Moving Up or Moving Down: Power Distance Belief and the Asymmetrical Effects of Vertical Brand Extension

ABSTRACT

Vertical brand extension naturally evokes thoughts of status due to changes in price points and prestige levels. In this paper, we propose and show that power distance belief (PDB) (i.e., acceptance and expectation of power disparity) influences consumers’ attitudes toward status change, which in turn impacts their evaluation of a brand’s vertical extension efforts. Results from four experiments provide converging evidence for our prediction that high (vs. low) PDB consumers evaluate upward extensions more favorably but view downward extensions less favorably. Furthermore, we show that such differences feedback to the parent brand evaluation and purchasing intention asymmetrically, with the enhancing effects of upward extensions greater than the diluting effects incurred by downward extensions. We further demonstrate that status-enhancement mindset is the mechanism that drives the PDB effects, as upward extensions match such a mindset of high PDB consumers while downward extensions are in conflict with it. Implications for theorists and managers, along with directions for future research, conclude this paper.

Keywords: vertical brand extension, power distance belief, status-enhancement, brand feedback effect, processing fluency

In 2004, Volkswagen introduced Phaeton, a luxury sedan targeting the premium market, into the U.S. market. Despite the initial optimism, sales of the car never picked up and the model was eventually withdrawn from the U.S. market after two years. Paradoxically, the same model was fairly well received in Asian markets such as China, Korea, and Thailand (Choi 2013). In contrast, Gucci faced a very different fate with its market expansion efforts. As Gucci introduced more lower-priced handbags into its product portfolio in the past few years, it gradually lost its appeal among Chinese consumers and sales in the China market languished. This contrasted starkly with its growth in sales in the European market following the introduction of lower-end product models, which drove most of the revenue increase in 2015. Both Volkswagen’s and Gucci’s actions involved vertical brand extensions that enabled the companies to offer a wider range of products to consumers. However, the opposing fate of these vertical extension products in different markets is intriguing. It raises an important question – what lead consumers in these markets to respond differently to these two forms of vertical extensions?

Vertical brand extension refers to the introduction of a new product in the same category but at different price points and prestige levels (Keller and Aaker 1992). As a practice commonly adopted by marketers to attract consumers from different income segments, vertical brand extensions may go upwards (e.g., Volkswagen introduced the premium Phaeton model) or downwards (e.g., Gucci introduced lower-end bags). Though vertical extension seems intuitively logical, given that the firm is offering a new product in a category they are familiar with, not all vertical extensions are successful. In fact, the industry is replete with stories of vertical extension failures. This is particularly true when firms try to replicate the same extension strategies across markets with different cultural backgrounds. However, existing research on vertical brand extension has provided very limited insights into when and why vertical extensions may succeed in one market and yet fail in another.

Prior research has shown that brand and extension characteristics, such as brand image (functional vs. prestige; e.g., Kirmani, Sood, and Bridges 1999) and extension distance (far vs. close; e.g., Kim, Lavack, and Smith 2001) will affect how consumers evaluate vertical extensions. However, although these factors are important to consider, existing findings cannot explain why the same strategy succeeded in some countries but failed in others. We propose that beyond brand and extension characteristics, to better understand how consumers view vertical extensions, it is also important to understand how they feel about status change. This is because vertical extension essentially evokes a change in “brand status” and consumers’ perceptions of such status change is instrumental in determining how they evaluate the vertical extension.

Drawing from prior research, we propose that power distance belief (henceforth termed as PDB) will influence how consumers perceive brand status change, and subsequently, their evaluation of vertical extensions. Specifically, we argue that consumers with high (vs. low) PDB are more likely to possess a status-enhancement mindset. Given so, they will evaluate upward extensions more favorably as the upward extension is congruent with such an enhancement mindset. On the other hand, consumers with high (vs. low) PDB will evaluate downward extensions less favorably, as downward extensions entail a status downgrade which runs counter to their status-enhancement mindset.

This research contributes to the literature on multiple fronts. First, we contribute to the branding literature by showing how an individual (cultural) characteristic (i.e., PDB) moderates consumers’ evaluation of vertical extensions. Prior research on vertical brand extensions has focused mainly on brand and extension characteristics (e.g., brand concept and extension distance) while assuming consumers’ attitude toward and acceptance of status-change is an individual-invariant factor. Our work extends extant branding literature by showing that consumers’ acceptance of, and preference for, status-change is an important consideration for vertical extension success. To the best of our knowledge, this research is the first to demonstrate the importance of understanding consumers’ PDB – a construct that is gathering interest among culture researchers – for vertical brand extension effectiveness. Second, this research also contributes to the cross-cultural literature by expanding the current understanding of PDB. Prior research has alluded to the possibility that high PDB will lead to a status-enhancement mindset (Hofstede 1984; Kim and Zhang 2014), and this paper provides empirical evidence for this relationship. At a broader level, this research joins a growing stream of work on PDB (e.g., Kim and Zhang 2014; Roth 1995; Winterich and Zhang 2014; Zhang, Winterich, and Mittal 2010) to broaden the inquiry of cultural considerations beyond the individualism-collectivism dimension. Managerially, given the ubiquity of vertical brand extensions in the market, our findings provide valuable insights about the effectiveness of such strategies. These insights bear important implications for companies playing in culturally diverse markets.

Our paper proceeds as follows: We first review prior work on vertical brand extension and PDB, before presenting the conceptual framework on how PDB moderates consumers’ responses toward vertical extension products and the corresponding parent brand. Next, we present four studies that tested our predictions. Theoretical and practical implications of the current research, as well as directions for future research that encourage more work in related domains, conclude this paper.

 

THEORETICAL FRAMEWORK

Brand extensions, i.e., the introduction of new products under the parent brand, can come in two primary forms: horizontal and vertical (Aaker 1991). A horizontal brand extension, which refers to the use of the parent brand for a new product in a different product category (e.g., Snickers, a candy brand, extending into ice-cream bar), is a strategy that firms generally use to expand their reach. Thus, much prior research has focused on understanding how consumers evaluate horizontal brand extensions (e.g., Aaker and Keller 1990; Boush and Loken 1991). However, in reality, vertical extensions are more common than horizontal extensions and accounts for around 65% of new product launches (compared to 17% for horizontal extensions; Les Échos 2004). A vertical brand extension involves the introduction of a new product that belongs to the same product category that the parent brand is currently operating in, but at different price points and prestige levels (Keller and Aaker 1992). Volkswagen’s introduction of the premium model, Phaeton, is an example of vertical extensions.

Despite the ubiquity of vertical brand extensions in the marketplace, extant research on this extension strategy is relatively scant. The handful of research on vertical extensions has focused primarily on brand concept fit, i.e., the extent to which the new product fits the existing brand image. (Dall’Olmo Riley, Pina, and Bravo 2013). Even among these studies, the findings do not always converge. One set of studies shows that for a prestige brand that is strongly associated with status and exclusivity, upward (vs. downward) extensions are perceived to be more congruent with the core brand’s image and thus are evaluated more positively (e.g., Dall’Olmo Riley et al. 2013; Kim and Lavack 1996). Kirmani, Sood, and Bridges (1999) further demonstrated that such difference in consumers’ attitude toward upward-versus-downward extensions is amplified for owners (vs. non-owners) of the prestige brand, as they have stronger motivation to maintain the brand exclusivity. In terms of feedback effect, research also shows that introducing a premium option under a parent brand (i.e., upward extension) may enhance the perceived prestige of a brand, whereas offering a less expensive new product (i.e., downward extension) may result in lower prestige perception (e.g., Dall’Olmo Riley et al. 2013; Loken and John 1993; Petroshius and Monroe 1987). The second set of studies, however, suggests that any kind of vertical brand extensions (either upward or downward) will result in a lower evaluation of the extended products and parent brands due to perceived inconsistency in product features and positioning (Dacin and Smith 1994; Kim, Lavack, and Smith 2001). It is argued that the greater the difference in product quality and price range between the extended product and the parent brand, the lower the perceived fit, and thus, the lower the evaluation of the vertical brand extension (Lei, de Ruyter, and Wetzels 2008; Musante 2007). The lack of convergence between the two sets of studies suggests that other factors may be influencing consumers’ evaluation toward vertical extensions. We propose that taking individual differences into account will help to clarify when and for whom vertical extensions are more or less efficacious.

A key feature of vertical extension that differentiates it from the horizontal extension is that it typically entails a brand expanding into segments that are either higher or lower in status than its current target market – that is, it involves a change in the brand status. However, prior research has not examined how consumers view such changes in brand status and its subsequent impacts on vertical extension evaluation. Are some consumers more accepting of such status change than others, and if so, how would that influence their receptivity toward the new product? In this research, we propose that differences in power distance belief across consumers would affect the extent to which they accept the perceived status change in vertical extensions, and in turn, influences their responses toward the vertical extensions.

Power Distance Belief Affects Extension Evaluation and Parent Brand Evaluation

Power distance belief (PDB) refers to the extent to which people accept and expect power disparity in an organization or in a society (Hofstede 1984, 2001). Individuals with high PDB, compared to those with low PDB, tend to accept inequality among people and believe that status is desirable (Hofstede 1984, 2001). Research shows that in high PDB cultures, power, status, and privilege always go hand-in-hand and are typically concentrated among those of higher status (House et al. 2004). People of lower status are expected to be dependent on, and show respect to, those with higher status (Hofstede 2001; Huberman, Loch, and ÖNçüler 2004).

Prior research further suggests that PDB also influences individuals’ motivation to enhance their status (Hofstede 1984; Huberman, Loch, and ÖNçüler 2004; Oyserman 2006; Shavitt et al. 2006). Since status is an assessment of how one fares relative to others, people with high PDB are generally reluctant to engage in actions that help minimize social inequality (Winterich and Zhang 2014) but are motivated to increase their own status in order to improve their relative standing in the social hierarchy (Hofstede 1984; Huberman et al. 2004; Oyserman 2006; Shavitt et al. 2006). In contrast, people with low PDB believe that inequality among people should be minimized. For these individuals, the notion that people with higher status enjoy some privileges is undesirable and should not be condoned. As a result, they are less motivated to pursue personal status enhancement (Hofstede 1984, 2001). The differential interest in status enhancement among low and high PBD consumers is also evident from their consumption patterns: compared to low PBD consumers, those with high PDB (at country- or individual-level) are more interested in luxury brands and products (Kim and Zhang 2014; Roth 1995) and personalized service (Matilla 1999) because such products/service help to enhance their social status.

Thus, findings from previous research suggest that people with high PDB are more likely to possess a “status enhancement mindset” relative to those with low PDB. This is because high PDB consumers are always looking for ways to improve their social standing (Kim and Zhang 2014). On the other hand, people with low PDB emphasize status equality and believe everyone should be treated as equal. Status-enhancement is not consistent with their core beliefs. This differential salience of the status-enhancement mindset should influence how low and high PDB consumers feel and behave. Extant research has well established that people tend to react more positively to messages that are consistent with a salient mindset (e.g., Gollwitzer 1990; Higgins 2006; Lee and Aaker 2004; Lee and Labroo 2004; Lee, Keller, and Sternthal 2010; Wyer 2008). For instance, Xu, Jiang, and Dhar (2013) found that consumers primed with an abstract mindset focus more on the abstract benefits of the options rather than their concrete features, and thus experience less choice difficulty when choosing from a large assortment.

Drawing from the mindset literature, we propose that the presence of a status-enhancement mindset for consumers with high PDB (or the absent of such a mindset for consumers with low PDB) will affect how they view upward and downward vertical extensions as such extensions essentially entail an attempt by the brand to step out of its current brand status and venture into new “status” territory. Specifically, we argue that high PDB consumers, for whom a status-enhancement mindset is more accessible and influential, will respond more positively toward upward extensions, relative to low PDB consumers as the introduction of a premium product/service to target premium consumers is consistent with their status enhancement mindset. Conversely, introducing a lower end product (i.e., a downward extension) will be frowned upon by high PDB consumers as it represents a step-down in brand status which runs counter to their status enhancement mindset. In such situations, we expect consumers with high PDB to exhibit less positive attitudes toward a downward extension, relative to low PDB consumers. Taken together, we propose that:

H1a:  Compared to low PDB consumers, high PDB consumers will evaluate an upward extension more favorably.

H1b:  Compared to low PDB consumers, high PDB consumers will evaluate a downward extension less favorably. 

H2:  The effect of PBD on extension evaluation is mediated by a status-enhancement mindset evoked in high (vs. low) PDB consumers.

Prior research shows that in evaluating brand extensions, consumers not only transfer their existing brand knowledge to the extended product, they also continuously update their parent brand knowledge by integrating new information presented by the extended product (Keller and Aaker 1992; Romeo 1991). While a handful of studies suggest that any form of vertical extensions will result in brand dilution due to price and quality information that is perceived to be inconsistent with existing offerings (Kim, Lavack, and Smith 2001; Loken and John 1993), other research has shown that upward (downward) extensions will enhance (dilute) a brand’s image (e.g., Dall’Olmo Riley, Pina, and Bravo 2013; Kirmani, Sood, and Bridges 1999; Lei, de Ruyter, and Wetzels 2008; Petroshius and Monroe 1987).

We propose that since high PDB consumers possess a status enhancement mindset, they are also more likely to revise their perception of the parent brand in the event of a vertical brand extension, as they are sensitive to how the extended product will affect the parent brand’s image. Specifically, we expect an upward extension (i.e., introducing a more premium brand) to lead to greater parent brand enhancement among consumers with high (versus low) PDB as its action is congruent with the status-enhancement mindset. Conversely, the introduction of a lower end product is akin to status denigration as the parent brand is moving “downward” to a lower status. This will lead to a negative feedback to the parent brand as it goes against the status-enhancement mindset, leading to a brand dilution effect in the minds of high (versus low) PDB consumers. Thus, we propose:

H3:  Compared to low PDB consumers, high PDB consumers will evaluate a parent brand that introduces an upward (downward) extension more positively (negatively).

[Insert Figure 1 here]

Figure 1 presents a graphical representation of our conceptual model. A series of four studies were conducted to test the hypotheses above. Studies 1 and 2 provide supporting evidence for the impact of PDB on consumers’ evaluation of vertical brand extensions (H1a and H1b), as well as the feedback effect of vertical extensions on parent brand evaluation (H3). Study 2 also provides causal evidence for PDB by temporarily manipulating participants’ PDB and study 3 provides evidence for the mediating role of status-enhancement mindset. Lastly, study 4 tests the conceptual framework in a more realistic market situation, where consumers see both upward and downward extensions at the same time. Collectively, this series of studies demonstrate the robust impact of PDB on consumers’ responses toward vertical brand extension and its parent brand.

 

STUDY 1

 

Method

Objectives. The objective of study 1 was twofold. First, we aimed to examine the impacts of PDB on consumers’ evaluation of both upward and downward extensions, to provide evidence for H1a and H1b. Specifically, we expected that consumers with high (vs. low) PDB will evaluate an upward extension more favorably and a downward extension less favorably. Second, in addition to examining participants’ evaluation of the extended product, we also examined H3 regarding the feedback effect of the extensions on the parent brand.

Participants and design. Ninety-five participants (41 females; M_age = 37.77, SD = 13.37) from Mturk (U.S.) were recruited for this study. This study adopted a 2 (Vertical Extension: Upward vs. Downward) × 2 (PDB: High vs. Low) mixed design. Vertical extension was manipulated whereas PDB was measured. Participants were randomly assigned to either extension conditions.

Procedure and stimuli. In the cover story, participants were told they would be asked to evaluate a new hotel. Upward and downward extensions in the hotel industry are rampant (e.g., Holiday Inn, Marriot), which provide rich ground for our examination. Participants first read an introduction of a fictitious hotel brand (Hoteling Global), which was framed as an international 4-star hotel with good service and facilities. Following this, participants read about a potential vertical extension the hotel was planning (see Web Appendix A). In the upward extension condition, participants were informed that: “Recently, Hoteling Global is planning to expand its hotel offerings and open a new hotel, which targets the premium travelers. The new hotel will be a 6-star hotel, with premium facilities, butler services and personalized amenities for the discerning travelers.” In the downward extension condition, participants were told that Hoteling Global was about to “open a new 2-star hotel targeting budget travelers.” We opted to use the “star” rating as a proxy for premium (i.e., 6-star) versus budget (i.e., 2-star) hotel, instead of price, as it is a metric commonly used in the hotel industry.

After reading the information, participants were asked to indicate their overall evaluation (positive, desirable, appealing; α = .94) and perceived prestige (luxury, expensive, high status; α = .97) of the new hotel on 7-point scales. As a manipulation check, participants were also asked to indicate the expected room rate of the new hotel. To assess if the extension affected the parent brands’ brand image, participants also were also asked to indicate how many “stars” they thought the brand Hoteling Global deserves (on a scale of 1 to 7 stars). Next, participants completed the PDB scale (α = .82) adapted from Zhang et al. (2010) and Brockner et al. (2001). The PDB scale consists of 8 items (e.g., Employees should respect their supervisors highly), and a higher score indicates a stronger belief in power distance. A pretest that recruited 114 participants (59 females; M_age = 35.84, SD = 11.73) from Mturk validated the reliability of this scale (α = .76). Lastly, participants provided some details about their demographic background (i.e., age, gender and income).

 

Results

Manipulation check. ANOVA on the perceived prestige scale showed that participants rated the 6-star hotel in the upward extension condition to be more prestigious than the 2-star hotel in the downward extension condition (M_upward = 6.58, M_downward= 2.37; F(1, 93) = 442.19, p <.01). Participants also expected the price of a room to be significantly higher in the 6-star (vs. 2-star) hotel (M_upward = $471.77, M_downward= $93.67; F(1, 93) = 113.99, p < .01).  Thus, the vertical extension manipulation was successful.

Attitude toward extension product. Regression analysis on the mean of the extension evaluation measures with vertical extension, PDB, and their interaction as predictors was conducted. The main effect of vertical extension was not significant (t(91) = 1.11, p = .27), but the effect of PDB was significant (β = .34, SE = .14; t(91) = 2.22, p = .03). More importantly, the interaction between brand extension and PDB on consumer extension evaluation was significant (β = .59, SE = .21; t(91) = 2.66, p = .01). Spotlight analyses (Aiken and West 1991) showed that high PDB consumers (at 1SD above the mean), compared to low PDB ones (at 1SD below the mean), displayed more favorable attitude toward the upward extension hotel (M_high = 6.18, M_low = 5.18; t(91) = 2.09, p = .04). High (vs. low) PDB consumers also evaluated the downward extension less favorably (M_high = 4.16, M_low = 4.92; t(91) = 2.72, p < .01) (see Fig. 2). None of the demographic factors was significant in a separate analysis, and thus were removed from further discussion
in this study. Therefore, H1a and H1b were both supported.

[Insert Figure 2 here]

Brand feedback effects. In addition, we also examined how the extension may have influenced participants’ perception of the parent brand. Participants’ ratings of the parent brand (i.e., how many “stars” they would give) was regressed on vertical extension, PDB, and the interaction term. Results showed only a marginally significant main effect of PDB (β = .26, SE = .14; t(91) = 1.92, p = .06) and a significant interaction between PDB and vertical brand extension (β = .59, SE = .21; t(91) = 2.85, p = .01). Spotlight analyses showed that participants with high PDB (+1SD) rated the parent brand to be more prestigious relative to those with low PDB (-1SD) when an upward extension was introduced (M_high = 5.70, M_low = 5.02; t(91) = 4.47, p < .01). In contrast, high PDB consumers rated the parent brand engaging in downward extension as less prestigious than those with low PDB (M_high = 4.22, M_low = 4.90; t(91) = 1.98, p = .05) (see Fig. 3). These results thus provide support for our prediction in H3.

[Insert Figure 3 here]

Discussion

Consistent with our predictions, the findings of study 1 showed that participants with high PDB rated upward extension more positively than those with low PDB (H1a). In addition, we also demonstrated that high PDB consumers rated downward extension less favorably than low PDB consumers (H1b). Furthermore, compared to consumers with low PDB, those with high PDB perceived the parent brand to be more (less) prestigious after introducing an upward (downward) extension. Thus, H3 was supported.

Although study 1 provided supporting evidence for our predictions, PDB was measured in this study, thus leaving the possibility that the findings may not be attributed to PDB, but rather, other factors correlated with chronic PDB. Study 2 aimed to address this issue by manipulating, instead of measuring, PDB.

STUDY 2

 

Method

Objective. Study 2 aimed to provide more direct causal evidence of the effect of PDB. To this end, this study manipulated the salience of participants’ PDB through priming. Extant research (e.g., Hong et al. 2003; Oyserman and Lee 2008) has shown that situational factors, such as event framing and task performing, can temporarily enhance or inhibit the accessibility of relevant concepts. In this study, we prime participants’ PDB via a writing task adapted from prior research (Zhang et al. 2010).

Participants and design. A total of one hundred and one participants from MTurk (U.S.) were recruited for this study. Participants were randomly assigned to either condition in a 2 (Vertical Extension: Upward vs. Downward) × 2 (PDB: High vs. Low) between-subjects design. One participant who either did not complete the task and 7 participants who did not follow instructions were excluded from data analysis. This yielded a usable sample of 93 participants (57 females; M_age = 34.39, SD = 13.17).

Procedure and stimuli. In the cover story, participants were told they would be asked to complete a few unrelated studies. First, following Zhang, Winterich, and Mittal (2010, Study 2), participants were asked to complete an essay writing task to prime either high or low PDB. All participants read a statement about social hierarchy: “There should be an order of inequality in this world in which everyone has a rightful place; high and low are protected by this order.” Those in the high PDB condition were asked to provide at least three arguments in support of this statement, whereas those in the low PDB condition were asked to provide at least three arguments against the same statement. Three items were used as a manipulation check of PDB prime: “For the time being, I mainly think that…”; “At this moment, I feel that…; and “On top of my mind right now are thoughts in agreement with saying that…” (Zhang et al. 2010). Participants rated each item via a 7-point scale (1 = social equality is important, 7 = social hierarchy is important; α = .97). A higher score on this scale indicated higher PDB as participants feel more strongly that social hierarchy is important.

Next, depending on the condition to which participants were allocated, they saw either of two vertical extension scenarios (see Web Appendix B). A car was used as the focal product in this study because vertical extensions are common in this industry, making the stimuli more believable. In the scenario, participants read a brief description of a well-established automobile manufacturer with a typical selling price of $45,000. Next, they were either told that the manufacturer will be introducing a more premium model priced at $69,900 (about $25,000 higher than the average price) or a lower end model with a selling price of $19,900 (about $25,000 lower than the average price). After reading about the new product, participants evaluated the new extension on the same attitude (α = .94) and product prestige (α = .96) measures as used in study 1. Participants also indicated their overall attitude toward the parent brand (good, positive, favorable; α = .96), before completing some demographic questions.

Results

Manipulation checks. ANOVA on the mean of the 3 manipulation items with PDB prime as the predictor showed that participants in the high (vs. low) PDB condition reported a significantly higher importance of social hierarchy (M_high = 3.22, M_low= 2.16; F(1, 91) = 7.71, p < .01). Furthermore, to check if the extension manipulation was successful, we ran another ANOVA analysis on the mean of the product prestige scale. As expected, the upward extension car was perceived to be more prestigious than the downward extension one (M_upward = 5.93, M_downward = 2.98; F(1, 91) = 92.93, p < .01). Thus, both the PDB prime and the vertical extension manipulation worked as intended.

Extension evaluation. ANOVA on attitude toward extension product, with vertical extension, PDB, and the interaction term as predictors, showed non-significant main effects of vertical extension (F(1, 89) = .87, p = .39) and PDB (F(1, 89) = 1.68, p = .10). However, results revealed a significant interaction between vertical extension and PDB (F(1, 89) = 2.56, p = .01). Contrasts showed that high (vs. low) PDB consumers evaluated the upward extension more favorably (M_high = 5.49, M_low = 4.65; t(89) = 1.90, p = .06), and the downward extension marginally less favorably (M_high = 4.29, M_low = 5.03; t(89) = 1.86, p = .07) .

Attitude toward parent brand. 2-way ANOVA on parent brand evaluation, conducted with the same set of predictors, showed non-significant main effects of vertical extension (F(1, 89) = .87, p = .39) and PDB (F(1, 89) = 1.68, p = .10). However, results revealed a significant interaction between vertical extension and PDB (F(1, 89) = 2.56, p = .01). More specifically, high PDB consumers evaluated the parent brand more favorably, after the brand introduced an upward extension, than low PDB consumers (M_high = 5.67, M_low = 4.75; t(89) = 2.10, p = .04). In contrast, high (vs. low) PDB consumers rated the parent brand introducing a downward extension less favorably, although this difference was not statistically significant (M_high = 4.56, M_low = 5.07; t(89) = 1.27, p = .21).

[Insert Figure 4 here]

Discussion

Study 2 replicated the findings of study 1 by showing that compared to low PDB consumers, high PDB consumers rated upward extensions more positively and downward extension less favorably (H1). More importantly, the same pattern of results as those in study 1 was obtained by temporarily activating (instead of measuring) individuals’ PDB concept, and thus provided a more direct test of causality.

Furthermore, in terms of brand feedback effect, this study also replicated the findings obtained in study 1 and showed that PDB affects how consumers view the parent brand after an extension. Although the contrast on brand feedback effect for downward extension was not significant, the overall pattern of results appears to be consistent with the findings of Heath, DelVecchio, and McCarthy (2011), who suggested that the positive impact of upward extensions tend to be greater than the negative impact induced by downward extensions. Moreover, Randall, Ulrich, and Reibstein (1998) also showed that introducing more premium products can enhance a brand equity and consumers’ willingness to pay, whereas introducing a less premium product has a relatively limited negative impact on brand equity. It is also important to note that in this study, brand feedback effect was assessed using a broader measure – overall brand attitude, which is inherently broader and driven by multiple factors beyond simply brand prestige (Heath et al. 2011).

 

STUDY 3

Method

Objective. Studies 1-2 provide robust evidence for the impact of PDB on consumers’ evaluation of vertical brand extensions. Building on these studies, the primary objective of study 3 is to further probe into the underlying mechanism of PDB effects observed in the previous studies. In particular, we argue that high PDB consumers, compared to those low PDB, possess a more (less) favorable attitude toward upward (downward) extension because of their status-enhancement mindset. The secondary objective of study 4 is to expand the scope of outcome considerations to examine consumers’ intention to purchase the extension products.

Participants and design. Study 3 employed a 2 (Vertical Extension: Upward vs. Downward) × 2 (PDB: High vs. Low) mixed design, whereby vertical brand extension was manipulated and PDB was measured as a continuous variable. A total of one hundred and ninety-two participants (121 females; M_age = 36.51, SD = 10.60) were recruited from Prolific, an online consumer panel based in the UK, for this study.

Procedures and stimuli. Participants were invited to evaluate a hotel and were randomly assigned to one of the two vertical extension conditions. The two scenarios used were revised from Lei, de Ruyter, and Wetzels (2008), with the following changes: 1) a fictitious hotel name (i.e., Hotel A) was used; 2) room rates of the hotels were revised to match average hotel prices in the UK, to make the scenarios more realistic to the UK-based participants; 3) photos of the parent hotel and new extensions were added to facilitate imagination.

In the cover story, participants were told that in the interest of confidentiality, we were unable to disclose the real name of the hotel, and thus we called it “Hotel A” instead. Hotel A was described as a mid-priced hotel with typical room rates ranging from £158 to £288. A photo of the hotel and a list of service and facilities provided were presented. After reading the basic information about the hotel, participants’ attitude toward the hotel was measured (good, positive, favorable; α = .94). Next, participants read more about Hotel A’s extension plans. Those assigned to the upward extension condition were told that Hotel A is going to open a new premium hotel targeting high-end travellers. The new hotel will provide luxurious facilities and services at a room rate of £338 – £688. In contrast, participants in the downward extension condition were told that the new hotel will target budget travellers, and only provide basic facilities and services, at room rates of £68 – £128 (see Web Appendix C). The differences in price points were approximately the same for the upward extension and the downward extension following the design of Lei et al. (2008).

After reading the scenario, participants indicated the perceived prestige of (α = .96) and attitude toward the extension hotel (α = .96). Next, participants were asked, if money was not a concern, to what extent they would book the new hotel for a personal trip (“It is a good choice for my trip,” “I will choose this new hotel for my trip”; α = .97). Following this, participants completed the same 8-item PDB scale used in previous studies (α = .86).

To measure their status-enhancement mindset, participants answered a 9-item scale^[1] adapted from Yang and Matilla (2014) (e.g., “I always seek to improve my social status,” and “Advancing to a higher social status is very important to me”; α = .97). Finally, participants indicated their demographic information (i.e., age, gender, and income).

 

Results

Manipulation check. ANOVA showed that the premium hotel in the upward extension condition was rated to be more prestigious than the budget hotel in the downward extension condition (M_upward = 5.85, M_downward= 2.36; F(1, 190) = 628.19, p < .01). Moreover, compared to the original mid-priced hotel (M_{hotel A} = 4.81), the upward extension hotel was perceived as more prestigious (t(190) = 4.88, p < .01), while the downward extension hotel was perceived as less prestigious (t(190) = -20.13, p < .01). Thus, the vertical extension manipulation was successful.

Attitude toward extension product. A regression analysis on the attitude toward extension index with vertical extension, PDB, and their interaction term as predictors, was conducted. Main effect of vertical extension was significant (β = 1.86, t(188) = 12.42, p <  .01), and the effect of PDB was marginally significant (β = .12, t(188) = 1.73, p = .09). As expected, the interaction between brand extension and PDB was significant (β = .65, SE = .14; t(188) = 4.54, p < .01). Replicating the findings of previous studies, Spotlight analysis revealed that high (vs. low) PDB consumers displayed more favorable attitudes toward the hotel in the upward extension condition (M_high = 6.10, M_low = 5.15; t(188) =11.92, p < .01) and expressed marginally less favorable attitudes toward the hotel in the downward extension (M_high = 3.50, M_low = 3.97; t(188) = -1.88, p = .06).

Purchase intention. A separate regression analysis on purchase intention with the same set of predictors was conducted. Results revealed a main effect of vertical extension (β = 3.15, SE = .22; t(188) = 14.66, p < .01) while the impact of PDB was not significant (t(188) = .27, p = .79). However, the interaction between vertical extension and PDB was significant (β = .44, SE = .21; t(188) = 2.11, p = .04). Spotlight analysis further showed that, compared to low PDB consumers, those with high PDB were more likely to stay at the new premium hotel for their travels (Mhigh = 6.06, Mlow = 5.53; t(188) = 1.94, p = .03). Although high (vs. low) PDB consumers indicated a lower likelihood to book the new budget hotel, this difference was not significant (Mhigh = 2.35, Mlow = 2.63; t(188) = -.89, p = .38).

Mediation analysis. To test if status-enhancement mindset drives participants’ evaluation of the upward and downward extension, a moderated mediation analysis using the PROCESS macro in SPSS for Model 15 (Hayes 2013) was conducted. Specifically, PDB was included as the independent variable, status-enhancement mindset was the mediator, vertical extension was the moderator, and consumers’ extension evaluation was the dependent variable. The bootstrapping analysis showed a significant mediation effect (β= .18, SE = .08; 95% CI: [.04, .37]). This supports our theoretical framework that high PDB preferred upward extension over downward extension due to their status-enhancement mindset.

 

Discussion

Replicating the findings of previous studies, study 3 provided consistent evidence for our hypothesis that high (vs. low) PDB consumers rated upward extension more favorably and downward extension less favorably. In addition, study 3 further showed that the attitudinal difference also filtered down to influence consumers’ purchase intention (i.e., intention to book a room in the new hotel). Specifically, we found an asymmetric impact of vertical brand extension on purchase intention, with upward extension exhibiting a greater impact on high (vs. low) PDB consumers’ purchase intention than downward extension. We will discuss the implications of these observations in General Discussion.

Lastly and more importantly, results of this study provided the process evidence by demonstrating that participants’ status-enhancement mindset mediated the effect of PDB on consumers’ evaluation of vertical extensions (H2). This study showed that high PDB consumers’ evaluation of the new product is driven by the extent to which the extension is consistent with their status-enhancement mindset.

STUDY 4

 

Method

Objective.Throughstudies 1-3, we have consistently shown that high (vs. low) PDB consumers exhibited more (less) favorable attitude toward upward (downward) extensions, as well as their perception of the parent brand. However, since these are ex-post evaluations of an extension that the firm has already decided on, it is unclear if the parent brand status enhancement or dilution is a result or cause of the extension evaluation. Study 4 aimed to build on these studies by showing that the preference for upward extension is driven by an expectation that the upward (downward) extension would enhance (dilute) the status of the parent brand.

To do so, in this study, participants were given the power to decide which extension – upward or downward – a firm should choose for future development. Such a scenario is increasingly common and believable in today’s world of co-creation and crowdsourcing of ideas. Since participants were in the driver’s seat in deciding which extension to introduce, their preferences would be highly indicative of their mindset. We argue that high PBD consumers who possess a status enhancement mindset would be more likely to suggest an upward rather than a downward extension, whereas such difference would not be apparent for those with low PDB. By pitting upward against downward extensions, this study provides a stronger test of consumers’ thought process (e.g., Hamilton and Chernev 2010; Heath et al. 2011) and offers additional evidence of the status enhancement mindset demonstrated in study 3.

Participants and design. One hundred and one participants (49 females; M_age = 35.28, SD = 12.99) from MTurk (U.S.) took part in this study. A 2 (Vertical Extension: Upward vs. Downward) × 2 (PDB: High vs. Low) mixed design was used. Vertical extension was a within-subject factor and PDB was a measured variable.

Procedure and stimuli. We adapted the stimuli in study 2 for this study. Participants were told that a well-established automobile firm is thinking of introducing two new products to the market: (1) Plan A – to introduce a new car priced at $19,900 for the mass market; (2) Plan B – to introduce a new car, priced at $69,900, to attract the premium customers. The participants were told that the firm was undecided which product to introduce and would, therefore, like to seek their opinion. Unlike the other studies where participants were shown only one of the two extension conditions, all participants were given information on both the upward and downward extensions (see Web Appendix D).

After reading about the two extensions, participants were asked to indicate which extension they felt was more favorable, positive, and better (1= Plan A, by a lot, 7 = Plan B, by a lot; α = .97). An index for extension preference was created by averaging these 3 items. A higher score indicated a greater preference for the upward extension plan. In addition, participants were also asked to indicate which plan will 1) enhance and 2) impair (reverse-coded) the parent brand’s status (1= Plan A, by a lot, 7 = Plan B, by a lot). Responses to these two items were highly correlated (r = .59, p < .01) and were thus averaged to form an overall brand status change index.

After completing the vertical extension plan selection task, participants responded to a 3-item PDB scale from Winterich and Zhang (2014, study 5), regarding perceived importance of social hierarchy (1 = social equality is important, 7 = social hierarchy is important; α = .98). We opted to use a shorter scale for PBD in this study to reduce participants’ fatigue. Lastly, participants provided some demographic information (i.e., age, gender and income).

 

Results

Preference for extension plan. To examine the impact of PDB on consumers’ preference between the two vertical extension plans, the average PBD score was regressed on the extension preference index. As expected, results demonstrated that higher PDB resulted in greater preference for the upward extension plan over the downward extension plan (β = .51, SE = .09; t(99) = 5.83, p < .01).

Brand status enhancement perception. Regression of participants’ PDB on the extent to which they feel the plan will enhance or impair the parent brand also showed that PDB predicted participants’ perception of parent brand status enhancement (β = .27, SE = .08; t(99) = 3.09, p < .01). Specifically, as PDB increased, individuals were more likely to view upward extensions as an attempt to enhance the brand status whereas downward extensions were thought to damage the brand status.

Mediation analysis. To test if status enhancement perception drives participants’ evaluation of the two extension plans, a mediation analysis using the PROCESS macro in SPSS for Model 4 (Hayes 2013) was conducted. In this model, PDB was included as the independent variable, brand status enhancement index was the mediator, and extension plan preference was the dependent variable. The bootstrapping analysis showed a significant mediation effect (Effect size= .16, SE = .06, 95% CI: [.04, .28]). This provided extra supports for our theoretical framework that high PDB preferred upward extension over downward extension because they view upward extension as an attempt by the brand to venture into the status class, which was consistent with their status enhancement mindset.

 

Discussion

Using a choice context, results from this study replicated the basic finding from our earlier studies that PDB influences consumers’ attitude toward vertical brand extensions by showing that they would prefer the introduction of an upward over downward extension, even if they were given the role as a marketer. More importantly, we show that this preference for upward extension by high PBD individuals was driven by their perception that an upward extension will enhance the status of the parent brand. Thus, this study provides additional evidence that high PDB participants do think about status enhancement in vertical brand extension context.

GENERAL DISCUSSION

 

Results from four experiments provided converging support for our theoretical framework that consumers’ PDB influenced the lens through which they evaluate vertical brand extensions. Specifically, we found that consumers with high (vs. low) PDB evaluated upward (downward) extension more (less) favorably as it fits their status enhancement mindset. Supporting the argument that high PDBs tend to have a status enhancement mindset, studies 1 and 2 further showed that individuals with high PDBs, relative to those with low PDBs, are more likely to feel an upward (downward) extension would enhance the prestige of the parent brand, leading to a positive (negative) feedback effect. Building on the first two studies, studies 3 and 4 provided both direct and indirect evidence for the mediating role of status-enhancement mindset. Specifically, study 3 showed that status-enhancement mindset mediated high PDB individuals’ preference for upward extensions. Study 4 further showed that when placed in a decision making position, individuals with high PDBs would prefer to introduce a more (vs. less) prestigious new product in an effort to enhance the parent brand. Collectively, findings from all the studies supported our theoretical framework and showed that individuals’ PDB matters in the context of vertical brand extension evaluation.

Theoretical Contributions

The current research contributes to the literature in several ways. First, our work expands existing research on vertical brand extensions by providing an initial empirical investigation of the impact of power distance on vertical extension evaluations. In doing so, we integrate the two streams of research – on power distance and vertical brand extension – which has till now developed fairly independently. In addition to considering the typical brand characteristics and extension features in understanding how consumers evaluate vertical brand extensions, our findings suggest that it is equally important to consider individual differences, such as consumers’ lay belief in power disparity, in this context. Although prior research on horizontal extensions has considered the impacts of personal traits and individual mindset (e.g., Ahluwalia 2008; Monga and John 2010; Yeo and Park 2006; Yorkston, Nunes, and Matta 2010), the vertical extension literature is limited in this regard. We hope that our work will spur further related research in this field.

Second, this research contributes to the increasing stream of research on PDB. Existing cultural research has mainly focused on the individualism-collectivism dimension at the country level and the independent-interdependent self-construal at the individual level, while research on the hierarchical dimension is relatively limited (Oyserman 2006; Shavitt et al. 2006). This trend seems set to change with a growing interest in research focusing on the impact of power distance belief on a list of varied consumption scenarios (e.g., Han, Lalwani, and Duhachek 2017; Kim and Zhang 2014; Winterich and Zhang 2014; Zhang et al. 2010). Our current research joins the emerging research on PDB by investigating its important role in the context of vertical brand extension. More importantly, although PDB is commonly studied at the country level or in the cross-cultural context, our research shows that consumers vary in PDB at the individual level as well. We further showed that individually held beliefs about power distance influence consumers’ evaluations of, and preference for, vertical brand extensions.

Our research also provides clarity about the process through which PDB impacts consumer evaluation of vertical extensions. As mentioned earlier, though prior research in the cross-cultural literature has suggested that individuals’ PDB may influence the extent to which they focus on status-enhancement, there is a lack of empirical evidence to support the claim. This research provides the much needed empirical evidence to support the link between PDB and individuals’ status-enhancement mindset.

Managerial Implications

Our research also provides valuable practical insights on how firms should manage their vertical brand extension strategy in the international arena. While it is increasingly common for firms to adopt standardized branding strategies across international markets, the findings from the present research suggest why a global-level vertical brand extension strategy may not always work. To illustrate, our findings offer possible explanations for the very different performance of Volkswagen Phaeton and Gucci cheap handbags across the international markets. Compared to their Western counterparts, consumers in Asian countries, characterized by high PDB (Hofstede 1984, 2001), are more likely to hold a status enhancement mindset. This may explain in part why Volkswagen’s Phaeton, an upward brand extension, was received more warmly in Asian (vs. Western) markets. Similarly, Gucci’s decision to extend its brand downwards may have failed in part because such a strategy was inconsistent with the status enhancement mindset held by the Asian consumers. Therefore, marketers should consider consumers’ PDB when undertaking vertical brand extensions to avoid evoking unintended adverse reactions from their target consumers.

We further observed that while consumers with higher PDB evaluated upward extensions as well as the parent brands more favorably, their negative sentiment toward downward extensions was limited to the extension product and did not appear to significantly affect their attitudes or purchase intentions toward the parent brand. Though these asymmetric effects of vertical brand extensions do not fully support our theoretical predictions, they provide a certain explanation for the popularity of vertical brand extensions in the market. Introducing a new product into the product line might influence consumers’ evaluation of the brand on various dimensions, including brand expertise, brand innovation, and sensitivity to diverse consumer tastes and budgets (Heath et al. 2011; Mizik and Jacobson 2008). However, this does not mean downward extensions are harmless. Even if the negative impact is not significant in this study, it might be amplified when there are many competing brands in the market.

In addition, while power distance beliefs are mostly chronic, they can also be primed. Although individual PDB was primed using an unrelated task in this research, it is possible that marketers can embed the PDB manipulation material in the same TV commercial or print advertisement. Marketers can use scenarios and slogans that emphasize or play down power distance concept to enhance consumers’ attitude toward an upward (downward) extension. For example, to make a premium new product more appealing to consumers, marketers can creatively embed military related contents that have been found strongly associated with high power disparity in the advertisement (Soeters, Poponete, and Page 2006).

Directions for Future Research

Our work suggests several avenues for further research. First of all, the current research only considered individuals’ PDB. Future research can examine if one’s perceived personal power would interact with their PDB to influence how they evaluate vertical extensions. As mentioned, though people with high PDB would like to enhance their own status, they do not want to help people below them improve their social standing (Zhang et al. 2014). However, Han et al. (2017) recently pointed out that (psychological) power held by people will moderate this relationship. Specifically, power holders in high PDB contexts are more likely to donate, whereas people with power in low PDB contexts are less likely to engage in charitable giving. In the same vein, Rucker and Galinsky (2008) demonstrated that priming consumers with power (vs. no power) reduces their desire for social status and, consequently, their intention to purchase status products. Therefore, it will be interesting to see if perceived power may moderate the observed effect. It is highly possible that the observed relationship will be diminished for consumers high in power.

Moving forward, it might be also interesting to examine the role of brand ownership in the context of vertical brand extension. Kirmani, Sood, and Bridges (1999) demonstrated that owners are more involved with their brands and are more likely to care about maintaining the core equity associated with the brands than non-owners. As a consequence, owners (vs. non-owners) of a prestige (vs. functional) brand have stronger motivation to maintain the brand exclusivity and thus value upward extension more than downward extensions. Given that high PDB consumers strongly emphasize status enhancement, it is highly possible that ownership of a brand will even reinforce high (vs. low) PDB consumers’ positive attitudes toward upward extensions and negative attitudes toward downward extensions.

Thirdly, future research could examine the functional versus prestige image of a brand as another potential boundary condition. Prestige brands such as Rolex and BMW are strongly associated with social image and status, whereas functional brands such as Timex and Toyota are more associated with functionality. We expect a functional (vs. prestige) brand concept will attenuate the proposed PDB effects on the evaluation of vertical brand extensions. This is because the status-enhancement mindset of high PDB consumers might not be activated when evaluating a brand that is not associated with social status.

Furthermore, in this paper, we tested our hypotheses using products such as cars and hotels, which are usually purchased for the public or social purpose. Future research could examine whether such PDB effects will hold for privately consumed products, such as toothpaste and dishwasher, which are merely associated with social status (Bourne 1957). Prior research has suggested that vertical brand extensions influence consumers’ evaluation of a public product to a greater extent than a private product, as a more (less) expensive public product (e.g., car) might enhance (impair) one’s image more than a private product (e.g., shoes) (Dall’Olmo Riley et al. 2013). Following this rationale, we expect the impacts of PDB to be stronger for public products than private products.

^[1] A pretest involving 108 Prolific participants (62 females; M_age = 35.77, SD =11.41) demonstrated the internal reliability (α = .96) and convergent validity (correlation with PDB α = .38, p < .01) of the status-enhancement mindset measure.