Abstract
Research has addressed the extent to which an extension, horizontal or vertical, reciprocally affects a parent brand negatively through dilution or positively through enhancement, without explaining the process underlying brand associations' reciprocal transfer by type. This article addresses the dynamics behind reciprocal transfer of image and performance associations triggered by a vertical service line extension and prior contextual salience of the brand. The results suggest that reciprocal transfer of unique image and performance brand associations is direct and modifies the parent brand associations' structure leading to dilution in one case and enhancement in the other. However, with prior contextual presence of the parent brand, reciprocal transfer is positively mediated through initial ratings of image associations with the extension. In contrast, direct reciprocal effects of both vertical direction and prior parent brand salience occur only through the mediating effect of the extension’s unique performance associations, which confirms this study’s assumptions. This study should help managers carefully choose the timing of launch of a new vertical service line extension, better understand how the type of associations can affect the parent brand, and measure their strategies against corporate objectives.
Keywords
Introduction
Increasing competitive pressure, high costs of launching new products/services, and a better use of consumer information have led many firms to launch extensions of existing brands to benefit from their equity and help achieve success (Aaker and Keller 1990; Martinez and Pina 2010; Völckner and Sattler 2007). In addition, an increasing body of academic research on consumer goods has been devoted to “vertical” extensions (Hamilton and Chernev 2010; Keller and Lehman 2006; Kirmani, Sood, and Bridges 1999; Randall, Ulrich, and Ribstein 1998), despite the recognition of the importance of this type of extensions in the literature (Hamilton and Chernev 2010) and managerial practice (Xie 2008). Furthermore, despite the observed growth in retail markets, little is known about vertical service line extensions (Lei, de Ruyter, and Wetzels 2008).
Research on vertical extensions has addressed reciprocal dilution of the core brand. For example, Kirmani, Sood, and Bridges (1999) find differences between owners and nonowners in their responses to upward and downward extensions of prestigious and functional brands. These authors address the extent to which a subbranding strategy may protect the core brand from attitude dilution. Similarly, Kim, Lavack, and Smith (2001) suggest that the introduction of vertical extensions can have a negative impact, or dilution effect, on the core brand unless distancing branding techniques are used to create a distinction from the parent brand. Randall, Ulrich, and Ribstein (1998) suggest that a brand price premium is correlated with the quality of vertical extensions in the product line and that positive reciprocal effects on the parent brand can occur. However, to achieve profitability managers may need to keep low-end products in the lineup to sell to the masses. Again, only the overall effect of quality on the core brand is assessed.
In contrast, Lei, de Ruyter, and Wetzels (2008) obtain empirical evidence that extension distance reciprocally affects the parent brand, with a far extension being perceived as more inconsistent than close ones. The authors also find that consumers perceive higher financial risks for an upward extension than for a downward version; they also suggest that upward extensions reciprocally influence parent brand evaluation positively. Hamilton and Chernev (2010) suggest that the impact of upscale and downscale extensions on price image is a function of consumer goals. The authors suggest that more research is needed, especially on how vertical line extensions influence image impressions consumers may form of a brand. Although prior research has addressed the effect of vertical line extensions on the core brand, reciprocal transfer of brand associations by type is still not well understood. In the aforementioned studies, the findings are laudable but do not provide enough empirical evidence to allow researchers to conclude whether a vertical line extension affects a parent brand’s image and performance association structure.
Another area that requires close attention when launching a vertical line extension is the contextual impact of parent brand salience when a new line extension is launched. Much of the current research focuses on the effect of past impressions on later judgments (Aaker and Keller 1990; Boush and Loken 1991; Wyer 2008). Findings suggest that entrenched past impression and attitudes tend to persist over time. Aaker and Keller (1990) acknowledge that consumers' knowledge about a parent brand carries over to the extension. Although prior research provides key theoretical arguments regarding transfer, it provides scarce evidence in terms of reciprocal effects.
The current research aims to build on extant literature by investigating whether vertical service line extensions and parent brand salience affect reciprocal transfer of image and performance associations. In light of the identified limitations, this article makes two main contributions to the literature on vertical service line extensions. The first contribution pertains to the reciprocal transfer of two major types of brand associations: image and performance. Image associations are more abstract associations, rooted in general impressions that distinguish the brand from other brands in a specific category; performance associations are associations related to the concrete product attributes and benefits connected with product performance (Bhat and Reddy 2001; Bridges, Keller, and Sood 2000; Dillon et al. 2001; Keller 1993; Krishnan 1996; Martinez, Polo, and De Chernatony 2008). We test the impact of a vertical line extension on the transfer of both types of associations and on the evaluation of the parent brand.
The second contribution lies in the effect of parent brand salience before assessments of a vertical line extension, during launch. Salience can be purely memory based and tends to persist over time (Ehrenberg, Barnard, and Scriven 1997; Miller and Berry 1998; Wyer 2008); it can also be stimulus based when the brand appears in a context in which judgments are formed and thus can override past impressions (Buchanan, Simmons, and Bickart 1999). Our study proposes that contextual salience of the parent brand directly affects reciprocal transfer of image associations of a new vertical line extension but is not related to performance associations.
In the next section, we begin with a description of the conceptual model, followed by the theoretical background in support of the model. We then conduct critical analyses of the literature, leading to hypotheses regarding the following key topics: (1) reciprocal effects, (2) vertical line extension, (3) beliefs and brand associations, (4) image and performance associations, and (5) contextual salience. Next, we provide a discussion on the findings, with theoretical and managerial implications. We conclude with the limitations and directions for further research.
Conceptual Model and Theoretical Background
In our study, we test the impact of a new vertical service line extension and parent brand contextual salience on both reciprocal transfer of image and performance associations to the parent brand and the potential modification of the parent brand’s equity. Figure 1 illustrates our conceptual model. More specifically, we propose and test the assumption that both vertical directions and contextual salience directly affect reciprocal transfer of image associations. In addition, we propose that both image and performance associations mediate the reciprocal effects of the vertical extension; for contextual salience of the parent brand, however, only performance associations do. Moreover, our conceptual model shows that both extension image and performance associations directly and reciprocally affect the parent brand.

Tested conceptual model.
In terms of direct reciprocal effects, the model shows that vertical directions affect parent brand image associations negatively, while prior contextual salience affects image associations positively. In contrast, direct reciprocal effects on parent brand performance associations and evaluation are nonexistent for both prior salience and vertical directions. In the following sections, we offer theoretical support for the conceptual model.
Vertical Service Line Extensions
“Brand” extensions are launched when a firm uses an established brand name to introduce new products (Keller 2007). Conversely, “line” extensions are based on the use of an established parent brand name to create new products/services within the same category by adding features/flavors (Keller 2007). In both cases, brand and line extensions are referred to as “horizontal” because the same level of quality is maintained (Kim, Lavack, and Smith 2001). Extensions are “vertical” when the same established brand name is used to create products/services in the same category, but at a different price, quality, and/or service sophistication level (Keller and Aaker 1998; Lei, de Ruyter, and Wetzels 2008; Randall, Ulrich, and Ribstein 1998). A vertical extension can be developed in either upward or downward direction (Keller 2007).
For an upward line extension, the primary signals on which consumers base their judgments are the brand associations already linked to the parent brand. As such, consumers may question whether a formerly mainstream brand has the capability to deliver the upscale functional (e.g., performance associations) and emotional (e.g., image associations) benefits they have come to expect from an upmarket (Aaker 1997; Lei, de Ruyter, and Wetzels 2008). In recent years, financial services, such as mainstream banks, have attempted to create upscale divisions to obtain their fair share of the market and fast-growing consumer sector. Similarly, the mainstream manufacturer Toyota created its upscale Lexus division from similar motivations and concerns. The main question underlying such moves is whether the newly created brand associations reciprocally affect the equity of the parent brand.
Image and Performance Associations
Brand associations represent knowledge linked to a brand in a consumer’s memory (Lynch and Srull 1982) organized in an “associative” network of connections (Anderson 1983; Anderson and Bower 1973). Drawing on this cognitive concept of memory, we can define brand associations as a series of information neurons linked to the main neuron that carries the meaning of the brand learned, felt, and experienced over time (Homer 2008; Keller 2007).
Although prior studies have argued that consumers perceive a brand through two major association types—namely, tangible or intangible (Bhat and Reddy 2001; Keller 1993)—other typologies have been used as well. For example, studies have suggested typologies, such as product-/service-related and nonproduct-/nonservice-related beliefs (Keller 1993), attribute and nonattribute beliefs (Srinivasan, Park, and Chang 2005), and cognitive and affective beliefs (Dubé, Cervellon, and Jingyuan 2003). Nonattribute beliefs are essentially based on higher order emotional and subjective values related to the image of the brand, while attribute beliefs pertain to features and performance of the product/service; research has also classified these as lower level cues (Chattopadhyay and Alba 1988; Homer 2008). In this article, we thus classify brand associations as image and performance.
Reciprocal Effects or Dilution?
Many studies addressing consumers' reactions to brand/line extensions have examined how parent brands affect extensions using the notion of fit (Bottomley and Holden 2001; Völckner and Sattler 2007). Few studies, however, have investigated the extent to which an extension affects the equity of the parent brand (Keller and Sood 2003) in a context in which one tactic in extending a brand is to avoid “diluting” the parent brand’s equity, which can lead to negative effects (Keller and Sood 2003; Milberg, Park, and McCarthy 1997; Ng 2010; Pullig, Simmons, and Netemeyer 2006; Roedder-John, Loken, and Joiner 1998). Such a risk exists if the extension’s associations are considered inconsistent with the parent brand’s primary equity (Milberg, Park, and McCarthy 1997; Pullig, Simmons, and Netemeyer 2006; Roedder-John, Loken, and Joiner 1998). Furthermore, research has found that parent brand dilution is not only caused by unsuccessful extensions (Sheinin 2000).
In essence, in a vertical line extension, the aim is to contrast it with the parent brand using a quality differential; that is, the fundamental goal is to target and attract a new segment of customers. The potential problem with this tactic is that the new extension (i.e., either upward or downward) has the potential to reciprocally dilute the parent brand by ostracizing the current customer base (Aaker 1997; Kim, Lavack, and Smith 2001; Kirmani, Sood, and Bridges 1999). According to prior research, this risk of “diluting” the parent brand’s equity occurs when the associations created for the new extension are inherently inconsistent (Milberg, Park, and McCarthy 1997; Pullig, Simmons, and Netemeyer 2006; Roedder-John, Loken, and Joiner 1998).
Image beliefs are emotional in nature (Dubé, Cervellon, and Jingyuan 2003). Therefore, current customers might be reluctant to accept a new upward vertical service line extension at first because of its inherent discrepancy with the core brand, which dilutes image associations. In some cases, a downward extension might be more feasible, as Hilton Hotels has demonstrated with its line extensions of affordable hotels. In other words, the launch of a newly created upward service line extension of an established parent brand is likely to provoke a conflictive effect in current customers' perception with the risk of diluting the parent brand’s image associations more than would a relatively closer downward extension.
Thus, regarding overall image perceptions, current customers are likely to view a new vertical service line extension negatively because of their entrenched emotions and attitudes toward the parent brand. In such a case, an upward extension may create dissonance among current consumers because the equity differential generated by the new vertical line extension might be perceived as too radical. This in turn might significantly affect the parent brand image association’s structure, fostering dilution. We therefore propose and test the following hypothesis:
Hypothesis 1: A newly launched upward service line extension will have a reciprocal negative effect on the parent brand image associations.
The literature on parent brand dilution and previously described findings do not distinguish between the image and performance components of brand associations. Our study aims to provide this important distinction and address this issue in the following sections.
Reciprocal Effects and Image Associations
The previous stream of research has been questioned because a new extension can actually have a positive, desirable impact on the parent brand (Balachander and Ghose 2003; Kumar 2005; Martinez and Pina 2010; Morrin 1999). For example, research has found that the presence of a new extension in the portfolio not only affects the parent brand positively but also reinforces its brand recall (Morrin 1999). In this context, a new extension maybe inconsistent because its features differ from those of the parent brand, but it can still have a positive effect. Except for one study, none of these studies have addressed the impact of reciprocal transfer of brand associations. Martinez and Pina (2010) suggest a positive impact of image associations between a parent brand and its extension but do not elaborate on reciprocal transfer.
When consumers overcome their overall perception of the new vertical line extension, they begin scrutinizing its benefits more proactively. A more involving, newly launched vertical line extension is likely to motivate consumers to process its detailed benefits more extensively. Sujan (1985) explained that when incoming information about a product/service is distinct from the related category knowledge (e.g., parent brand) in memory, a more piecemeal analysis is initiated similar to stimulus-based processing. In the area of brand extensions, Gürhan-Canli and Maheswaran (1998) suggest that when consumers are exposed to extensions that are distinct from the parent brand, their motivations to process information increase and directly affect their reciprocal evaluations of the parent.
Previous studies on reciprocal effects offer little insights into how brand associations might affect this process. When a new vertical line extension is launched, contextual communications of key benefits (i.e., image and performance) should motivate consumers to process this specific new information in depth and on its own. The reciprocal impact on the parent brand equity structure should also be strong. We thus propose and test the following hypothesis:
Hypothesis 2a: A newly launched vertical service line extension’s unique image associations will have a positive effect on the parent brand image associations.
As mentioned previously, both upward and downward vertical line extensions can be developed in the same product/service category as the parent brand but made distinct from it through different levels of price, quality, and/or service sophistication (Lei, de Ruyter, and Wetzels 2008). For example, a vertical line extension can have an impact on the parent brand by moving the parent brand’s price image upward, but this effect is a function of consumer goals (Hamilton and Chernev 2010). Hamilton and Chernev (2010), however, note that additional research is needed on how vertical line extensions influence the image impressions consumers may form of a brand. Our study not only overcomes this limitation but goes further by measuring the extent to which both image and performance associations potentially affect reciprocal transfer to the parent brand.
We posit that the overall reciprocal impact of a new vertical line extension on the parent brand is negative (Hypothesis 1). However, this negative assessment by consumers seems to be an emotional reaction to a new brand that they perceive as foreign to what they know about the current established parent brand. This reaction seems to occur without an actual in-depth assessment of the brand associations by type. Previous research suggests that a new extension can actually have a positive desirable impact on the parent brand (Balachander and Ghose 2003; Kumar 2005; Martinez and Pina 2010; Morrin 1999). More specifically, research has found that the presence of an extension in the portfolio positively affects the parent brand by reinforcing its brand recall (Morrin 1999). Another study reveals that advertising of extensions can also increase purchase choice of the parent brand (Balachander and Ghose 2003).
Ahluwalia and Gürhan-Canli (2000) find that an extension’s information mediates the reciprocal effect on the parent brand, without specifying the type of information other than whether it is accessible or not. For vertical line extensions, this positive effect on the parent brand might occur when consumers scrutinize the brand associations; however, the literature provides only partial insights into this issue. Thus, if image brand associations of a vertical line extension have a direct, positive reciprocal impact on the parent (Hypothesis 2a) whereas the evaluation of the extension, captured in isolation, has a negative impact, competitive mediation (Zhao, Lynch, and Chen 2010), also labeled “partial mediation” (Baron and Kenny 1986), should occur for this type of brand association. We therefore propose and test the following mediation hypothesis:
Hypothesis 2b: Unique image associations of a newly launched vertical service line extension will positively mediate reciprocal transfer between the extension and the parent brand.
Reciprocal Effects and Performance Associations
It is suggested that a more piecemeal analysis is initiated similar to stimulus-based processing when incoming information about a product/service is distinct from related category knowledge (e.g., parent brand) in memory (Sujan 1985). According to Park and Hastak (1994), stimulus-based appeals are assessed contextually. That is, stimulus-based performance associations evoke a more piecemeal process, which means that consumers tend to rate a new vertical extension’s relevant performance associations on their own merit, without allocating much emphasis to past impressions of the parent brand’s attributes (Fiske and Pavelchack 1986).
As mentioned previously, when consumers pass the stage of overall perceptions of a new vertical line extension, they tend to be motivated to scrutinize its benefits in depth. That is, when consumers are exposed to an extension that is distinct (e.g., vertical line extension) from the parent brand, their motivation to process information increases and directly affects reciprocal evaluation of the parent (Gürhan-Canli and Maheswaran 1998). In other words, with a new vertical line extension, contextual communications of key benefits, such as performance associations, are likely to motivate consumers to process information. The reciprocal impact of performance associations on the parent brand equity structure should also be strong. We thus propose and test the following hypothesis:
Hypothesis 3a: A newly launched vertical service line extension’s unique performance associations will have a positive effect on the parent brand performance associations.
For performance associations, such beliefs are related to the features and performance of the product/service; prior research has classified these as lower level cues (Chattopadhyay and Alba 1988; Homer 2008). Here, regardless of whether the new vertical service line extension is upward or downward, the novelty effect (Sujan 1985) should work equally for both in consumers' minds. Consumer scrutiny of the new service’s benefits, whether upward or downward, should have the same intensity as it would for the parent brand, based on current knowledge associated with the parent brand.
Furthermore, readily accessible information related to the extension mediates reciprocal effects on the parent brand (Ahluwalaia and Gürhan-Canli 2000). As such, potential indirect-only mediation (Zhao, Lynch, and Chen 2010), also labeled “full mediation” (Baron and Kenny 1986), should occur. We therefore propose and test the following mediation hypothesis:
Hypothesis 3b: Unique performance associations of a newly launched vertical service line extension will positively mediate reciprocal transfer between the extension and the parent brand.
Parent Brand Reciprocal Evaluation
Finally, in terms of reciprocal effects of vertical line extensions' brand associations on parent brand evaluations, the literature includes limited investigations. In our study, we develop the vertical extension to be positively congruent with the parent brand. Prior research (Balachander and Ghose 2003; Gürhan-Canli and Maheswaran 1998; Kumar 2005; Lei, De Ruyter, and Wetzels 2008; Martinez and Pina 2010; Morrin 1999) reports that strong positive evaluations of the target object (e.g., parent brand) may occur. Lei, de Ruyter, and Wetzels (2008) suggest that a new vertical service line extension has a positive impact on the parent brand evaluation. However, in their study, participants rated their overall reaction toward the extensions and reciprocal evaluation of the parent brand, to the exclusion of the impact of brand associations. We hypothesize that a newly launched vertical service line extension’s unique image (Hypothesis 2a) and performance associations (Hypothesis 3a) will reciprocally and positively modify the parent brand’s association structure. We thus propose and test the following hypotheses:
Hypothesis 4a: A vertical line extension’s image associations transferred to the parent brand will positively affect evaluations of the parent brand.
Hypothesis 4b: A vertical line extension’s performance associations transferred to the parent brand will positively affect evaluations of the parent brand.
Contextual Salience of the Parent Brand
Consumers rely on what they know about the parent brand and carry over that knowledge to the extension (Aaker and Keller 1990; Boush and Loken 1991). That is, consumers tend to rely on their prior attitudes toward and general impressions of the parent brand (Sanbonmatsu and Fazio 1990; Wyer and Srull 1989) rather than on more detailed diagnostic features. Moreover, if these previous and already interpreted general impressions (e.g., about a core brand) are recently activated (e.g., from launch of a new extension), these impressions on later judgments will persist over time (Wyer 2008). Similarly, Chattopadhyay and Alba (1988) suggest that higher level memory-based abstractions, such as the parent brand attitudes, are more durable over time than lower level cues, such as attribute-based beliefs (e.g., performance associations).
Miller and Berry (1998) find that established parent brands are strong and robust in consumers' perceptions in the context of choice (e.g., point-of-purchase [POP] material, printed advertising), which makes other information, such as a new line extension’s communication, less influential. Thus, even a new involving vertical line extension cannot override the impact of an established parent brand when both appear in the same judgment context.
Ehrenberg, Barnard, and Scriven (1997) suggest that when a parent brand is salient, it evokes mainly brand associations related to its image, which carry over by leaving long-term memory traces. Unfortunately, the authors do not empirically measure their assumption. The literature also fails to demonstrate the extent to which past impressions of the parent brand affect reciprocal transfer of image associations of a vertical service line extension. Prior contextual salience of the parent brand should have a strong positive effect on reciprocal transfer of the vertical extension’s image associations to the parent brand. We therefore propose and test the following hypotheses:
Hypothesis 5: Contextual salience of the parent brand positively affects reciprocal transfer of image associations with a vertical service line extension to the parent brand.
Research suggests that the accessibility of contextual information (e.g., POP material, printed advertising) can be used as immediately relevant cues to make assessments (Menon and Raghubir 2003). A newly launched vertical extension’s performance associations are initially accessible to consumers only in the context of their judgment, which makes cues such as performance associations of the new extension immediately relevant (Broniarczyk and Alba 1994; Feldman and Lynch 1988). Here, contextually available stimulus-based cues (e.g., performance associations) foster in-depth processing of information (Mantel and Kardes 1999; Petty, Cacioppo, and Schumann 1983). In addition, the presence of an attention-grabbing factor (e.g., extension’s performance association) may overshadow the direct impact of other factors (e.g., parent brand past impressions) that would otherwise be used as inputs in judgments (Raghubir and Menon 2005). In our study, this means that parent brand salience may not directly influence reciprocal assessment of performance associations after extension but rather during launch (mediation situation).
We hypothesize that a newly modified parent brand performance associations' structure will positively affect a parent brand’s evaluation (Hypothesis 3a). With this assumption, contextual salience of the parent brand is likely to affect reciprocal transfer of performance associations but not image associations. As mentioned, this situation potentially assigns performance associations to indirect-only mediation (Zhao, Lynch, and Chen 2010). Therefore, the new extension’s performance associations should mediate the relationship between the prior contextual salience of the parent brand and reciprocal transfer to the parent brand after extension. This leads to the following hypothesis:
Hypothesis 6: Unique performance associations of a newly launched vertical service line extension will mediate reciprocal transfer between prior contextual salience of the parent brand and the parent brand after extension.
Research Design
To test the proposed hypotheses and maximize external validity, we conducted a randomized 2 × 2 natural experimental design. More specifically, we developed two levels of vertical extension (upward and downward) and two levels of parent brand salience (high and low). The two vertical extension concepts were based on pretested printed ad creative supports (see pretests).
Regarding salience of the parent brand, we opted for cognitive (Miller and Berry 1998) rather than visual support. Here, participants in the high-salience cells assessed the parent brand by rating it on 23 criteria before assessing the new extension. The goal was for participants to retrieve the essence of the parent brand to make it highly salient in their top-of-mind memories during assessment of the extension. The participants in the low-salience cells did not perform this task. Note that we took other measures but deemed them irrelevant to the context in this study. A description of the different methodological procedures we followed before data collection appears in the following sections.
Sampling and Data Collection
Recruitment of respondents (Chernev 2006; Völckner et al. 2010; Yang and Peterson 2004), selected from a commercial database representative of the target population located in northeast, was done by e-mail. Participants were randomly selected from a panel of 50,000 members, using the most recent electronic version of the telephone book as the sample frame and a random generator of the sample units (i.e., telephone numbers).
The questionnaires were broken down into the experimental categories and sent to the participants. Each participant who fit the target population profile and the research requirements in terms of age and income had an equal chance of being selected. We randomly assigned each participant to one of the experimental cells based on the experimental design (Aaker, Kumar, and Day 2001). We instructed them to consult a printed ad that depicted a new financial extension of a well-known bank; the ad contained a detailed description of the features and benefits of this new division. We sent out 980 questionnaires, based on the four corresponding cells, 668 of which were returned. Of these, only 664 were usable, for an overall response rate of 70%.
Pretests
The goal of the pretest procedures was to provide participants with reliable and valid measures. Therefore, we conducted two series of pretests. Because the experiment required realistic, credible, and valid visual stimuli, we developed two basic printed advertisements for the newly developed vertical service line extension. The extension was a new financial division of an established Canadian financial institution. We developed measurement scales and subjected them to pretesting. This first phase of this pretest included the following: neutral name selection for the vertical extension concept, measurement check of the parent brand to verify its functionality and ensure feasibility of an upward and downward extension, and manipulation check of the printed ad copy to ensure the upward and downward directions.
Stimuli development
We developed printed stimuli (see Appendices A and B) on the basis of graphical concepts and visual templates to provide realistic printed advertisements describing both an upward and a downward vertical line extension of the financial institution. The stimuli represented persuasion appeals normally found in the marketplace during product launch (e.g., magazine ads, brochures, outdoor billboards, and POP material).
As mentioned, participants received a comprehensive questionnaire and were instructed to consult the printed advertisement describing the features and benefits of the new financial division. We used two advertisements to create a contrast for testing purposes: one for an upward division/extension and one for a downward division/extension. The two ads were produced by professional graphic designers of the firm to maximize realism and content validity.
Two additional measures of consistency and validity across the ads were added to the test: (1) professionalism and (2) credibility (Brackett and Carr 2001). These two validity measures helped confirm that no variation in the visual concepts occurred between levels of vertical directions, thus avoiding potential biases. A one-way analysis of variance (ANOVA between groups) showed that there was no significant difference between the two tested levels for either of the two measures: credibility (F = 1.083, df = 6) and professionalism (F = 0.487, df = 6). For rigor purposes and validity checks, we included an additional factor: quantity of information. The goal here was to control for the perceived amount of information across the visual stimuli to avoid any perceptual bias. This check across the stimuli was performed by judges, and no differences were detected in the quantity of information presented in the ads.
Generation and factorial structure of brand associations
To uncover the factorial structure of the brand associations' types, we followed the traditional procedures of scale development (see DeVellis 2003; Netemeyer, Bearden, and Sharma 2003). We divided the procedures into three steps: (1) item generation and content validity, (2) scale purification and dimensionality, and (3) scale validity and confirmatory factor analysis.
Item generation and content validity
The goal of this pretest phase was to generate a preliminary exhaustive list of items covering image and service performance associations with evidence of content validity. We generated two distinct lists of valid brand associations (i.e., image and performance) strongly linked to either the parent brand or the vertical extension concept to allow for testing of association transfer. Aaker (1991) describes two types of methodologies to generate brand associations: indirect qualitative and direct quantitative methods. Similarly, Keller (1993, 2007) puts forth the idea of qualitative and quantitative methods and proposes a typology of strong, favorable, and unique associations.
Using an adapted series of methodologies (Aaker and Keller 1990; Keller 1993; Krishnan 1996; Nelson et al. 1993), we opted for an open-ended top-of-mind questioning procedure. That is, to generate an exhaustive list of associations, we asked the participants to indicate what came to mind when they thought about one of seven established financial institutions. We repeated this process two more times for each institution. We applied the same procedures to the new extension after exposing the participants to the printed ad.
After the associations were generated, we assessed the content validity of the initial pool of items. These were classified by three independent judges, familiar with the service studied, into similar categories and combined into similar labels. To maximize objectivity and neutrality, we did not disclose the purpose of the research to the judges (Krishnan 1996). Then, we conducted a triangulation procedure based on interjudge iterations (Iacobucci, Ostrom, and Grayson 1995) to eliminate any brand associations that were either irrelevant or too generic. The judges' task was to organize the most frequently mentioned and relevant associations into a meaningful and usable grouping and to keep those that were unique. Of the original 106 single and grouped associations generated, we retained those that were selected by at least two of the three judges; this resulted in 23 image and performance associations (see Table 1 ).
New Extension Brand Image and Performance Associations
Scale purification and dimensionality
To uncover the underlying image and performance brand associations' structure for the new vertical extension, we factor-analyzed the list including the final 23 associations resulting from the generation procedure. We submitted the list to exploratory factor analysis using both principal components analysis and principal axis factoring with direct oblimin rotation (Coker, Ashill, and Hope 2011; Vesel and Zabkar 2010). The submitted list included both strong and unique associations, and the goal was to uncover reliable components describing both image and performance associations to be included in the structural path model.
This item purification procedure was deemed necessary to evaluate the items for each facet of the construct using principal components factor analysis by carefully examining corrected item-to-total correlations and item intercorrelations. The decision to use exploratory factor analysis was driven by both the lack of a clear conceptualization of the associations' structure for the parent brand and the new extension and the lack of information on the relationships between indicators and the construct (Gerbing and Anderson 1988).
The measurements were based on a 7-point Bipolar Horizontal scale (1 = not at all representative, 7 = very representative). Table 2 shows the resulting factorial structure obtained for the new vertical extension. Both final measures of image (Cronbach’s α =.94) and performance (Cronbach’s α =.89) associations were based on 4 items; the two-factor solution had a total variance explained of 79.9% for both extraction techniques.
Factor Items and Indicators
Note. aTotal variance explained for the two-factor solution for both extraction methods: 79.9%.
The scale used to rate attitudes toward the parent brand, after extension, was based on a commonly used 3-item, 7-point Bipolar Horizontal scale with the following bipolar adjectives: bad/good, dislike/like, and not favorable/favorable. Cronbach’s reliability index was satisfactorily high (α = .96), above the suggested rule-of-thumb threshold of .70 (Hair et al. 2009). In terms of distributive properties, Table 3 shows that all manifest variables and their related indicators describe a normal curve that falls within the acceptable ranges from −1.0 to +1.0 for both skewness and kurtosis indexes (Hair et al. 2009; Tabachnick and Fidell 2007).
Distributive Properties of the Manifest Variables
Scale validity with confirmatory factor analysis
After the exploratory step, we evaluated the final factorial structure as well as the validity of the scale and items using confirmatory factor analysis with Amos 18. We ran a measurement model for the 4 items representing the image-based dimension and for the 4 items representing the performance-based dimension. The chi-square (104.85) for this factorial structure is statistically significant (p < .000) with 19 degrees of freedom. We also assessed the normed fit index (NFI), comparative fit index (CFI), incremental fit index (IFI), and root mean square error of approximation (RMSEA). The values obtained for these diagnostics (NFI = .978, CFI = .982, IFI = .982, and RMSEA = .068) suggest a reasonable model fit (Coker, Ashill, and Hope 2011; Hair et al. 2009; Sharma et al. 2005).
Analysis and Results
We tested the proposed hypotheses using the partial least squares (PLS) statistical algorithm with SmartPLS 2.0 (Ringle, Wende, and Will 2005). Our reasons for selecting PLS as the appropriate technique are fourfold. First, in contrast with pure ANOVAs, PLS allows for multiple causal relationships (Chin 1998). Second, PLS is suitable for operationalizing attitudinal models in applied settings (Johnson and Gustafsson 2000). Moreover, in relation to the current study, PLS has recently been applied in studies of brand extensions in a service context (Völckner et al. 2010) and, in particular, in vertical service line extensions in which nominal variables are used (e.g., Lei, de Ruyter, and Wetzels 2008). Third, Cassel, Hackl, and Westlund (2000) document that PLS outcomes are robust against multicollinearity. Furthermore, PLS can moderate this statistical issue in data structures and impound any potential bias in result estimation. Fourth, PLS path modeling of multivariate normal data is not required with minimum prerequisites on measurement levels (Chin 1998).
Measurement Model
We tested the measurement model by estimating the internal consistency, convergent validity, and discriminant validity of all the items derived from the instrument. We obtained the composite reliability of the indicators underlying the measurement of each construct through the measure of internal consistency and average variance extracted (AVE). We also obtained the standard errors through bootstrapping, not estimation. Smart PLS 2.0 also enabled us to calculate Cronbach’s αs. The results show that all reliability scores are well above the usual threshold of .70 (Fornell and Bookstein 1982; Nunnally 1978), ranging from .86 to .97 for both composite reliability (Chin 1998) and internal consistency (Cronbach’s α) measures. The results appear in Table 4 . The AVE scores ranged between .75 and .92, again well above the recommended minimum threshold of .5 (Chin 1998; Fornell and Larcker 1981).
Measurement Model Items
Note. aPLS uses an alternative measure (composite reliability) to Cronbach’s α. Rather than weighting the items equally, this measure uses the item loadings obtained within the nomological network or causal model.
Convergent validity occurs when most items load strongly on their associated factor/construct. Reflective measures for each item are considered reliable if their correlation is greater than 0.7 against the measured construct, though Hulland (1999) suggests a 0.5 cutoff. Table 4 shows adequate convergent validity for the majority of items with their corresponding construct. Among all measures, the lowest item demonstrated a loading of .87, way above the .7 threshold. Finally, we assessed discriminant validity using the heuristic suggested by Fornell and Larcker (1981). We compared the AVE with the squared correlations of each construct. Table 5 shows that the AVE of each construct was greater than any shared variance with other construct, thus providing evidence of discriminant validity.
Shared Variance and Average Variance Extracted
Note. On the diagonal, average variance extracted of each factor is displayed; the other values display shared variance (i.e., r 2) between two factors (Fornell and Larker 1981).
Structural Model and Hypothesis Testing
On the basis of Wold’s (1985) study regarding the distribution-free predictive approach of PLS, we estimated the path model using R 2 for the dependent constructs as well as the size, t statistics, and significance levels of the β coefficients. We estimated the t values by running bootstrap resampling procedures (2,000 resamples). Table 6 summarizes the results of the structural model that examined the direct effects of vertical directions, salience, extension image and performance associations, reciprocal parent brand image, and performance.
Tests of the Research Model and Hypotheses
Note. aAll linkages are significant at *** p < .01 level except for Hypothesis 1b, significant at ** p < .05 (all two-tailed).
The resulting structural model explains 62.9% of the variance in reciprocal image associations, 61.9% of the variance in reciprocal performance associations, and 67.8% of the variance in parent brand evaluation after extension. Hypothesis 1 proposed that a newly launched vertical service line extension would reciprocally modify and dilute the parent brand’s image associations. The results show support for this hypothesis (β = −.07, t = 3.19). Moreover, Hypothesis 2a proposed that new extension unique image associations would positively affect reciprocal transfer and modify the image structure of the parent brand. The results confirm and support this hypothesis (β = .82, t = 39.82). The results also confirm Hypothesis 3a; that is, reciprocal transfer of the extension unique performance associations modifies the performance association’s structure of the parent brand. The results show support for this hypothesis (β = .79, t = 31.64).
Hypothesis 4a is also confirmed. Here, the modified image associations with the parent brand positively affect reciprocal evaluation of the parent brand. As Table 6 shows, the results provide support to Hypothesis 4a (β = .20, t = 4.35). Hypothesis 4b stipulated that the modified performance associations with the parent brand would positively affect reciprocal evaluation of the parent brand. Table 6 shows that this hypothesis is confirmed (β = .66, t = 15.95). Hypothesis 5 proposed that prior contextual salience would reciprocally and directly affect the modified parent brand’s image associations. The results show support for this hypothesis (β = .06, t = 2.58).
Mediation analysis
We conducted a series of statistical covariance procedures to demonstrate the significance of the tested mediation effects. A mediation effect is trivariate when an independent variable X causes the change in the dependent variable Y, with the effect of a third variable, called the mediator (M), also being taken into account (Iacobucci 2008; MacKinnon 2008). More specifically, the mediation effect can be partial (Baron and Kenny 1986) when there is also a mediated effect of M and a direct effect between X and Y. Here, the term complementary mediation is also used (Zhao, Lynch, and Chen 2010). Moreover, full mediation (Baron and Kenny 1986) or indirect-only mediation (Zhao, Lynch, and Chen 2010) occurs when there is an effect of the mediator without the presence of a direct effect between X and Z.
A mediation analysis can be conducted using structural equation modeling (Iacobucci, Saldanha, and Deng 2007) and even PLS (Wetzels, Odekerken-Schroder, and Van Oppen 2009). However, Iacobucci (2008) stipulates that “when researchers conduct even a simple 2 × 2 experiment and use ANOVA to test the results, the testing of a causal premise is as strong as it can be.” She also adds that post-ANOVA, distinct mediation does not bring further insights. In this study, the three hypothesized mediations include independent variables with nominal measures (i.e., vertical directions and salience). Therefore, we estimated all relevant mediating effects using statistical tests with a series of covariance analyses within ANOVA.
Hypothesis 2b proposed that unique image associations of a newly launched vertical service line extension would positively mediate reciprocal transfer between the extension and the parent brand. The results (see Figure 2 ) confirm that the partial mediation is statistically significant (F = 1002.97, p < .001), in support of this hypothesis. Furthermore, the effect size of the mediating relationships (η2 = .607) is large (> 0.25), according to Tabachnick and Fidell (2007). Of note, after inclusion of the mediator, the original direct effect decreases (F = 42.15, p < .001 → F = 9.13, p < .01). Baron and Kenny (1986) label this mediating situation an indirect effect.

Mediation model (Hypothesis 2B).
Hypothesis 3b proposed that unique performance associations of a newly launched vertical service line extension would positively mediate reciprocal transfer between the extension and the parent brand without a direct impact of the extension on the parent brand. As Figure 3 shows, the effect of the mediator is significant (F = 615.61, p < .001) and describes full mediation, after its inclusion. Before the inclusion of the mediator, the direct effect of the independent variable on Y was significant, but it lost its statistical weight afterward (F = 4.18, p < .05 → F = 0.003, p = .956). The effect size (η2 = .620) is large (Tabachnick and Fidell 2007). Thus, Hypothesis 3b is supported.

Mediation model (Hypothesis 3B).
Finally, Hypothesis 6 proposed that unique performance associations of a newly launched vertical service line extension would mediate reciprocal transfer between prior contextual salience of the parent brand and the parent brand, after extension. The results in Figure 4 shows a similar pattern to that observed for Hypothesis 3b. In the full model, the effect of the mediator is significant (F = 613.62, p < .001) and cancels the effect between X and Y, after inclusion (F = 5.74, p < .05 → F = 0.326, p = .570). The effect size is large (η2 = .619).

Mediation model (Hypothesis 6).
Discussion
This study builds on an emerging trend of research on vertical service line extensions by assessing the extent to which unique image and performance brand associations reciprocally transfer from the extension to the parent brand. The findings reveal that reciprocal transfer of the two brand association types from an extension to the parent brand is a complex phenomenon. More specifically, special attention must be given to the impact of vertical directions and contextual salience of the parent brand because both factors can appear in printed advertising and POP communications. This study shows that both vertical directions (i.e., upward and downward) and contextual salience of the parent brand directly influence the extent of reciprocal transfer of unique image brand associations. However, with the use of PLS estimation, the results demonstrate that reciprocal transfer to the parent brand cannot be explained by direct effects alone, because initial ratings of brand associations with the extension often mediate the phenomenon.
Some studies have suggested that the tactics for extending a brand must be handled with care because they can negatively “dilute” the parent brand’s equity (Keller and Sood 2003; Ng 2010; Pullig, Simmons, and Netemeyer 2006), especially if the extension is dissimilar (Milberg, Park, and McCarthy 1997). Others have shown that extensions can have a desirable reciprocity effect on the parent brand (Kumar 2005; Morrin 1999). In the current study, one of the premises resided in the possible risk of launching a new vertical line extension—created to be distinct from the parent brand—and the potential dilution it could provoke. This study confirmed this assumption by finding a negative impact of an upward extension on reciprocal transfer of image associations, but the path modeling helped explain the extent of the positive mediating power of the same associations when initially measured in the extension.
Theoretical Implications
Our findings also support theories on contextual salience of the parent brand, which motivate retrieval of past image impressions (Chattopadhyay and Alba 1988; Ehrenberg, Barnard, and Scriven 1997; Wyer 2008). This phenomenon directly and positively affects reciprocal transfer of image associations. It also supports the literature on stimulus-based appeals, such as a new vertical extension’s performance associations, that are assessed contextually using a piecemeal process (Park and Hastak 1994), in which less weight is allocated to past impressions of the parent brand’s attributes (Fiske and Pavelchack 1986). We found no direct effect on reciprocal transfer of performance associations from either contextual salience or extension directions; a strong piecemeal assessment of this type of association with the extension initialized mediation on subsequent reciprocal measures. In other words, consumers tend to scrutinize the new unique service performance factors in context and then use this assessment in reciprocal evaluation of the parent brand, for which transfer is strong and positive.
This study makes an important contribution to the emerging literature on reciprocal transfer of brand associations by type (i.e., performance and image) and the positive influence on the parent brand’s equity structure in the setting of a vertical service line extension. First, unique image associations of a new vertical service line extension are treated quite differently than performance associations in consumers' minds. An upward extension is inherently perceived as distinct from the parent brand and can have a direct, negative impact on the image structure of the parent brand. Evidence reveals that consumers question the suitability of a newly launched vertical extension for the parent brand, at least in the short run. An important finding resides in the mediating power of the initial image brand association assessment, leading to a positive relationship between the extension and the brand’s reciprocal evaluation.
The situation for performance associations is quite different. This study reveals that reciprocal transfer is strong and modifies the parent brand’s equity structure, though the overall effect is positive for consumers. That is, a new extension’s unique service performance can enhance consumers' perceptions of the parent brand’s own service performance. This explains our use of a newly introduced extension; launch campaigns can determine the success or failure of a new extension and its impact on the parent brand.
Second, this study contributes to the literature on prior contextual salience of the parent brand because it suggests that contextual salience can affect subsequent perceptions of its associations' structure. The study reveals that when detailed information about the parent brand is provided to consumers, it directly and positively affects the parent brand reciprocal structure of image associations without any mediation from the extension’s image appeals. For performance associations, the contextual salience affects reciprocal structure of the parent brand only through the mediation of the extension’s performance associations' factor. This is consistent with the findings on image associations in which consumers dislike the discrepancy brought by the upward extension. Here, our study implies that consumers show some concern about the new image structure of the parent brand.
Managerial Implications
The study contributes to improving the decision-making process in the creation and launch of new vertical service line extensions by providing concrete, directional managerial insights as a key for success. For example, the results are useful for marketing and advertising decisions in the launch planning of new vertical service line extensions. Thus, because of the potential consequences of extensions on the parent brand and its brand associations' structure, this study shows that managers should carefully choose the timing of the launch, try to better understand the extent to which types of associations can affect the parent brand, and measure their strategies against corporate objectives.
Executive decision makers usually account for the image of the brand without necessarily paying attention to the notion that brand associations are also performance based. Our study clearly establishes this distinction and indicates that parent brands may influence their new upscale divisions in terms of image in their reciprocal effect. Our findings also show that the service process (i.e., performance associations) of these new divisions is immune from the effect of the parent brand and can develop strong direct reciprocal effects.
In the consumer goods sector, when Toyota launched its upscale Lexus line they knew pertinently that they had a strong performance-based product. In the process, they had to overcome an image issue as the new line could potentially by linked to “Toyota” the good quality people’s car. That is why at the beginning Lexus decided to dissociate the brand from the parent brand. However, the long term has shown that Lexus has had a very positive reciprocal effect on the Toyota parent brand. A similar analogy can be described for a bank that wants to grab a share of the upscale consumer investment market by launching a new upscale division that would face similar issues to the ones encountered by Toyota.
Managers of service brands (e.g., banks, hotels) should pay careful attention when developing a new vertical extension to avoid potential dilution if their intention is to position the new extension on its own or carry over the image of the parent brand in the advertising or promotion material during launch. For example, hotel chains, such as Hilton, have used a subbranding strategy in their upward extensions (i.e., Embassy Suites and Conrad Hotels & Resorts). The underlying intention is to reduce the impact of the image associations linked to the Hilton core brand and advance the unique services offered by the upscale divisions. More specifically, these upscale divisions only indirectly reference the Hilton core brand (e.g., website, printed advertising) with the goal to create their own images and to better position/promote their services or performance associations to consumers.
Limitations and Directions for Further Research
We identify several limitations that offer directions for further research. First, although this study makes a strong contribution in the area of service branding, the results should be reproduced in the context of consumer goods. Furthermore, we conducted this study in the context of a financial service, so further research could test our model with other types of services. Second, further research might test a less established parent brand and experimentally compare it with a more established one. Third, other factors, such as brand strategy, perceived risks, perceived quality, and perceived innovativeness, could be included in the model we tested. Finally, our model could be tested with different types of horizontal extensions.
This study is important because it closes an important gap in emerging vertical service line extension literature regarding reciprocal transfer of brand associations by type (i.e., image and performance). It suggests that for a newly launched vertical extension, brand associations (whether image or performance) do not undergo the same transfer process in terms of parent brand salience in consumers' minds in the context of choice and evaluation.
Footnotes
Appendix A Stimuli (Upward Extension)
Appendix B Stimuli (Downward extension)
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
References
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