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Brand Equity Dilution

As companies realize that brand names associated with their products or services are among their most valuable assets, creating, maintaining and enhancing the strength of their brands have become a growing management imperative. A key advantage of a strong brand is that it facilitates the acceptance of brand extensions -- that is, new products launched using that brand name. But what happens when brand extensions are not successful? Does a failed extension damage the parent brand?

Kevin Keller and Sanjay Sood provide an overview of research aimed at better understanding how and why brand dilution occurs. The good news emerging is that, by and large, parent brands are not particularly vulnerable to failed brand extensions. The rule of thumb arising from early academic research and industry experience suggests that an unsuccessful brand extension is likely to damage the parent brand image only when a high degree of similarity or "fit" is involved.

More-recent research, the authors point out, has examined the moderating factors or "boundary conditions" that provide qualifications to the earlier findings; it also has identified other circumstances leading to brand dilution. For example, a strong experience with a brand extension is required for a consumer to update his or her feelings and opinions about the parent brand. Subbranding strategies can thus alter whether consumers hold the parent brand directly responsible for failed extensions. An experimental study noted that sudden acceleration problems associated with the Audi 5000 automobile had greater spillover to the Audi 4000 model than to the Audi Quattro -- a phenomenon the researchers attributed to different branding and marketing for the latter model.

The authors explain three factors in brand dilution that they believe the research suggests, and they advocate active management of consumers' brand knowledge. Creating a strong brand with powerful brand equity not only permits further growth opportunities but also helps to provide a defense against failed brand extensions.

This review includes a comprehensive sidebar of all referenced and relevant research.

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