Umbrella brand price premiums: effects of compatibility, similarity, and portfolio size
| Pages | 58-64 |
| Published date | 01 March 2011 |
| Date | 01 March 2011 |
| DOI | https://doi.org/10.1108/10610421111108021 |
| Author | Xin Liu,Michael Y. Hu |
| Subject Matter | Marketing |
Umbrella brand price premiums: effects of
compatibility, similarity, and portfolio size
Xin Liu
Department of International Business and Marketing, California State Polytechnic University, Pomona, California, USA, and
Michael Y. Hu
Marketing Department, Kent State University, Kent, Ohio, USA
Abstract
Purpose – The study aims to examine the characteristics of product portfolio on the price premium of an umbrella brand. Specifically, the study seeks
to explore three aspects of a product portfolio: the presence of attribute compatibility, similarity, and portfolio size.
Design/methodology/approach – A total of 232 subjects participated in the 2 (with/without compatibility) £2 (product sets: high similarity/low
similarity) £3 (portfolio size: small, medium and large). Results support the hypothesis about the three factors.
Findings – Experimental results show that subjects on average are willing to pay a 9.45 percent price premium for the brand with the attribute-
compatible portfolio. The effect of attribute-compatibility is more obvious for a similar than a dissimilar portfolio.In addition, larger portfolios dilute the
price premium.
Originality/value – The study first addresses the factor of attribute compatibility among a product portfolio. A product portfolio with attribute
compatibility has features linking products together. Forexample, the “direct-print” feature among Canon products allows its cameras to print directly
on Canon printers. The study finds that such a feature increases a brand price premium by 9.45 percent.
Keywords Brands, Premium pricing, Brand management
Paper type Research paper
An executive summary for managers and executive
readers can be found at the end of this article.
The 2008 Interbrand report (Interbrand, 2008) shows that
the total value of the world’s top ten brands reaches
approximately US$424,934 million, or 20 percent of the
companies’ market value. To maximize the benefits of these
invaluable, intangible assets, companies often engage in brand
expansions to pursue various market segments. A larger
product portfolio with a well-established umbrella brand
name helps a company strengthen its brand positioning and
increase its marketing efficiency. Consequently, products
associated with a successful brand increase in not only
number but also diversity. For example, product lines sold
under the Panasonic brand include consumer electronics,
bicycles, and small home appliances. Similarly, Yamaha
appears on products as diverse as motorcycles, acoustic
musical instruments, sporting equipment, and consumer
electronics. Yet we know little about how the structure of the
product portfolio might influence the umbrella brand in turn.
In the literature, different views have been proposed
regarding the impacts of product por tfolio size on an
umbrella brand. On the one hand, the increased size serve
as a positive signal of the umbrella brand’s strength.
According to economic theor y (e.g. Wernerfelt, 1988),
products with the same umbrella brand name offer
performance bonds for one another. Because manufacturers
know that a low-quality extension product will diminish
consumers’ perceptions of the quality of all other extensions, a
larger product portfolio should provide a stronger
performance bond to consumers. Along similar lines,
Balachander and Ghose (2003) argue that the umbrella
brand benefits from the advertising of any product in its
portfolio, due to increased marketing efficiency. Economies of
information are realized when an advertised product produces
a “halo effect” that influences the umbrella brand.
On the other hand, adding new products to the brand
portfolio could result in a dilution effect, due to the weakened
link between the products and the umbrella brand, making
products more vulnerable to the other product failure under
the same brand. If the brand is dominated by a single product,
the link between them is powerful and easy for consumers to
access (Fazio and Zanna, 1978; Petty and Krosnick, 1994).
For example, Heinz is a dominant brand in the ketchup
category; the link between Heinz and ketchup is strong in
consumers’ memory networks. This strong link therefore
encapsulates the brand with the product, which protects that
product from dilution due to other negative information.
However, if the brand expanded to a wide range of product
categories, the links between the brand and any particular
product would weaken, and as a result of this dilution effect,
every product sold with the brand name becomes vulnerable
to negative information. The dilution effect becomes
especially obvious when the products in the portfolio are
widely divergent (Loken and John, 1993; Romeo, 1991).
The two different views regarding the impacts of the size of
the product portfolio also emerge in business practices. Firms
with similar resources that operate in the same categories
often make radically different brand strategy decisions. For
example, in the fast moving consumer goods category, Proctor
& Gamble maintains more than 70 different brands and keeps
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
20/1 (2011) 58–64
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610421111108021]
58
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