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.
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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).
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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 va
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