Value Creation for Luxury Brands through Brand Extensions: An Investigation of Forward and Reciprocal Effects

Luxury brands such as Louis Vuitton, Gucci, or Chanel regularly expand beyond their core business and nowadays offer a wide range of products including accessories, perfumes, watches or jewelry, and even services. The use of brand extensions has become central to the business model of most luxury brands. While research on brand extensions for non-luxury brands has produced many insights into the process of brand extension evaluation from a consumer point of view, surprisingly little research has addressed the extendibility of luxury brands, although some authors even argue that the roots of brand extension practice stem from luxury goods. The current study contributes to the understanding of luxury brand extensions by simultaneously analyzing different dimensions of parent brand equity as well as extension category related factors and their impact on value creation for luxury brands. Results of a structural equation model (n=752) show that product-category fit is the main driver of the consumer’s attitude towards the extension, followed by the consumer’s involvement in the extension category, and the functional, hedonic, and prestige equity of the parent brand. Moreover, the evaluation of the extension influences the evaluation of the parent brand, indicating a positive reciprocal spillover effect for the parent brand

Drivers of Brand Extension Success: What Really Matters for Luxury Brands

The use of brand extensions has become fundamental to the business model of most luxury brands. Many traditional luxury brands such as Louis Vuitton or Chanel have expanded into traditional luxury sectors beyond their core business. Some brands such as Armani or Prada even crossed boundaries to nontraditional lifestyle segments to pursue new business opportunities. Given the high practical relevance of brand extensions for luxury brands and the importance to understand the success factors for their extendibility and potential backward effects on the parent brand, surprisingly little research has addressed these issues for luxury brands in comparison to nonluxury brands. The current research reveals extension?related differences between luxury and nonluxury brands by simultaneously analyzing key dimensions of parent brand value, fit, and extension category involvement on the consumer's attitude toward the brand extension, which in turn influences the postextension image of the parent brand. Results of a structural equation model based on a survey among 492 participants show that the predominant driver of brand extension success for both luxury and nonluxury brands is overall extension fit, followed by the consumer's involvement in the extension category. The influence of functional value of the parent brand on the extension evaluation is more important for nonluxury brands. The hedonic value of the parent brand is found to be of relevance only in case of luxury brands. Moreover, a reciprocal spillover effect between the extension evaluation and the parent brand evaluation is observed. The degree of luxuriousness of the parent brand moderates this relationship. This effect is weaker for luxury brands