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Vertical Versus Horizontal Line Extension Strategies: When Do Brands Prosper? Helena F

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Vertical Versus Horizontal Line Extension Strategies: When Do Brands Prosper? Helena F University of South Carolina Scholar Commons Theses and Dissertations 1-1-2013 Vertical Versus Horizontal Line Extension Strategies: When Do Brands Prosper? Helena F. Allman University of South Carolina - Columbia Follow this and additional works at: https://scholarcommons.sc.edu/etd Part of the Business Administration, Management, and Operations Commons Recommended Citation Allman, H. F.(2013). Vertical Versus Horizontal Line Extension Strategies: When Do Brands Prosper?. (Doctoral dissertation). Retrieved from https://scholarcommons.sc.edu/etd/2435 This Open Access Dissertation is brought to you by Scholar Commons. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of Scholar Commons. For more information, please contact [email protected]. Vertical versus Horizontal Line Extension Strategies: When Do Brands Prosper? by Helena Fenikova Allman Bachelor of Science University of South Carolina, 2000 Master of International Business Studies University of South Carolina, 2003 ____________________________________________________ Submitted in Partial Fulfillment of the Requirements For the Degree of Doctor of Philosophy in Business Administration Darla Moore School of Business University of South Carolina 2013 Accepted by: Thomas J. Madden, Co-Chair Martin S. Roth, Co-Chair Bikram Ghosh, Committee Member Kartik Kalaignanam, Committee Member Lacy Ford, Vice Provost and Dean of Graduate Studies © Copyright by Helena Fenikova Allman, 2013 All Rights Reserved ii DEDICATION To my loving husband Barney Allman for his unwavering support and encouragement over the years. To my loving parents Helena and Anton Fenik for teaching me to believe that anything is possible. To my brother Tony Fenik and his beautiful family for being there for me when I needed it. Thank you all, I love you. iii ACKNOWLEDGEMENTS I would like to thank my dissertation co-chairs, Drs. Tom Madden and Marty Roth for their advising on this dissertation research and for their continuous encouragement and support to transfer an idea into a finished study; their time and patience is very much appreciated. I am also very grateful to the rest of my dissertation committee, Drs. Kartik Kalaignanam and Bikram Ghosh for their guidance and input especially during the data analysis phase. I would like to further express my gratitude to all special individuals at the University of South Carolina who taught, guided and inspired me during the last six years and in the years prior to my doctoral studies. Special thanks go also to my doctoral cohort friends and colleagues Meike, Dave, Stefanie and Robin. And last but not least, I have been blessed with a loving family who made this journey possible. iv ABSTRACT The results from prior research regarding the effectiveness of product line extension strategies on market-level brand performance are equivocal. Some studies show that brands benefit from horizontal line extensions while other studies show vertical line extensions as being a preferable approach to brand leveraging within a product category. This research proposes that the brand assortment size at time t, can moderate the effectiveness of vertical versus horizontal extensions in time t on quarterly market- level brand performance. Aggregated scanner data of twelve toothpaste brands sold for six years at a major Midwestern U.S. retailer were used as input to a panel data regression analysis. The results suggest interactive effects among brand assortment size and line extensions with regard to dollar and volume sales brand performance metrics. Implications for optimal line proliferation strategies given the existing assortment size within a retailing planogram are discussed. v TABLE OF CONTENTS Dedication .......................................................................................................................... iii Acknowledgements ............................................................................................................ iv Abstract ................................................................................................................................v List of Tables ..................................................................................................................... ix List of Figures ......................................................................................................................x CHAPTER 1: INTRODUCTION ........................................................................................1 Motivation ................................................................................................................1 Problem Statement ...................................................................................................5 Contribution .............................................................................................................8 Dissertation Organization ........................................................................................9 CHAPTER 2: LITERATURE REVIEW ...........................................................................10 Introduction .............................................................................................................10 Brand Extensions ....................................................................................................10 Product and Market Drivers of Brand and Line Extension Success .......................17 Economic Point of View .........................................................................................27 Brand Extension Performance Metrics ...................................................................28 Line Extension Performance Metrics ......................................................................29 vi Line Extensions and Brand Performance ................................................................31 CHAPTER 3: THEORETICAL BACKGROUND AND HYPOTHESES .......................34 Line Extensions and their Effect on Brand Performance.......................................34 Product Assortment and Consumer Choice ...........................................................37 CHAPTER 4: METHOD ...................................................................................................47 Hypotheses Summary ...........................................................................................47 Sample...................................................................................................................47 Variables ...............................................................................................................56 Model Specification ..............................................................................................63 CHAPTER 5: RESULTS ...................................................................................................67 Descriptive Statistics ..............................................................................................67 Correlations among Variables................................................................................71 Durbin-Watson Test ...............................................................................................72 Breusch-Pagan LM Test ........................................................................................75 Model Runs ............................................................................................................76 CHAPTER 6: CONCLUSIONS AND DISCUSSION ......................................................95 Summary ...............................................................................................................95 Limitations and Future Research ..........................................................................99 References ........................................................................................................................104 Appendix A: List of Terms ..............................................................................................118 Appendix B: Hausman Test – STATA Output ................................................................119 Appendix C: VIF statistics – STATA Outputs ................................................................120 Appendix D: Durbin-Watson Test – STATA Outputs ....................................................122 vii Appendix E: Breusch-Pagan LM Tests – STATA Outputs .............................................123 Appendix F: GLS Panel Regression Results and VIF statistics – STATA Outputs ........125 viii LIST OF TABLES Table 1.1: Toothpaste Brands Sold in the US CPG Market in 2011 ...................................3 Table 2.1: Brand Leveraging via Extensions: Different Types of Extensions ..................14 Table 2.2: Burt’s Bees Toothpaste SKUs: Vertical versus Horizontal Line Extensions Example ............................................................................................................16 Table 3.1: Horizontal versus Vertical Line Extensions and Their Effect on Brand Performance ......................................................................................36 Table 4.1: Hypotheses Summary .......................................................................................48 Table 4.2: List of Brands with their Quarterly Line Extensions and Assortment Size Characteristics ......................................................................51 Table 4.3: Total Number of Line Extensions Introduced by Brand ..................................52 Table 4.4: Average Quarterly
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