Biomedical Engineering Reference
In-Depth Information
for the nonfat (regular) yogurt may affect the sales for the regular (nonfat) yogurt.
When efforts to market the parent product affect the child product, that impact is
referred to as a
forward spillover effect
; and when efforts on behalf of the child
affect the parent, the corresponding impact is called a
reciprocal spillover effect
.
Now, the spillover effects (i.e., either forward or reciprocal) may be explained by
invoking one of two theoretical frameworks: in the first, consumers may use avail-
able information on some products and/or brands to update their knowledge of
unavailable information regarding other products and/or brands via an economies-
of-information argument (e.g., the quality-signaling explanation offered in
Wernerfelt
1988
); the second offers a consumer memory-based explanation using
the associative network theory (e.g., Anderson
1983
).
Under the first approach for instance, when it is difficult for consumers to discern
product quality prior to purchase, the signaling explanation suggests that a “high-
quality” firm would optimally extend its established brand name only to another
high-quality product—because doing otherwise would (eventually) lower consumers'
perceptions of the quality of all its other products. In that context, Erdem (
1998
) and
Erdem and Sun (
2002
) consider a model of consumer learning which allows quality
perceptions to be correlated across products in distinct categories—they study
toothpaste and toothbrush—and find empirical support for the signaling explanation:
e.g., all the brands that extended to the child category were perceived to have high
qualities in the parent category; further, advertising can help lower consumers' quality
uncertainty over time. Other explorations of spillover under this approach include
DeGraba and Sullivan (
1995
), Choi (
1998
), Andersson (
2002
), and Hakenes and
Peitz (
2008
).
Also, Kumar (
2005
) explores how counter-extensions by competing brands may
modify the positive effects of the spillover discussed above. Suppose that Samsung,
which is a market leader in the TV category, extends into the computer category
successfully. Then, Kumar (
2005
) hypothesizes that consumers will perceive the
two categories (i.e., the TV and computer categories) to be now more similar to one
another. Subsequently, for example Dell, which may be a leader in the computer
category, has a better chance of success when extending into the TV category. The
net result of such a counter-extension will likely dilute Samsung's leadership in the
TV category. In other words, a brand extension may result in both a positive effect
(say, due to quality signaling) and a negative effect from brand dilution. Kumar
(
2005
) finds support for such a negative spillover effect; further, the magnitude of
each of these effects is moderated by the market position of the brands under
consideration.
Next, the second approach, i.e., the memory-based argument, presumes that
consumers store their information about a brand as a network of nodes (or concepts)
which are then connected by links (that represent associations between the concepts);
further, the strength of a link represents the strength of the association between the
concepts. When a node is activated above a threshold level—either by an external
cue such as an advertisement or by “spreading” activation from another node—the
consumer retrieves the corresponding piece of knowledge from memory. Now, the
intensity of the spreading activation is assumed to go up with the strength of the link
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