1991) is one of the few authors to incorporate both attitudinal and behavioral dimensions in his definition (Cobb-Walgren et al, 1995). He has provided the most comprehensive definition of brand equity to date: “A set of assets (and liabilities) linked to a brand's name and symbol that adds to firm's customers.” The major asset categories are (figure 1.1): brand name awareness, brand loyalty, perceived quality, brand associations (Aaker, 1996).
Paul Feldwick (1996) has suggested that brand equity seems to be used in three quite distinct senses, and each of these three has several further nuances of meaning. These are:
a = the total value of a brand as a separable asset-when it is sold, or included on a balance sheet.
b = a measure of the strength of consumers' attachment to a brand.
c = a description of the associations and beliefs the consumer has about the brand.
In his point of view, looking for an operational definition of brand equity just likes asking the wrong question. Brand equity is necessarily a vague concept. It is depending on the brand's individual circumstances- and depending, importantly, on the use to which the findings will be put (Feldwick, 1996).
Although a number of different views of brand equity have been expressed, they all are generally consistent with the basic notion that brand equity represents the “added value” endowed to a product as a result of past investments in the marketing for the brand. They all acknowledge that there exist many different ways that value can be created for a brand; that equity provides a common denominator for interpreting marketing strategies and assessing the value of a brand; and that there exist many different ways that the value of a brand can be manifested or exploited to benefit the firm(Keller, 1998).
1.4 Brand Extension
1.4.1 New Products and Brand Extension
Developing brand extensions is one type of New Product Development (NPD) (Amber and Styles, 1996). Keller (1998) introduced Ansoff's growth share matrix as background of brand extension strategy. As shown in figure 1.2, growth strategies can be categorised as to whether they involve existing or new products and whether they target existing or new customers or markets.
When a company introduces a new product, it has three main choices as to how to brand it:
* Develop a new brand, individually chosen for the new product
* Apply one of its existing brands in some way
* Use a combination of a new brand with an existing brand.
A brand extension is when a company uses an established brand name to enter a new product category (Aaker and Keller, 1990).
1.4.2 Brand Equity and Brand Extension
One stream of brand equity research has focused on brand extensions (Barwise, 1993). Ambler and Styles (1996) have stated the reciprocal relationship between brand equity and brand extensions by combining the finding of other researchers. Part of this work has explored the effect of a brand's equity on its extendibility, with the general conclusion being that the firm can leverage a brand's existing equity in new categories (Shocker and Weitz, 1988). Research within this stream has found that brands with higher brand equity extend more successfully (Rangaswamy et al, 1993). Other research has looked at the reverse relationship: the impact of brand extensions on brand equity. The findings are that successful brand extensions can have a positive effect on the core brand, i.e. build brand equity (Dacin and Smith, 1994; Keller and Aaker, 1992). There seems therefore to be a reciprocal relationship between brand equity and brand extensions (Ambler and Styles, 1996).
1.4.3 Brand Extension Dimensions
Brand extensions can be accomplished in a variety of ways. One of the most obvious differences is whether the extensions is in the same or different product's name to a new product in the same product class or to a product category. Thus they can be classified as either vertical or horizontal extensions (Pitta and Katsanis, 1995).
Horizontal brand extensions either apply or extend an existing product's name to a new product in the same product class or to a product category new to the company. There are two varieties of horizontal brand extensions, which differ in terms of their focus: line extensions and franchise extensions (Aaker and Keller, 1990).Line extensions involve a current brand name, which is used to enter a new market segment in its product class. In contrast, franchise extensions use a current brand name to enter a product category new to the company (Tauber, 1981). Horizontal extensions lend themselves to natural distancing. Distancing is the purposive increase in the perceptual distance of the extension from the core product. Unsuccessful horizontal extensions are less likely to damage the core brand than vertical extensions since horizontal extensions are often in different-and more distant-product categories. Typically consumers will recognise that such horizontal extensions are not closely related. The downside to distancing is that distancing reduces the amount or strength of the brand associations and reduces the halo effect of the extension (Pitta and Katsanis, 1995).
Horizontal extensions may suffer if the core and extension are perceived to be too distant from each other. Brand associations cannot stretch over too large a gulf. Research indicates that if the core product is perceived to be of high quality, and the “fit” between the core and extension is high, then brand attitudes toward the extension will be more favorable (Aaker and Keller, 1990). Without the perceived similarity between the parent and extension, consumers find it more difficult to attribute original brand associations to the extension (Pitta and Katsanis, 1995).
In contrast, vertical extensions involve introducing a related brand in the same product category but with a different price and quality balance. Vertical extensions offer management the quickest way to leverage a core product's equity,. However, since the new product is in the same category, distancing is difficult and the risk of negative information is higher than with a horizontal extension. As a strategy, vertical brand extension is widely practiced in many industries. Vertical new product introductions can extend in two directions, upscale, involving a new product with higher price and quality characteristics than the original; or downscale, involving new product with lower quality and price points. Downscale vertical extensions may offer the equivalent of sampling to a new market segment, and bring some market share enhancement. Functional products seem to allow downscale but not upscale extension. Conversely, prestige products allow upscale but not downscale extensions (Pitta and Katsanis, 1995).
1.5.1Advantages of Brand Extension
Well-planned and implemented extensions offer a number of advantages to marketers. These advantages can be categorised as those that facilitate new product acceptance and those that provide feedback benefits to the parent brand or company as whole (Keller, 1998).
* Facilitate new product acceptance
With a brand extension, the cost of developing a new brand, introductory and follow-up marketing programs can be reduced (Keller, 1998). To conduct the necessary consumer research and employ skilled personnel to design high quality brand names, logos, symbols, packages, characters, and slogans can be quite expensive, and there is no assurance of success. Similar or virtually identical packages and labels for extensions can result in lower production costs and, if coordinated properly, more prominence in the retail store by creating a “billboard” effect. With a brand extension, consumers can make inferences and form expectations as to the likely composition and performance of a new product based on what they feel this information is relevant to the new product (Kim and Sullivan, 1995). Because of the potentially increased consumer demand resulting from introducing a new product as an extension, it may be easier to convince retailers to stock and promote a brand extension. It should be easier to add a link from a brand already existing in memory to a new product than it is to have to first establish the brand in memory and then also link the new product to it (Aaker and Carmon, 1992). By offering consumers a portfolio of brand variants within a product category, consumers who need a change because of boredom, satiation, or whatever can switch to a different product type if they so desire one without having to leave the brand family (Keller,1998).
* Provide feedback benefits to the parent brand
Extensions can (and ideally should) enhance the core brand (Aaker, 1991). According to the customer-based brand equity model, one desirable outcome from a successful brand extension is that it may enhance the parent brand image by strengthening an existing brand association, improving the favourability of an existing brand association, and / or adding a new brand association (Keller, 1998). Keller and Aaker (1992) showed that a successful corporate brand extension led to improved perceptions of the expertise, trustworthiness, and likeability for the company.
1.5.2 Problems of Brand Extension
Despite those potential advantages, there are a number of potential disadvantages to brand extensions. A brand name can fail to help an extension, or (worse) can even create subtle-and sometimes not so subtle- associations that can hurt the extension. When a brand name is added simply to provide recognition, credibility, and a quality association, there often is a substantial risk that even if the brand is initially successful, it will be vulnerable to competition. Worse still, the extension can succeed, or at least survive, and damage the original brand name by creating undesirable attribute associations, damaging the brand's perceived quality, or altering existing brand associations. Because the extension can dramatically affect a key asset (the brand name), both in its original setting and in the new context, a wrong extension decision can be strategically damaging (Aaker, 1991). The worst potential result of an extension is that by introducing a new product as a brand extension, the firm forgoes the chance to create a new brand with its unique image and equity (Keller, 1998).
1.6 The Criteria in Brand Extension Decisions
Although managers have many decisions to make regarding the appropriate marketing mix for their products, with brand extensions managers have two primary decisions to make:
(1) Which category to enter; and
(2) What marketing strategy to use (Sheinin, 1998).
Aaker (1991) provided three steps to develop a brand extension. The first step is to determine the associations with the brand name. There are a variety of techniques can be employed, such as name associations, projective techniques, and exploring perceptual differences. One criterion is the strength of association with the brand Associations will be more useful if they can provide a link (a basis of fit) with other categories, and provide competitive leverage for extensions.
For each of the major associations, of the major associations, the next step is to identify related product categories. Again, customers could be asked directly to generate names of products related to the associations. Another approach is to focus on such bases of fit as complementarity, transferability of skills and assets, user types, attributes, benefits, components, and symbols (Aaker, 1991).
From the resulting list of products, the next task is to select a limited number to explore through a concept-testing stage. Two primary criteria should be used. First, the brand should be perceived to fit the extension. The customer should be comfortable with the concept of the brand being on the extension. If the brand is to help the extension by transferring a perceived quality or an association, a basis of fit will make that transfer more feasible. Second, it should provide some point of advantage. The name should provide a reason to buy. It should suggest a benefit such as higher quality, more reliable performance, or a feeling of status (Aaker, 1991)
Aaker's three steps has dealt with the first decision, concluding that increased perceived fit between the parent brand's and extension's categories leads to more positive evaluations (Sheinin, 1998). However, it has not dealt with the second decision-marketing brand extensions. Keller (1998) provided five steps in successfully introducing brand extensions, which are concerned with both of these two decisions. The last two steps are designing marketing programs and evaluating extension effects on parent brand equity. Extensions are used as a short cut means of introducing a new product, and insufficient attention is paid to developing a branding and marketing strategy that will maximise the equity of the brand extension and parent brand. Building brand equity for a brand extension requires choosing brand elements, designing the optimal marketing program to launch the extension, and leveraging secondary associations. The final step in evaluating brand extension opportunities involves assessing the extent to which an extension is able to achieve its own equity as well as contribute to the equity of the parent brand.
1.7 Evaluations of Brand Extensions
Aaker and Keller (1990) studied the effects of certain brand and product category- related aspects on the attitude consumers develop toward hypothetical extensions of reputable brands. They proposed a relation between perceived quality of the original brand and consumers' attitude toward extensions in unrelated product categories. Their study suggested that this perceived quality is transferred to the extension category to the extent that there is sufficient congruence between the original product category and the extension category (Aaker, 1990). In the other words, the transfer of positive associations is related to the degree of similarity the consumer perceives between original product category and extension.
The dependent variable consists of a self-reported short-term attitude toward hypothetical extensions of familiar brands (Barwise, 1993), Operationalised as the average of perceived extension quality, and purchase intention. The first independent variable is perceived quality of the original brand. Aaker and Keller(1990) propose a direct positive relationship between quality and attitude:
Hypothesis 1: Higher quality perceptions toward the original brand are associated with more favourable attitude toward the extension.
Aaker and Keller (1990) expect consumers to develop more favourable attitudes toward extensions if they perceive congruence between original category and extension:
Hypothesis 2: The fit between the two involved product classes has a direct positive association with the attitude toward the extension.
Aaker and Keller (1990) expect that the transfer of positive associations to the extension product be moderated by consumers' perception of the fit between the extension category and the original. They thus expect interaction effects between fit variables and the equity variable:
Hypothesis 3: The transfer of the perceived quality of a brand to the extension is enhanced when the two product classes in some way fit together.
Aaker and Keller argue that consumers may find extensions that they are very easy to produce unworthy of a respected brand. They may even associate an easy-to-produce extension of a high-quality brand with an overpriced product. Therefore, another product-related variable, difficult, has been operationalised as how difficult to produce consumers perceive the extension category to be for the producer of the original:
Hypothesis 4: The relationship between the difficulty of making the product class of the extension, difficult, and the attitude toward the extension is positive.
After collecting data by means of a survey, Aaker and Keller (1990) performed an ordinary least squares (OLS) multivariate regression.
The issue of fit has also been explored by Park et al. (1991). Their research supported the notion that, in evaluating brand extensions, consumers consider the perceived degree of fit between the extension and the brand. This fit relates to product feature similarity and brand concept consistency. The most positive evaluations of brand extensions are given to those that have a high degree of fit on both dimension of the brand to base the extension on. Mc William (1993) found that despite large amounts of consumer research, these key dimensions might not be discovered until after the launch and subsequent failure of the extension. The concept of fit may in fact be used more often by managers after launch as a post-relationalisation of success or failure (Barwise, 1993). Recent research has suggested that consumer acceptance can still be obtained without a close fit. For instance, Broniarczyk and Alba (1994) found that brand specific associations that are relevant to a new category could be leveraged even if the new category is quite different from the original. Thus, “opportunities to exploit a brand's value are not limited to similar extension categories”. Further, Dacin and Smith (1994) found that quality can be more important than fit. As such, their results also suggest that extendibility is not necessarily bounded by fit. They conclude that a brand can be gradually extended into more diverse categories as long as a high degree of quality is maintained across extensions. As this happens, fit becomes less important and the brand becomes more extendible.
The term of brand lies at the heart of marketing theory and practice. It is usually considered within the marketing strategy as part of the product and service policy (Hollensen, 2001). The emergence of brand equity concept has raised the importance of the brand in marketing strategy and provided focus for managerial interest and research activity. However, the concept has been defined a number of different ways for a number of different purpose, resulting in some confusion and even frustration with the term (Keller, 1998).
The notion of brand equity is introduced in literature review in order to illustrate its linkage with brand extension. These two concepts have been coincided: a brand's equity has an impact on the success of brand extensions (Rangaswamy et al., 1993; Shocker and Weitz, 1998). And brand extensions in turn have an impact on a brand's equity (Dacin and Smith, 1994; Keller and Aaker, 1992). The understanding of a brand's equity is crucial for successful brand extensions.
Because brand extensions have only recently become so prevalent, to some extent, rules guiding brand extension strategy are still emerging. The basic assumption with brand extension is that consumers have some awareness of and positive associations about the parent brand in memory and at least some of these positive associations will be evoked by the brand extension. Brand extensions offer many potential benefits but also can pose many problems. Brand extension strategies need to be carefully considered by using managerial judgment and consumer research.
Chapter 2 The Virgin Group
2.1 Development of the virgin group
Virgin started out in the 1968 with a student magazine and small mail order record company. At that time, the company called “Slipped Disc Records “ . Richard Branson, the founder of virgin Group, picked up the doodling of his graphic designer on the floor casually. That is the way in which the famous virgin logo came to be. The first business to bear the virgin name was virgin music. From a small mail order operation, virgin music grew to become the largest independent UK record company. As virgin music became increasingly successful, it started to diversify. Now it is so powerful that it can be applied to fields as different as airlines , trains , Finance ,soft drinks , music , mobile phones , holidays , cars , wines , publishing , bridal wear , Each of these product / services divisions operates autonomously , and between them they have created over 200 companies world wide , employing over 25 , 000 people. Their total revenues around the world exceeded Sterling pounds 3 billion ( us $ 5 billion ) ( virgin . com) . To be exact , “ virgin's structure is more like an Asian empire , in which divisions making different products operate as separately traded companies, owning stakes in each other and sharing a name and an ethos” ( Branson , 1998) . Figure 2.1 shows the developments of the virgin group from its foundation to now.
2.2 Richard Branson and Virgin
The inspiration behind the Virgin Group's strategy stems from Richard Branson's attitude to life: ‘Life is what you make of it, one has to make the most out of it. Do things that you like!' ( Hamfred and de Vries, 1998). Virgin is so inextricably bound up with the public persona of Richard Branson that some people question which actually the brand is. Branson is known by 97 % of the British population . Branson's personal image scores extremely high, with 92 % describing him as ‘clever', 86 % as ‘likable' and 71 % as ‘trustworthy'. A remarkable 34 5 say that they would be more likely to buy a Virgin product or service because of their opinion of Branson ( Randall, 1997 ).
He may not look like a finely tuned PR machine, but Richard Branson has tuned himself in to a walking, talking logo. Every time his picture appears in a newspaper or magazine, it promotes the Virgin brand. This is entirely deliberate and probably one of the most effective promotional strategies ever employed by a company. The risk to the reputation of the brand, of course, is correspondingly high should Branson's personal image become tarnished. To date, however, it has proved highly successful, enabling him to build the virgin brand on a shoestring advertising budget ( Dearlove and Crainer , 1999) . With the launch of virgin Atlantic Airways Richard Branson learned a new trick. The big airlines spend literally millions on advertising every year . Branson soon realized that free media coverage was the only way he could hope to survive. Apparently, the decision to challenge for the blue Riband - attempting to break the record for the fastest Atlantic crossing- was made when Branson discovered he could not afford New York TV advertising rates to promote his airline. It is a tactic that Branson has used to remarkable effect ever since, setting aside about a quarter of his time for PR activities (Alan, 1995 ).
Branson had created a new fusion of rebellion and business- and discovered a unique new brand proposition . He has been repeating the formula ever since. Originally aimed at younger people, as Branson has matured so too has the Virgin appeal. ‘For years ago we crossed over in to appealing to their parents, he says. “Now we are moving in to pensions and life insurance. We have not quite reached funeral parlors. But we have to be careful we do not loose the kids . I'd like people to feel most of their needs in life can be filled by Virgin. The Absolutely critical thing is we must never let them down “ ( Paul , 1997)
Branson has acknowledged time and time again that most vital asset Virgin has is the reputation of its brand. Put the Virgin name on any product that does not come up to scratch and the whole company is brought in to dispute. “Our customers trust us “, he says simply. The Branson philosophy, then, is : look after your brand and it will last. For all his unquestioned emphasis on the integrity of the virgin name , one of Branson's personal characteristics - that has become a strand of what Virgin stands for -is a certain restlessness. He has an insatiable desire to take risks and explore new areas .Yet it is vital to do so without damaging the good name of the company. This creates something of a dilemma. It is one that Branson is well aware of ( Dearlove and Crainer , 1999).
The most extreme example of Branson's restless characteristic was the launch of Virgin Atlantic Airways. In fact it was not Branson but a barrister named Randolph Fields who had got this idea firstly. However, the barrister did not have enough funding to establish an airline. At that time, Branson's most loyal lieutenants were flatly opposed to this idea, because nobody in the Virgin Group knew the first thing about airlines. But Branson could see that there was money to be made in flying the Atlantic. At the time, the existing airlines were either badly managed or could not keep up with customer demand. And Randolph Fields offered a well researched and supported proposal. Excluding those, the most important attraction was that virgin could afford to carry modest losses for a while, since they would help to reduce the tax bill on the fat profits that the record label was making. By dint of extreme effort from a team of a dozen of so people, the airline was up and flying within four months of the day which Branson first started discussing the idea with Fields (Jackson, 1995).
2.3 Branson's Unique Strategy
There is an interesting phenomenon in Branson's Virgin. He flits from one industry to another and put the Virgin name on all the products and services. However, many of those private companies that wear his virgin label are in fact only partly owned by Branson. Public records in Britain and other countries show that the Virgin name sometimes simply used by others for a fee, or that Branson's stake in the business is smaller than some of the hype might imply (Usher, 1996). One example: Virgin interactive Entertainment, which makes video games. Despite the name, the company was until recently 75% owned by Spelling Entertainment, a subsidiary of the American corporation Viacom. An additional 15 % belonged to the British firm Hasbro , leaving Virgin with10 %. In 1994 Hasbro sold its share to spelling Entertainment, and in 2001 Spelling bought up Virgins small share, making the company fully owned by Spelling. When Branson bought 116 MGM cinemas through out Britain with an American partner , the deal was big news, with much talk of how the theaters would be virginized in to glitzy movie and fun centers. But Branson quickly sold off 90 of them , retaining only those that could be upgraded in to multiplexes . It was reported in Singapore that local businessmen Ong Beng Seng had taken 11% in Virgin cinemas group . One of Ong's business has established a joint holding company that will control just over 40% of Virgins cinemas ; that that joint company is in turn controlled 72.1% by the Virgin Group and 27.9% by Ong( Usher , 1996) .
Branson embarks on a strategy he calls ‘Branded Value Capital' that he allowed him to launch a hodgepodge of business with minimal investment. Essentially, Branson manages the business and puts up the virgin name , usually in exchange for a controlling interest , while his wealthy partners put up most of the cash ( Flynn et al., 1998). They provide a large slice of the capital- and take much of the risk - while the flamboyant Branson delivers the media buzz that generates sales. This strategy reduces Branson's exposure to financial catastrophe and helps Branson expand his brand around the world. Says Philip Bresford, who oversees the Britain's Richest 500 list for the Sunday Times: ‘Branson is very, very shrewd. He lets other people pay for Virgin's expansion ‘ ( Usher,1996). But some TIME reporters thought that the freewheeling expansion could also make it hard for him to ensure the quality of all the products that bear the Virgin logo. Of course, money is not the only reason that Branson sells his company shares. He wants to turn Greater China, Southeast Asia, and Australia into Virgin territory. He made an alliance with Singapore Airlines, and then Singapore Airlines can help Virgin Atlantic Airways in offering a much wider choice of destinations in Asia with the best service on the ground , in the air , and at very competitive prices ( Virgin.com). His relationship with Patrick gets access to the skills and business flows of Patrick in freight. The Virgin Blue's terminals and / or maintenance operations could be acquired by Patrick outside the partnership. it could also extend the leverage Virgin Blue has over the dominant Quantas. It makes Virgin Blue's expansion both easier and more certain from domestic Australian routes to New Zealand, Papua New Guinea , and Bali ( Bertholameusz, 2002). As Branson said ,'I want to make Virgin the number one brand in the world , instead of around 10th , which is where it is now'( Kane ,2002)
2.4 Brand Equity of Virgin
According to a survey conducted in 1998 , 96 percent of UK consumers were aware of the brand Virgin and 95 percent were able to name Richard Branson as the Virgin Group's founding member ( Anonymous, 1998). Indeed, market research has ranked virgin among the top five brand names in the UK and among the top 25 in Europe ( Vignail,2001). Results from research carried out by super brands concluded that respondents found virgin more ‘reliable', ‘trustworthy', and ‘intelligent' than the conservative party , Labor party, and the Royal family ( Knobil,1998). The most important aspect of the virgin brand proposition is its credibility among its market segment. There is a potential downside. Just as existing Virgin products and services provide credibility for new offerings, the relationship between the virgin family could also work in reverse . If the image were to become tarnished by association with a shoddy product or poor service or an offering that was a rip-off, then the standing of the wider virgin brand could be damaged. The company's less than dazzling move in to rail services has tested the brand to its limits. To date, it's success have far outweighed its failure ( Dearlove and Crainer, 1999).
Although not highly successful in all its business initiatives, the Virgin brand has largely been able to accomplish this amount of brand extensions through single-minded commitment to its value, which are:
* The best Quality;
* Good value for money;
* A challenge to existing alternatives; and
* A sense of fun or cheekiness ( Dearlove and Crainer, 1999)
To get a sense of what this means commercially, consider that although Virgin management is inundated with requests for joint ventures and 90% of the projects it considers are profitable, none get the green light until they satisfy at least four out of these five values. ‘Sense of fun cheekiness' and ‘challenge to existing alternatives' is the underdog role Branson plays so well. Quality, value for money, and innovation are now regarded as ‘must have ‘and no longer as differentiators. Companies such as Virgin do incorporate these values, however, to remind themselves of what the brand stands for and what they believe in ( Temporal, 2002) . The launch of each new Virgin product and service come with a promise to deliver these values and the company's skill has been in spotting opportunities and leveraging the brand in to other areas ( Knobil, 1998)
Chapter 3 Research Methodology
3 . 1 Research Methodology
3.1.1 Research Philosophy
Research philosophy depends on the way that the researcher thinks about the development of knowledge. There are two views about the research process Positivism and phenomenology. They are different, but both have a important part to play in business and management research (Saunders et al., 2000)
It would be easy to fall into the trap of thinking that one research philosophy is better than another. This would miss the point. They are better at doing different things. As always , which is better depends on the research questions the researcher is seeking to answer (Saunders et al.,2000) The purpose of this research is to understand how to improve brand image and the enhance the growth and also to understand why why extend Brands ? How are brands extended and managed? What are the consequences? Brands are highly intangible assets and , as a result , are not easy measured.
3.1.2 Research Approach
The research project will involve the use of theory. That theory may or may not be explicit in the design of the research. the context to which the researcher is clear about the theory at the beginning of the research project. This is whether the researcher should use the deductive approach or the inductive approach ( Saunders et al., 2000)
The inductive approach is applied in accordance with the research philosophy. The researcher does not set up hypothesis in this research. The researcher understands why some products are successful and what are the consequences of a good brand image. The aim is not to recentralize the out come of the study, because the findings show the opinion of a smaller number of consumers that the researcher would meet. The small sample data does not represent the population of all British consumers. The researcher physically meets the respondents and asks questions face to face using the interviewer administrated questionnaires. Although the questionnaire is connected to quantitative data and a deductive approach, the inductive approach is still the most appropriate.
3.1.3 Research strategy
The purpose of the research is to gain an insight into the brand extension and Band management theory .. The researcher chooses an organization - Virgin group - that offers great potential for studying the issue of brand extension and image , in perhaps the best known example of successful unrelated diversification; if it is true that all of their extensions are extended successfully through their unique extension strategies; what do their consumers think about the Virgin brand and these extensions? To get a basic understanding of these
The researcher seeks to find out what the consumers think about the KFC brand image and its products. The main resource for this research is a survey; the survey method is a popular and common strategy in business and management research. It allows the collection of a large amount of data from a sizeable population in a highly economical way. A survey is often based on a questionnaire with standardized questions, which are good for comparisons. Accordingly, the outcome of a survey is easy to understand and presents a fair overview of what participants think.
3.2 Method of Information Collection
3.2.1 Primary Research
The Primary data is collected by a survey method. The research uses a standardized questionnaire to find out the customers, attitude towards the company. Prior to using the questionnaire to collect data, the researcher undertook a pilot testing survey. Six questionnaires were sent out to people at different age and different level of education. The purpose of pilot testing is to test and adjust the content of the questionnaire and then respondent could understands and answer those questions properly.
The researcher will chose non probability sampling methods depending on the objectives of the research, the financial resources available, and time limitations. Non probability samples cost less than probability samples, and ordinarily conducted more quickly. Judgment sample is one type of non probability samples. It is applied to the situation in which the researcher is attempting to draw representative sample based on judgement selection criteria. Mall intercept interviewing method is undertaken because of the limited time frauds. The respondents approach to the researcher rather than the researcher actively seeking for someone to interview.
The Euston train station and Bond Street were selected by the researcher because there are plenty of potential respondents to be selected. The researcher chooses weekends and lunch hours during the weekdays to perform the interviews from 28 July 2005 to 8 August 2005.
The researcher based on the following factors selects people;
1 The researcher should select the people who r not in a hurry , because they may be more willing to answer the questions
2 Since the researcher is attempting to compare the attitudes between three age groups, there should be roughly equal respondents in each group.
3 Since the researcher is attempting to compare the attitudes of males and females, the proportion of the two should be roughly equal.
The researcher intercepts the selected person and states the intent to perform an interview. If the selected person agrees to participate then the researcher reads out each question and records the response. Sixty eight people were persuaded by researcher to answer questions.
3.2.2 Secondary Research
The secondary research was undertaken to gain a through understanding of the brand management and brand extension strategy in Virgin Group. The main aims of research was to determine: how Richard Branson builds up the Virgin Brand ; why Virgin Group extends their brand ; the strategy they use in extensions; and the consumers attitude to Virgin brand and Richard Branson. The secondary data was collected from various sources such as case studies in brand management textbooks, biography of Richard Branson, journalist's interview, company documents on Virgin home page, News paper, Internet, and organization surveys. This information gives a representative insight in to brand management in Virgin Group. However, It is difficult to determine how- up - to - date the data is or the reliability of the sources.
3.3 Limitations of Research
Limitations of research might occur for various reasons. Saunders et al. (2000) have suggested some possible limitations in research: Reliability, validity and generalisability. First of all, the reliability of the research findings could be questioned. Robson (1993) suggests four threats to reliability: subject error, subject bias, observer error, and observer bias. A research finding is reliable when different researchers make the similar observations on different occasions. Second, validity is concerned with whether findings are really about what they appear to be about. Possible threats to validity are history, testing, instrumentation, morality, maturation and ambiguity about casual direction. Third, Generalisation is concerned with external validity (Saunders et al., 2000). Research results may not be generalisable, because samples are not sufficient to simply conclude all populations have the same opinion.
In the secondary research, data are collected from journalist's interview, newspaper, organisation surveys, and company documents. The data from journalist's interview are written from a personal point of view. This means that these data is more likely to be useful as the source of the writer's perceptions and views than as an objective account of reality. The data from newspaper is unlikely that there will be a formal methodology describing how the data was collected. The data from organisation surveys do not include all variables the researcher has identified as necessary for analysis, and also some data are not update. The data from company documents are mostly written from a subjective point of view of members of the organisation, which means that data may not objective. There still exists the possibility that when conducting the primary research, some respondents may encounter problems understanding or answering even though the questionnaire has been pilot tested. This survey just shows the opinion of a small number of consumers that the researcher meets with and this small sample data does not represent the population of all British consumers
Chapter 4 Research Findings
The Questions are formulated in a way that tries to gather as much information as possible about the consumer's attitude to Virgin brand and product/services. The questionnaire is shown in appendix A, The questionnaire would consists of seven close-ended questions.
The first question has two purposes: the first is to show the Virgin brand awareness of the consumers; the other is to identify the respondents able to continue to finish the questionnaire.
The second question would be a list question. This question offers the respondents a list of products and services under the virgin brand name. The respondents could choose any of which they know. The aim is to discover which of them are widely known by respondents.
The third question uses itemized satisfaction scales. There are two purposes of