THE ESSENTIAL FEATURES OF A COMPETITIVE SITUATION

Brand-extension strategy in a competitive environment is comprised of two crucial strategic decisions: (1) against which competitive brand to position the new product, and (2) how to position the new product. The first decision--which we will call the competitive-target decision--requires an understanding of the competitive structure and an analysis of the opportunities and threats associated with selecting a certain position (Hauser and Shugan 1983; Hotelling 1929). The second issue--which we will call the attribute-selection decision--concerns the selection of product attributes or benefits that provide a differential advantage for the new product compared to the competitive offerings (Hauser and Simmie 1981; Lane 1980). Since most brand extensions are new entries of established brands into established product categories, both strategic decisions may be conceptualized by analyzing pertinent extension-category dynamics. The competitive-target decision may thus be viewed by distinguishing two types of competitive targets (Carpenter and Nakamoto 1989): those brands that, in the eyes of consumers, serve as the prototypes in the extension category (usually the market leader or a brand with a substantial market share) and those that do not serve as the prototype for the product category (e.g., followers or niche players). The decision of focusing on a prototypical or nonprototypical target may be implemented, for example, in a comparative advertising campaign by displaying the new brand against the prototype of the category or against a nonprototypical brand. In addition to these two strategic options, the firm may decide not to position the brand explicitly against any competitor. In implementing this strategy, the firm may advertise the brand and its benefits on its own grounds rather than in a comparative fashion. The attribute-selection decision may be conceptualized in an analogous manner. Similar to competitive targets, product attributes also vary in their degree of typicality to the product category. Some product attributes are closely associated with the product category and thus prototypical of a given product category; others may be seen as relatively atypical.

Determinants of attribute typicality include the familiarity or frequency of association of the attribute with the category and how essential the attribute is for the category (Barsalou 1985; Hampton and Gardiner 1983; Loken and Ward 1990; Schwanenflugel and Ray 1986). For example, the attribute "fruit flavor" seems to be a more prototypical attribute of yogurt than "vitamin A content." Conceptually, the attribute-selection decision thus concerns the issue of whether or not a typical (e.g., fruit flavor) or atypical (e.g., vitamin A content) product attribute should be selected and advertised when the firm introduces a brand extension. In the remainder of this paper, we discuss how the selection of a competitive target and the selection of product attributes affects brand-extension evaluations in the form of product-quality perceptions. We will use the construct of category familiarity--or "perceived fit"--between the old and new category, which has been shown to be a crucial determinant of product-quality perceptions in numerous studies (Aaker and Keller 1990; Boush and Loken 1991; Keller and Aaker 1992) as an additional theoretical construct to derive hypotheses about the effects of a certain competitive target (prototypical, nonprototypical, or no explicit target) and of certain attributes (typical or atypical) on perceived product quality. Predictions will be tested in two experiments with real brands and hypothetical brand extensions.