Brand Equity Dilution

As more and more firms realize that the brand names associated with their products or services are among their most valuable assets, creating, maintaining and enhancing the strength of those brands has become a management imperative. One of the key advantages of a strong brand is that it facilitates the acceptance of brand extensions — new products launched using that brand name. Because brand extensions reduce consumer risk and significantly lower the cost of introductory marketing programs, they have become, over the past two decades, the predominant new product strategy. Brand extensions, however, can be a double-edged sword. When managed well, they not only provide a new source of revenue, but also reinforce brand meaning, thereby helping to build brand equity. But what happens when brand extensions are not successful? After all, most new products fail, and brand extensions are no exception. Will a failed brand extension damage the parent brand, squandering the millions of dollars and countless man-hours invested in building its equity? If so, brand extensions could pose the considerable risk of brand equity dilution, and managers would have to develop much more cautious brand extension strategies.

Initial Research

Because of its fundamental importance to product marketing, a great deal of academic research has been directed at understanding brand equity dilution. The good news emerging from this research is that, by and large, parent brands have been shown to not be particularly vulnerable to failed brand extensions. Initial research on examining failed extensions that varied in similarity or “fit” to the parent brand revealed that parent brand equity remained surprisingly robust. For example, Kevin Keller and David Aaker, as well as Jean Romeo, hypothesized that brand dilution could result after the introduction of dissimilar extensions because the customers may perceive that the company was attempting to take undue advantage of its brand name. Both studies, however, failed to find any evidence of brand dilution with dissimilar extensions. Similarly, Deborah Roedder John and Barbara Loken found that, although perceptions of quality for a parent brand in the health and beauty aids area decreased with the hypothetical introduction of a lower quality extension in a similar product category (like shampoo), quality perceptions of the parent brand were unaffected when the proposed extension was in a dissimilar product category (like facial tissue).