Driving preferences for co-branded products: effects of extendibility, compatibility and uncertainty

Abstract

Firms frequently use brand extension strategies to enter new product categories. Another type of entry strategy is co-branding by effectively exploiting the equity of both constituent brands. Co-branding may effectively drive consumer preferences if consumers believe the combination of two brands offers a better solution than either one separately. However, there is also the risk that consumers may get confused with the combination, or have perceptions of strengths regarding one of the brands diluted, leading to the failure of this strategy. While much has been written on brand-category extension, despite its prevalence, the use of co-brands to enter a new category has attracted relatively little attention. In this study, the author models the effects on consumer perceptions and preferences of combining two brand names for a new product. The proposed model provides a mechanism to represent how consumers’ prior attribute beliefs about constituent brands, the extendibility of the brands into the extension category, the compatibility between the constituent brands, and the uncertainty associated with them can jointly determine their preferences for the co-branded product. The contribution that this model enables is a means to study co-branding and new category entry simultaneously, by assessing the drivers of consumer preference for a co-brand in a new product category. An empirical study is designed to test the model, using real brands and hypothetical extensions and co-brands. Theoretical contributions and managerial implications of this study are discussed.