Brand line extensions: creating new loyalties or internal variety-seeking?

Abstract

Purpose The purpose of this paper is to examine whether line extensions (modified brands) create their own loyalties or induce variety-seeking within the brand. Prior research has explored how the branded house strategy (i.e. multiple products bearing the same brand name) retains customers from competing brands. However, this research investigates loyalty within the brand by comparing loyalty and variety-seeking rates of modified brands. Design/methodology/approach Markov chains examine behavioral loyalty and switching rates of panel households in the USA over several quarters for two family brands of carbonated beverages. Emphasis is placed on the consumers who purchase the upper median of volume (heavy half) and constitute a disproportionate amount of brand’s sales (86 per cent of the volume). Findings Three propositions find that loyalty rates are high among modified brands with little switching to other lines within the brand. Further, loyalty and switch to rates are highest for the flagship branded product (the master modified brand). Practical implications Managers segment the market using the branded house strategy, yet loyalty rates vary for each product line. The switching rates can guide managers as to which products have established a loyal consumer base. Originality/value While brand switching is a considerable research stream, this research is believed to be the first to explore loyalty versus variety-seeking in the branded house strategy.