Literature in brand extensions has relied greatly on categorization theory and on prototypical models of categorization to explain the affect transfer from a parent brand to its extensions. Drawing on the range theory exemplar models of categorization, this paper aims to show the effects of parent brand endpoint prices on consumer judgments of vertical line extensions.
Three experiments have been conducted. Experiment 1 tests the hypothesis that consumers rely on the parent brand price range when making judgments of an upscale extension. Experiment 2 tests the hypothesis that the effect of price range on extension evaluation is mediated by perceived risks for upscale extensions but not downscale extensions. The final experiment shows a boundary condition to the product line range effect on upscale extensions.
This research shows that upscale extensions are judged more favorably in the context of a wide versus a narrow product line even when the highest endpoints in both product lines are equally close to the extension and that this effect is mediated by perceived consistency and perceived risk. The range effect disappears, however, when consumers have a broad focus in which attention shifts to category endpoint prices, making parent brand prices less diagnostic of upscale extension judgments.
Managers may display a wider range of products and/or reduce prices of low-end models to expand product line price width. In consequence, low-end products become more competitive in terms of price and at the same time improve favorability ratings of the new upscale product.
Vertical line extensions and product line pricing are important topics to both academics and practitioners. Nonetheless, this is the first research to demonstrate how product line price width can influence consumer perceptions of vertical line extensions.
