A Model of Brand Architecture Choice : A Branded House vs. A House of Brands

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Original languageEnglish
Journal / PublicationMarketing Science
Publication statusAccepted/In press/Filed - 14 May 2020

Abstract

Some firms that operate in multiple product markets use the same brand in different markets, while others use different brands in different markets. This research investigates in which product markets a firm should use the same or different brands and how this decision depends on the relatedness of product markets. To answer this question, I propose a framework of market-relatedness which characterizes the relationships among distinct product markets from the supply-side (e.g., shared production technology) and demand-side (e.g., correlated customer preferences). This framework is applied to a model of reputation in which a multi-product firm's product quality is jointly determined by its hidden capability type (i.e., adverse selection) and hidden choice of effort level (i.e., moral hazard) in each product market. Consumers obtain noisy information about the firm by observing its track record, i.e., product quality produced in the past. Umbrella branding allows consumers to pool the firm's track record across different product markets based on market-relatedness and form expectations about the current product quality.
I find that umbrella branding is optimal if supply-side relatedness is high and demand-side relatedness is not too high. However, if the product markets are closely related in both dimensions, independent branding may be optimal because as an umbrella brand, the firm faces a temptation to exploit positive information spillover across product markets through its shared brand name. By using different brand names, a firm can credibly commit to investing in all product markets, and thus earn greater profits. This paper also provides implications for an umbrella brand's optimal strategy for customer relationship management.

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