Shahrukh Khan (ICICI Bank), Rahul Dravid (Bank of Baroda), Hema Malini (Bank of Rajasthan), and Juhi Chawla (Dena Bank) were used as brand ambassadors

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1 Brand Extension for Bank Brands: An Experimental Study Dhananjay Bapat* Marketers often rely on brand extension strategies to mitigate the risk of launching a new product in the market and to leverage the strength of existing brands. Past researches have relied on the product brands for studying brand extensions. A field experiment was performed to assess the success evaluation of two leading banks into present and future brand extensions. Future brand extension received higher success evaluation than that of present brand extension for ICICI Bank while for State Bank of India, there was no significant difference between the present and future extension. The paper looks into issues such as category similarity, brand association of master brand, brand affect and finally the success perceptions in creating favorable consumer evaluation in case of bank brand. Introduction According to Janet (2001), strategic brand building is the single most powerful tool that any company has to build to remain competitive. In today s competitive environment, it is important to occupy a space in the consumer s mind. The value of a brand is measured not only in terms of the advantages it provides in its present competitive arena but also the potential advantages it offers in untapped markets (Srivastava and Shocker, 1991). Marketers often attempt to leverage the strength of the existing brand. Strong brands are successfully extended into other product and service categories. Some brands cannot be extended at all because of poor extension potential (Tauber, 1993). From a marketer s point of view, a brand can be extended to new categories only if the consumer believes that a brand has a logical fit with the new categories. Initial research in brand extension attempted to identify the variables that influence the perceptions of an extension. Many studies explored the consumer evaluation for brand extensions for product categories (Aaker and Keller, 1990; and Keller and Aaker, 1992). Presently, when the services contribute to more than 50% of India s economy, service brands offer lot of scope for leveraging the strength of the brand. Of late, banks are taking keen interest in implementing branding strategies. Many banks in the recent years are trying to create a distinct identity. With this, they aim to make their presence felt by the customers and other stakeholders. Major banks which have done extensive brand facelift includes Bank of Baroda (India s international bank), Punjab National Bank, Union Bank of India and Andhra Bank. Famous personalities such as Amitabh Bachchan (ICICI Bank), * Assistant Professor, National Institute of Bank Management, Pune, India. dhananjay1304@gmail.com Brand 2009 Extension The Icfai for University Bank Brands: Press. An All Experimental Rights Reserved. Study 7

2 Shahrukh Khan (ICICI Bank), Rahul Dravid (Bank of Baroda), Hema Malini (Bank of Rajasthan), and Juhi Chawla (Dena Bank) were used as brand ambassadors. Banks are entering into the area of insurance, remittances, gold trading and other areas by leveraging their brand assets. While attempting to grow, banks are leveraging their existing brand equity by entering into newer areas and through various co-branding initiatives. The success of a brand extension depends on certain assumptions about consumer behavior, such as consumers hold positive beliefs and favorable attitude towards the original brand in memory, these positive associations facilitate the formation of positive beliefs and favorable attitudes towards the brand extension, and negative associations are not created by the brand extension about the parent brand. The master brand can only be extended when master brands hold brand associations. Brand associations can be concrete (e.g. product or attribute related) and abstract associations (situation or benefit related) (Aaker, 1991). Based on the literature review, it was found that there were enough cases for consumer evaluation of a brand extension in consumer category (Chakravarti et al., 1990; and MacInnis and Nakamoto, 1990). The reason for the research was also driven by the fact that fewer researches were conducted in service branding and that too in Indian banking. Many of the earlier researches were based on the students being used as subjects for experimental studies. Conceptual Framework To investigate the various issues associated with the success of brand extension, we begin with identifying the conceptual framework that identifies the key factors that may influence the brand extension success. Previous study on success parameters considers a profitability of extension (Buzzell et al., 1975), market share in the product category or the extension category (Cook, 1985), and relative share of the extension compared with that of its competitor. An assumption common to virtually all research in brand extensions is that brand affect and product category similarity play important roles (Bousch et al., 1987). The success of a brand extension is influenced by: (a) Characteristic of the extension s firm, (b) Characteristic of extension s parent brand, and (c) Characteristic of the extension. We evaluate the extension from the following perspective: (a) Relation: It is the fit between the parent brand and the extension (Park et al., 1991). (b) Brand Specific Associations: MacInnis and Nakamoto (1990) defined brand specific association as an attribute or benefit that differentiates a brand from a competing brand. There are certain brand associations which are strong for a particular brand. To the extent that these associations are linked to important benefits consumers seek through purchase, they can influence marketing success (Myers and Alpert, 1968). It is common marketing practice to establish and reinforce these associations. The assumption is that affect associated with the original brand is transferred to the extension and this transfer occurs when relation between the two products is high (Bousch and Loken, 1991). The best scenario for 8 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

3 success involves extension of a highly regarded brand to a similar product class. It is also observed that evaluation of a brand extension is not a simple matter of transfer of brand associations but whether the consumers assess the ability of the extension to satisfy their needs and such assessments are driven primarily by the specific associations of the brand (Broniarczyk and Alba, 1994). Since the value of a brand association differs depending upon the benefits sought within a particular product category, evaluation of a brand extension need not match with evaluation of the brand in the original category. Therefore, we predict that brand specific association will moderate the influence of brand affect in extension evaluation. While undertaking literature review, based on various studies, researchers have not followed a technique to ascertain the brand associations for a given brand. In the absence of usage of specific techniques, it was decided to ascertain brand associations in consultation of practicing managers. Based on the discussions, brand associations were identified and respondents were asked to give their ranking on a scale of 1-5. In addition to brand associations, respondents also evaluated the relation/similarity between the brand and an extendable product/service category. The psychological view of relation holds that the consumer seeks benefits rather than products and may not limit their purchases to single product/service category when pursuing those benefits (Day et al., 1979). The following brand associations have been identified in consultation with the managers. Reliability: It refers to dependability. Expertise: It can refer to competence. Safety: It is the product related characteristic and can be regarded as the prime driver for financial services. A bank or insurance company tend to assume the typical banker personality of safety. Customers want their investment to be safe. Aggressiveness: It is linked to creating excitement in the market. Aggression is needed in launching new products and is measured in terms of how fast the market share is growing. Promptness: It refers to the efficiency. For example, the time in which a service is delivered to customers. Quality: It is the overall evaluation of the brand. It is also regarded as product related attribute which is so important to consider separately. Many brands use quality as a core identity element. The Present Study The current study investigates the impact of category similarity, brand associations and success perceptions into extension categories. Two brands, namely State Bank of India and Brand Extension for Bank Brands: An Experimental Study 9

4 ICICI Bank were selected for the study. The study was experimental in nature. However, the study covered responses from real customers instead of students acting as respondents. The study by Aaker and Keller (1990) assessed how consumers form attitudes towards brand extensions. It also assessed the hypothetical brand extensions, which can be considered as future brand extension. With few exceptions, past research has primarily examined single brand extensions with a unique parent brand. In reality, brands are associated with several extended categories. Using the scanner panel data, Swaminathan (2003) examines the effect of experience with a parent brand and a successful previous brand extension on trial and repeat of a subsequent brand extension. We assume that, in reality, consumers also compare the earlier extension with the success evaluation of the brand extension in a new category and based on the evaluation, consumers decide whether to engage with the brand. Following this discussion, we predict the following: H 1 : H 2 : There is no significant difference between present extension and future extension for State Bank of India There is no significant difference between present extension and future extension for ICICI Bank. Methodology The objective of the study is to evaluate the customer evaluation of brand extension in their present extension and also for future possible extension. Two existing brands (State Bank of India and ICICI Bank) were selected on the basis of consumer familiarity, large banks and positive brand image. State Bank of India has highest share in market share, branch network and ATM network. State Bank of India has penetration in the entire country. ICICI Bank is a new generation private sector bank and in few years since its inception, it became the second largest bank in India. The study aimed to capture the customer evaluation of bank brand extension in two areas present extension and future extension. Responses were elicited from 80 subjects (20 4). These 80 subjects were the customers of the respective bank. As the study was of the nature of field experiment, it was decided to contact the customers of the bank instead of taking students as subjects. The field experiment is summarized in Table 1: Bank Extension Table 1: Summary of Field Experiment Present Extension Future Extension Public Sector Bank State Bank of India- State Bank of India- (State Bank of India) Insurance (SBI Life) Gold Trading (SBI Gold) Private Sector Bank ICICI Bank-Home ICICI Bank-Diamond ( ICICI Bank) Loans(ICICI Home loans) Trading( ICICI Diamond) 10 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

5 The sampling method was purely judgmental and the research instrument which was the questionnaire, was used to judge the evaluation of the brand both in present as well as future extension category. In order to reach a sample size, three factors were taken into account judgmental, minimum cell size, and time. Using these criteria, 20 respondents from each cell were chosen. So the total sample size was 80 (20 4). A structured questionnaire was used for the study in which questions captured demographic variables, existing brand associations and evaluation into extension category (See Annexure). Results and Discussion The customer perception of State Bank of India was captured through open ended questions. The summary of the findings describing the percentage of respondents for the banks is shown below: (a) Large Network 82% (b) No. 1 Bank 50% (c) Old Bank 80% (d) Safe Bank 80% (e) Trusted Bank 60% (f) Reliable 60% (g) Service Oriented 40% (h) Long Queue 60% As seen from the above brand associations, brand associations such as large network, No. 1 bank, old bank, safe bank, trusted bank, reliable and service oriented are positive associations whereas long queue can be considered as negative brand association. ICICI Bank (a) Prompt and quick service 80% (b) Better facilities 90% (c) Responsive 50% (d) 8 AM to 8 PM banking 40% (e) ATM 55% (f) Convenience 40% The broad results, based on success perception for present and future brand extension is summarized in Table 2. Brand Extension for Bank Brands: An Experimental Study 11

6 Parameters SBI-Insurance Table 2: Mean Value Comparison Present Extension ICICI-Home Loans SBI-Gold Trading Future Extension ICICI-Diamond Trading Relation Expertise Reliable Safety Aggressive Promptness Quality Success The results of success perception are given in Tables 3, 4, 5 and 6: Table 3: ICICI Home Loans (Present Extension) vs. ICICI Diamond Trading (Future Extension) Extension Mean Std. Deviation Std. Error Mean ICICI-Home loans ICICI Diamond trading Levene s Test for Equality of Variances F Table 4: Independent Sample Test Sig. t-test for Equality of Means t Equal variances assumed Equal variances not assumed df Sig. (2-tailed) Table 5: SBI Insurance (Present Extension) vs. Gold Trading (Future Extension) Mean Difference Std. Error Difference Extension Mean Std. Deviation Std. Error Mean SBI Insurance SBI-Gold trading The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

7 Levene s Test for Equality of Variances F Table 6: Independent Samples Test Sig. t-test for Equality of Means t Equal variances assumed Equal variances not assumed As observed from the above tables, significant differences in the mean were observed between present and future extension for ICICI Bank. While for State Bank of India, significant differences were not observed. Considering success as the dependent variable and other variables such as relation, expertise, reliability, safety, aggressiveness, promptness and quality as independent variables, the results of the forward regression analysis is shown in Table 7. df Table 7: Regression Summary Sig. (2-tailed) Mean Difference Bank Regression Result State Bank of India ICICI Bank Safety (beta figure) (0.000) (0.021) Quality (beta figure) (0.003) R Note: Figure in Bracket shows the significance level. Std. Error Difference Forward regression analysis, using SPSS analysis, separated the independent variables which influenced on dependent variable, success. This is the reason why all the independent variables are not shown. Multicollinearity arises when intercorrelations among the independent variables are very high. Some approaches are suggested to verify whether multicollinearity exists. The result of the multicollinearity test is seen in Tables 8 and 9. Table 8: Collinearity Diagnostics (for SBI) Condition Variance Model Dimension Eigenvalue Index Proportions Safety (Constant) E Note: A Dependent Variable: Success Brand Extension for Bank Brands: An Experimental Study 13

8 Eigenvalues are obtained by factoring independent variables. They provide an indication of how many distinct dimensions there are among the independent variables. When several Eigenvalues are close to 0, the variables are highly correlated. Based on the above observation, it indicates that the independent variables are not multicollinear. As observed from tables 8 and 9, safety is observed to have the strongest influence on the success evaluation of brand extension (State Bank of India with a correlation coefficient r=0.708, p 0.01 and ICICI Bank with a correlation coefficient r=0.603, p 0.01). Quality has a strong influence on the success evaluation only for ICICI Bank, not for State Bank of India (ICICI Bank with a strong correlation coefficient r=0.665, p 0.01). This study adds to the literature on brand extension by examining how the major brand associations of leading banks affect the success evaluation. The present study has demonstrated that higher brand associations (safety and quality in case of ICICI Bank and safety in the case of State Bank of India) affect the success evaluation. Conclusion Table 9: Collinearity Diagnostics (for ICICI Bank) Condition Variance Dimension Eigenvalue Index Proportions Quality Safety (Constant) E E Note: A Dependent Variable: Success This study is based on field experiment which captures the customer insights about the present and future brand extensions of real brands. While considering real brands, the strength of consumer beliefs about a brand and subsequent extensions of that brand are likely to be held more strongly than those created in laboratory settings with subjects as students. The purpose of the study is to examine the success perception for present as well as future extensions based on real settings. Earlier experiments were conducted with the subjects who are students. In those cases, subjects were not adequately exposed to the decision-making regarding the brands. The field experiment differs from the earlier studies and can give reliable finding based on customer insights. The study is, therefore, robust in nature. Although much has been written about the success evaluation from the customer point of view in consumer goods industry, there is sparse empirical study conducted for service brands. Branding decisions are becoming increasingly important in services, but little service specific research has focused on this domain so far. This is surprising when service industry accounts for the ever growing share of the global economy. Little is known how brand extensions are evaluated in a services context 14 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

9 (Van Riel et al., 2001). The study indicates that the success perception of future extension was found to be much higher than the present extension for ICICI Bank in diamond trading. Based on existing brand associations and relevant brand affect in the extension category, the field experiment recommends the extension of existing bank brand in diamond trading in case of ICICI Bank. In the evaluations, ICICI Bank scores higher for various associations such as aggressiveness, promptness, quality and overall success evaluation when subjects are considering extension into diamond trading. Diamond trading has been associated with the premium image and ICICI, backed with its higher abstract associations, have higher evaluation when compared with its existing brand extension of home loans. Brands can be broadly categorized into functional function oriented brands and prestige oriented brands (Park et al., 1991). Function oriented brands have dominant associations related to core product performance and prestige related brands relate to consumers expression of self image. Most academic researchers supported that similarity judgments drive brand extension success. Based on our finding, consumers abstract associations may be seen as relevant across a wide set of categories because of their intangible nature. Although there was a greater acceptability for the future brand extension, we cannot just generalize that all the future extension will score a higher rating than the present extension. The acceptability would have emerged due to the scope of exploiting the current brand assets in the extension category of gold trading and diamond trading. There seems to be some plausible explanations for the above result. There is enough scope for a brand to leverage its asset to enter into the category of gold trading and diamond trading. The potential to exploit the newer category by an existing reputed brand is immense despite the fact that the fit between banking and gold/diamond trading is minimal. ICICI Bank is the newer private sector bank and the brand associations linked with the brand are aggressiveness, prompt and quick service. Surprisingly, this does not lead to significantly higher success perception ratings for its present extension. However, the success perception for ICICI Bank was significantly higher for future extension. As diamond trading is associated with more upscale image, the success perception by customers was found to be higher although fit (relation) and the customer perception of expertise was low. Due to nascent process of brand extension research in service category, many issues remain unresolved. Among these are the process by which customers evaluate extensions. Some researchers have advocated an affect transfer model, in which the affect associated with the brand, transfers to the extension when similarity between the categories is high (Broniarczyk and Alba, 1994). Despite the higher similarity of present extension, the success perceptions were lower. The findings have several implications for both brand management theory and practice. The extant knowledge in the area of brand extensions is based almost mainly on the study of consumer brands. The study also offers relevance for service brands by Brand Extension for Bank Brands: An Experimental Study 15

10 showing the way to exploit their brand asset based on customer s confidence of success parameters. The effect of customers evaluation of success parameter is also qualified for bank brands. The study does not imply that bank brands can be leveraged indiscriminately for future extensions. References 1. Aaker David A (1991), Managing Brand Equity, Free Press, New York. 2. Aaker David A and Keller Kevin Lane (1990), Consumer Evaluations of Brand Extensions, Journal of Marketing, Vol. 54, January, pp Bousch David M and Loken Barbara (1991), A Process Tracing Study of Brand Extension Evaluation, Journal of Marketing Research, Vol. 28, February, pp Bousch David M, Shipp Shannon, Loken Barbara, Gencturk Ezra, Crockett Susan, Kennedy Ellen, Minshall Betty, Misurell Dennis, Rochford Linda and Strobel Jon (1987), Affect Generalization to Similar and Dissimilar Brand Extension, Psychology and Marketing, Vol. 4, Fall, pp Broniarczyk Susan M and Alba Joseph W (1994), The Importance of Brand in Brand Extension, Journal of Marketing, May, pp Buzzell Robert D, Gale Bradley T and Sultan Ralph G M ( 1975), Market Share A Key to Profitability, Harvard Business Review, Vol. 53, January-February, pp Chakravarti Dipankar, MacInnis Deborah J and Nakamoto Kent (1990), Product Category Perceptions, Elaborative Processing and Brand Name Extension Strategies, in Marvin E Goldberg, Gerald Gorn and Richard Pollay (Eds.), Advances in Consumer Research, Vol. 17, pp , Association for Consumer Research, Provo, UT. 8. Cook Victor J Jr (1985), The Net Present Value of Market Share, Journal of Marketing, Vol. 47, Summer, pp Day George S, Shocker Allan D and Srivastava Rajendra (1979), Customer-Oriented Approaches to Identifying Product Markets, Journal of Marketing, Vol. 43, Fall, pp Janet Bigham Bernstel (2001), Branding: Seeing the Light, Bank Marketing, May, pp Keller Kevin Lane and Aaker David A (1992), The Effect of Sequential Introductions of Brand Extensions, Journal of Marketing Research, Vol. 57, January, pp MacInnis Deborah J and Nakamoto Kent (1990), Examining Factors that Influence the Perceived Goodness of Brand Extension, Working Paper # 54, Karl Eller Graduate School of Management, University of Arizona. 16 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

11 13. Myers James H and Alpert Mark I (1968), Determinant Buying Attitudes: Meaning and Measurement, Journal of Marketing, Vol. 32, October, pp Park C Whan, Sandra Milberg and Robert Lawson (1991), Evaluations of Brand Extensions: The Role of Product Level Similarity and Brand Level Consistency, Journal of Consumer Research, Vol. 18, September, pp Srivastava Rajendra K and Shocker Allan D (1991), Brand Equity: A Perspective on Its Meaning and Measurement, Report #91-124, Marketing Science Institute, Cambridge, MA. 16. Swaminathan Vanitha (2003), Sequential Brand Extensions and Brand Choice Behavior, Journal of Business Research, Vol. 56, No. 6, pp Tauber E M (1993), Fit and Leverage in Brand Extensions, in Aaker D A and Biel A (Eds.), Brand Equity and Advertising: Advertising s Role in Building Strong Brands, pp , Erlbaum, Hillsdale, NJ. 18. Van Riel Allard C R, Lemmink Jos and Ouwersloot Hans (2001), Consumer Evaluation of Service Brand Extensions, Journal of Service Research, Vol. 3, No. 3, pp Brand Extension for Bank Brands: An Experimental Study 17

12 No.: _ Annexure Experimental Study State Bank of India and Insurance (Life) Q1. Give the name of any five banks you know Bank Date: Q2. What comes to your mind when you think about State Bank of India? Q3. Evaluate the following statements regarding State Bank of India on a scale of 1-5? ( 1=Strongly disagree, 2=Disagree, 3=Can t say, 4=Agree and 5=Strongly agree) State Bank of India is associated with (a) Expertise (b) Reliable c) Safety d) Aggressiveness (e) Promptness (f) Quality Q4. Do you see any similarity between State Bank of India and SBI Life? Evaluate on a scale of 1-5. (1=Not at all similar, 2=Not similar, 3=Can t say, 4=Somewhat similar, 5=Very much similar) (Contd...) 18 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

13 Annexure (..contd) Q5. What is your evaluation of performance of SBI in life insurance category? Failure Success Q6. Your personal information, please. (a) Name: (b) Age: (c) Occupation: (d) Organization: (e) Monthly Income (Family): Experimental Study State Bank of India and Gold Trading No.: Date: Q1. Give the name of any five banks you know Bank Q2. What comes to your mind when you think about State Bank of India? Q3. Evaluate the following statements regarding State Bank of India on a scale of 1-5? ( 1=Strongly disagree, 2=Disagree, 3=Can t say, 4=Agree and 5=Strongly agree) State Bank of India is associated with (a) Expertise (b) Reliable (Contd...) Brand Extension for Bank Brands: An Experimental Study 19

14 Annexure (..contd) (c) Safety (d) Aggressiveness (e) Promptness (f) Quality Q4. Do you see any similarity between State Bank of India and SBI gold trading? Evaluate on a scale of 1-5. (1=Not at all similar, 2=Not similar, 3=Can t say, 4=Somewhat similar, 5=Very much similar) Q5. What is your evaluation of performance of SBI in gold trading category? Failure Q6. Your personal information, please. (a) Name: (b) Age: (c) Occupation: (d) Organization: (e) Monthly Income (Family): Success Experimental Study ICICI Bank and Home Loans No.: Date: Q1. Give the name of any five banks you know Bank (Contd...) 20 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

15 Annexure (..contd) Q2. What comes to your mind when you think of ICICI Bank? _ Q3. Evaluate the following statements regarding ICICI Bank on a scale of 1-5? ( 1=Strongly disagree, 2=Disagree, 3=Can t say, 4=Agree and 5=Strongly agree) State Bank of India is associated with (a) Expertise (b) Reliable (c) Safety (d) Aggressiveness (e) Promptness (f) Quality Q4. Do you see any similarity between ICICI Bank and home loans? Evaluate on a scale of 1-5. (1=Not at all similar, 2=Not similar, 3=Can t say, 4=Somewhat similar, 5=Very much similar) Q5. What is your evaluation of performance of ICICI Bank in home loan category? Failure Q6. Your personal information, please. (a) Name: (b) Age: (c) Occupation: (d) Organization: (e) Monthly Income( Family): Success (Contd...) Brand Extension for Bank Brands: An Experimental Study 21

16 Annexure (..contd) Experimental Study ICICI Bank and Diamond Trading No.: Date: Q1. Give the name of any five banks you know Bank Q2. What comes to your mind when you think about ICICI Bank? _ Q3. Evaluate the following statements regarding ICICI Bank on a scale of 1-5? (1=Strongly disagree, 2=Disagree, 3=Can t say, 4=Agree and 5=Strongly agree) State Bank of India is associated with (a) Reliability (b) Expertise (c) Safety (d) Aggressiveness (e) Promptness (f) Quality Q4. Do you see any similarity between ICICI Bank and ICICI diamond trading? Evaluate on a scale of 1-5. (1=Not at all similar, 2=Not similar, 3=Can t say, 4=Somewhat similar, 5=Very much similar) (Contd...) 22 The Icfai University Journal of Brand Management, Vol. VI, No. 1, 2009

17 Annexure (..contd) Q5. What is your evaluation of performance of ICICI in diamond trading category? Failure Success Q6. Your personal information, please. (a) Name: (b) Age: (c) Occupation: (d) Organization: (e) Monthly Income (Family): Reference # 25J Brand Extension for Bank Brands: An Experimental Study 23

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