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One of the more difficult and troublesome decisions in brand management arises when entering a product category that is new to the company: Whether to up-start a new brand for the product or to endow it with the identity of an existing brand — that is, extending a company’s established brand from an original product category to a product category of a different type. The first question that would probably pop-up is “how different is the new product?”, acting as a prime criterion to judge whether the parent-brand fits the new product.

Notwithstanding, the choice is not completely ‘black or white’ since intermediate solutions are possible through the intricate hierarchy of brand (naming) architecture. But focusing on the two more distinct strategic branding options above helps to see more clearly the different risk and cost implications of launching a new product brand versus using the name of an existing brand from an original product category. Notably, the manufacturers, retailers and consumers, all perceive risks, albeit from the different perspective of each party given its role.

  • Note: Brand extensions represent the transfer of a brand from one type of product to a different type, to be distinguished from line extensions that pertain to the introduction of variants within the same product category (e.g., flavours, colours).

This is a puzzling marketing and branding problem also from an academic perspective. Multiple studies have attempted in different ways to identify the factors that best explain or account for successful brand extensions. While the stream of research on this topic helpfully points out to major factors, some more commonly agreed upon, a gap remains between the sorts of extensions predicted to succeed according to the studies and the extensions performed by companies that happen to succeed or fail in the markets in reality. A plausible reason for missing the outcomes of actual extensions, as argued by the researchers Milberg, Sinn, and Goodstein (2010), is neglecting the competitive settings in categories that are the target of brand extension (1).

Perhaps one of the most famous examples of a presumptuous brand extension has been the case of Virgin (UK), from music to cola (drink), airline, train transport, and mobile communication (ironically, the origin of the brand as Virgin Music has since been abolished). The success of Virgin’s distant extensions is commonly attributed to the personal character of Richard Branson, the entrepreneur behind the brand: his boldness, initiative, willingness to take risks, and adventurism. These traits seem to have transferred to his business activities and helped to make the extensions more credible and acceptable to consumers.

Another good example relates to Philips (originated in The Netherlands). Starting from lighting (bulbs, now more in LED), the brand extended over the years to personal care (e.g., face shavers for men, hair removal for women), sound and vision (e.g., televisions, DVD and Blue-Ray players, originally in radio sets), PC products, tablets and phones, and more. Still, when looking overall at the different products, systems and devices sharing the Philips brand, they can mostly be linked as members in a broad category of ‘electrics and electronics’, a primary competence of the company. As the company grew with time, launched more types of products whilst advancing with technology, and its Philips brand was perceived as having greater experience and good record in brand extensions, this could facilitate the market acceptance of further extensions to additional products.

  • In the early days of the 1930s to 1950s radio and TV sets relied for operation on vacuum tubes, later moving to electronic circuits with transistors or digital components. Hence, historically there was an apparent physical-technological connection between those products and the brand’s origin in light bulbs, a connection much harder to find now between category extensions, except for the broad category linkage suggested above.

Academic research has examined a range of ‘success factors’ of brand extensions, such as: perceived quality of the parent-brand; fit between the parent-brand and the extension category; degree of difficulty in making an extension (challenge undertaken); parent-brand conviction; parent-brand experience; marketing support; retailer acceptance; perceived risk (for consumers) in adopting the brand extension; consumer innovativeness; consumer knowledge of the parent-brand and category extension; the stage of entry into another category (i.e., as an early or a late entrant). The degree of fit of the parent-brand (and original product) with the extension category is revealed as the most prominent factor contributing to better acceptance and evaluation (e.g., favourability) of the extension in consumer studies.

Aaker and Keller specified in a pioneer article (1990) two requirements for fit: (a) the extension product category is a direct complement or a substitute of the original category; (b) the company, with its people and facilities, is perceived as having the knowledge and capability of manufacturing the product in the extension category. These requirements reflect a similarity between the original and extension product categories that is necessary for successful transfer of a favourable attitude towards the brand to the extension product type (2). A successful transfer of attitude may occur, however, also if the parent-brand has values, purpose or image that seem relevant to the extension product category, even when the technological linkage is less tight or apparent (as the case of Virgin suggests).

  • Aaker and Keller found that fit, based especially on competence, stands out as a contributing factor to higher consumer evaluation (level of difficulty is a secondary factor while perceived quality plays more of a ‘mediating’ role).

Volckner and Sattler (2006) worked to sort out the contributions of ten factors, as retrieved from academic literature, to the success of brand extensions; relations were refined with the aid of expert advice from brand managers and researchers (3). Contribution was assessed in their model in terms of (statistical) significance and relative importance. The researchers found  fit to be the most important factor driving (perceived) brand extension success in their study, followed by marketing support, parent-brand conviction, retail acceptance, and parent-brand experience. The complete model tested for more complex structural relationships represented through mediating and moderating (interacting) factors (e.g., the effect of marketing support on extension success ‘passes’ through fit and retailer acceptance).

For brand extensions to be accepted by consumers and garner a positive attitude, consumers should recognise a connectedness or linkage between the parent-brand and the category extension. The fit between them can be based on attributes of the original and extension types of product or a symbolic association. Keller and Lehmann (2006) conclude in this respect that “consumers need to see the proposed extension as making sense” (emphasis added). They identify product development, applied via brand (and line) extensions, as a primary driver of brand growth, and thereby adding to parent-brand equity. Parent-brands do not tend to be damaged by unsuccessful brand extensions, yet the authors point to circumstances where greater fit may result in a negative effect on the parent-brand, and inversely where joining a new brand name with the parent-brand (as its endorser) may protect the parent-brand from adverse outcomes of extension failure (4).

When assessing the chances of success of a brand extension, it is nevertheless important to consider what brands are already present in the extension category that a company is about to enter. Milberg, Sinn, and Goodstein claim that this factor has not received enough attention in research on brand extensions. In particular, one has to take into account the strength of the parent-brand relative to competing brands incumbent in the target category. As a starting point for entering the extension category, they chose to focus on how well consumers are familiar with the competitor brands vis-à-vis the extending brand.  Milberg and her colleagues proposed that a brand extension can succeed despite a worse fit with the category extension due to an advantage in brand familiarity, and vice versa. Consumer response to brand extensions was tested on two aspects: evaluation (attitude) and perceived risk (5).

First, it should be noted, the researchers confirm the positive effect of better fit on consumer evaluation of the brand extension when no competitors are considered. The better fitting extension is also perceived as significantly less risky than a worse fitting extension. However, Milberg et al. obtain supportive evidence that in a competitive setting, facing less familiar brands can improve the fortune of a worse fitting extension, compared with being introduced in a noncompetitive setting: When the incumbent brands are less familiar relative to the parent-brand, the evaluation of the brand extension is significantly higher (more favourable) and purchasing its product is perceived less risky than if no competition is referred to.

  • A reverse outcome is found in the case of better fit where the competitor brands are more highly familiar: A disadvantage in brand familiarity can dampen the brand extension evaluation and increase the sense of risk in purchasing from the extended brand, compared with a noncompetitive setting.

Two studies performed show how considering differences in brand familiarity can change the picture about the effect of brand extension fit from that often found without accounting for competing brands in the extension category.

When comparing different competitive settings, the research findings provide a more constrained support, but in the direction expected by Milberg and colleagues. The conditions tested entailed a trade-off between (a) a worse fitting brand extension competing with less familiar brands; and (b) a better fitting brand extension competing with more familiar brands. In regard to competitive settings:

The first study showed that the evaluation of a worse fitting extension competing with relatively unfamiliar brands is significantly more favourable than a better fitting extension facing more familiar brands. Furthermore, the product of a worse fitting brand extension is preferred more frequently over its competition than the better fitting extension product is (chosen by 72% vs. 6%, respectively). Also, purchasing a product from the worse fitting brand extension is perceived significantly less risky compared with the better fitting brand. These results indicate that the relative familiarity of the incumbent brands that an extension faces would be more detrimental to its odds of success than how well its fit is.

The second study aimed to generalise the findings to different parent-brands and product extensions. It challenged the brand extensions with somewhat more difficult conditions: it included categories that are all relevant to respondents (students), and so competitor brands in extension categories are also relatively more familiar to them than in the first study. The researchers acknowledge that the findings are less robust with respect to comparisons of the contrasting competitive settings. Evaluation and perceived risk related to the worse fitting brand competing with less familiar brands are equivalent to the better fitting brand extension facing more familiar brands. The gap in choice shares is reduced though in this case it is still statistically significant (45% vs. 15%, respectively). Facing less familiar brands may not improve the response of consumers to the worse fitting brand extension (i.e., not overcoming the effect of fit) but at least it is in a position as good as of the better fitting brand extension competing in a more demanding setting.

  • Perceived risk intervenes in a more complicated relationship as a mediator of the effect of fit on brand extension evaluation, and also in mediating the effect of relative familiarity in competitive settings. Mediation implies, for example, that a worse fitting extension evokes greater risk which is responsible for lowering the brand extension evaluation; consumers may seek more familiar brands to alleviate that risk.

A parent-brand can assume an advantage in an extension category even though it encounters brands that are familiar within that category, and may even be considered experts in the field: if the extending brand is leading within its original category and is better known beyond it, this can give it a leverage on the incumbents if those brands are more ‘local’ or specific to the extension category. For example, it would be easier for Nikon leading brand of cameras to extend to binoculars (better fit) where it meets brands like Bushnell and Tasco than extending to scanners (also better fit) where it has to face brands like HP and Epson. In the case of worse fitting extensions, it could be significant for Nikon whether it extends to CD players and competes with Sony and Pioneer or extends to laser pointers and faces Acme and Apollo — in the latter case it may enjoy the kind of leverage that can overcome a worse fit. (Product and brand examples are borrowed from Study 1). Further research may enquire if this would work better for novice consumers than experts. Milberg, Sinn and Goodstein recommend to consider additional characteristics that brands may differ on (e.g., attitude, image, country of origin), suggesting more potential bases of strength.

Entering a new product category for a company is often a difficult challenge, and choosing the more appropriate branding strategy for launching the product can be furthermore delicate and consequential. If the management chooses to make a brand extension, it should consider aspects of relative strength of its parent-brand, such as familiarity, against the incumbent brands of the category it plans to enter in addition to a variety of other characteristics of product types and its brand identity. However, the managers can take advantage as well of intermediate solutions in brand architecture to combine a new brand name with an endorsement of an established brand (e.g., higher-level brand for a product range). Choosing the better branding strategy may be helped by better understanding of the differences and relations (e.g., hierarchy) between product categories as perceived by consumers.

Ron Ventura, Ph.D. (Marketing)

Notes:

1. Consumer Reactions to Brand Extensions in a Competitive Context: Does Fit Still Matter?; Sandra J. Milberg, Francisca Sinn, & Ronald C. Goodstein, 2010; Journal of Consumer Research, 37 (October), pp. 543-553.

2.  Consumer Evaluations of Brand Extensions; David A. Aaker and Kevin L. Keller, 1990; Journal of Marketing, 54 (January), pp. 27-41.

3.  Drivers of Brand Extension Success; Franziska Volckner and Henrik Sattler, 2006; Journal of Marketing, 70 (April), pp. 18-34.

4. Brands and Branding: Research Finding and Future Priorities; Kevin L. Keller and Donald R. Lehmann, 2006; Marketing Science, 25 (6), pp. 740-759.

5. Ibid. 1.

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The digital transformation of customer service in retail banking is changing the depth and form of relationships of banks with their customers. The increasing shift to direct digital self-service channels re-shapes how consumers interact with retail banks. As explained in the first part of this article, the effects of this transformation can be seen and felt at physical bank branches and away from the branches through remote online channels (including web-based service platforms and mobile apps). Furthermore, ‘customer service’ practically entails the customers’ operations of regular account maintenance but also their acquisition of various banking services and financial products (e.g., deposits, loans, equity and bonds). Hence the digital transformation is affecting broadly and simultaneously retail banking service as well as marketing to customers.

The focus of the first part of the article was a review of the ways in which the five main banks in Israel approach the digital transformation in the domain of retail banking, and especially how the banks choose to balance between the digital and human modes of interaction and service in their relations with customers. It considered the observed forms and methods of implementing their approaches and discussed their implications regarding the digital-human balance. Particular attention was awarded nonetheless to the effects that digital channels of interaction may have on the premises of retail bank branches — their organisation, interior design, and functions.

The approach taken by Bank Mizrahi-Tefahot may be seen as surprising to digital advocates because it is ‘going against the stream’, yet it is tapping on some sensitive nerves of  consumers. The advertising campaign of the bank — carrying the title “On the things really important, there is no substitute to humanity” — commits not to sacrifice contact with human bank representatives in the sake of digital self-service. This is a promise of reassurance for many bank customers who still do not feel comfortable and confident with over reliance on supposedly self-sufficient digital channels. But a question remains to address: Does the campaign stand on a solid strategic ground? One would want to know if there is substantive managerial commitment behind the campaign and a plan to execute it.

A declaration of the bank on its latest strategic plan offers an affirmative answer. According to a press release published by Bank Mizrahi-Tefahot in November 2016, the strategic plan for the years  2017-2021 stands on three legs: (a) intensifying the focus on business sectors and expanding activities directed to them; (b) sustaining and solidifying the bank’s stature as a leader in the retail domain; and (c) being a central operator of financial assets in banking (22 Nov. ’16, origin in Hebrew). Regarding the second goal on retail that is of our interest here, the bank specifically qualifies its goal as “providing personal and human service supported by innovative technology”. In this statement the bank emphasises the order of priority between ‘personal and human service’ and technology, whereof the role of the latter is to facilitate and enhance customer service. As explained by Bank Mizrahi-Tefahot, the strategy is on the one hand service-driven and on the other hand aimed at reducing prices by applying a unique and advanced technological platform (i.e., the platform’s purpose is increasing efficiency in operating and delivering customer service).

The strategic statement clarifies that the bank is not about to put its technologies ahead of its customers, how it treats and serves them. It maintains that the role of the digital technologies is to increase efficiencies (e.g., saving time, facilitating processes) and not to replace human service. Bank Mizrahi-Tefahot is not shy on utilising customer-facing digital tools and facilities for interface and information processing, but it does so as a supplement to human service. Already six years ago the bank initiated a ‘hybrid banking’ programme designed to smooth communication between a customer and his or her ‘personal banker’ at the branch via phone, e-mail or SMS services (they called it ‘an ideal combination between personal and digital’). Lately the bank has recognized a need to highlight the connection between ‘personal’ and ‘human’ as contra to the increasing reliance on digital service channels in other banks. The intention declared by the bank to increase its number of branches also asserts that it does not intend to make itself more distant from customers and less physically accessible to them. It is perhaps not a ground-breaking attitude yet it offers stability, credibility, and confidence in bankers to be there in person for the customers.

However, there are still certain aspects the bank can further develop: For instance, applying digital technology is not just about efficiencies and prices, especially when utilised in direct customer-facing services; how customers experience the digital service is highly important (e.g., it should be visually fluent, easy-to-use, effective). Digital self-service should not claim to improve customer service overall by replacing human service, but it can contribute to improved customer service as a whole. The strategy statement is not clear about the experience of customers when applying digital technologies. Bank Mizrahi-Tefahot should also clarify how web-based and mobile app elements of its platform are integrated in its overall view of personal-human and digital customer service (e.g., enabling chats with human bank assistants and not with virtual assistants [chatbots]). Additionally, as suggested in Part 1, the bank can develop its own service model for combining digital self-service stations with human assistance and guidance within a branch.

Let us now take a brief look at the strategy in other Israeli banks:

Bank HaPoalim is seeking to reflect flexibility in its balance between human and digital banking. The bank’s Head of Retail Division said in October 2016: “we are not requiring the customers to choose between human and technological, instead providing them with a right combination between the two” (press release, 26 Oct. ’16, origin in Hebrew). The declared strategy of the bank is offering human, personal and technological banking. However, other expressions used by the bank suggest that the balance is weighed more heavily to the side of technology. For example, the bank uses  ambiguous terminology such as “more advanced and human technology“; its real priority or emphasis is revealed in the impressive expression “digital empowerment of the customers”. The new services the bank is taking special pride in, as presented in the press release, are a ‘virtual branch’ in a mobile app and human guidance in its new ‘Poalim Digital’ branches on how to use an iPad for banking services.

The senior bank executive is not insensitive to consumer concerns about the use of advanced technologies — he recognises that some customers perceive them as threatening, creating an emotional distance, and lacking in personal touch. Yet the bank appears to be pushing too hard to impose technologies that many customers may not be ready for yet, and implicitly pushes its human bankers to the sideline. Bank HaPoalim is trying to strike a difficult balance between the technological (digital) and human factors by attempting to be ‘human as well as personal as well as technological’ altogether.

In Bank Leumi digital banking (‘Leumi Digital’) is put at the centre, as manifest in its website-based platform, information ‘kiosks’ in physical branches, and its mobile app. More recently the bank added its ‘virtual assistant’ chat utility for customers to seek assistance in using the online and mobile account applications. In its strategy statement, Bank Leumi refers to “organizational and technological capabilities, efficient and innovative” (origin in Hebrew). It also commits to upgrading its service model and value propositions as part of a customer-centered culture. However. the bank does not make specific reference to integration between ‘technological’ and ‘human’ in its relations with (domestic) customers. As commented in Part 1, the mix between digital and human modes of service seems to be incomplete, as if working in separate compartments (‘silos’) of service.

The vision of Bank Leumi is accordingly to “lead initiating and innovative banking for the customer”. Overall, the key words most salient in the vision and strategy statements of the bank are technology, efficiency and innovation. There is no specific mentioning of the human factor. Bank Leumi must be credited for its consistent and prolonged support for providing banking services through direct channels that free customers from arriving to the branches. In the late 1990s this bank was a pioneer in Israel in establishing a ‘direct bank’ based on its telephony call centre. Later on a website was added. Whereas the initial entity was cancelled, the foundation was laid out, tried and proven for further development and assimilation in the main service operations of the bank. Advanced digital technologies, as they are better known these days, could come only natural to this bank. The next challenge of Bank Leumi would be to streamline its connections between human and digital modes of interaction and service to customers both in physical and virtual/remote domains. Admittedly, the suggestion made here may be contrary to the leading view at the bank; however, customer service should feel seamless and unified, not  like living in two different worlds of ‘digital banking’ and ‘human banking’.

Bank Discount is actually delivering a very clear message about the place it reserves for ‘humanity’ in its approach to customer service. Its actions on transition to digital banking seem to be more mild compared with the two leading banks. The strategic plan of the bank for 2015-2019 states: “We at Bank Discount have set before our eyes the experience of personal, human and professional service for all our customers. We believe that we should integrate humanity with professionalism, and to that aim we direct our actions every day” (launched in 2014, origin in Hebrew). The words are very positive: the bank is truly seeing the customer at the centre, not the technology, and the way to serve customers better is to do it professionally (possibly the bank’s sought competitive advantage).

Bank Discount is doing whatever is necessary to utilise up-to-date technologies in banking but not as proactively and forcefully as in Bank HaPoalim or Bank Leumi. Its direct banking operations include the TeleBank call centre, a web-based platform and a mobile app for account management; it also offers a personalised information app My Finance (providing market data etc.) and has recently introduced a ‘virtual assistant’ utility. Bank Discount may still be required to be more explicit about its view on the digital front, but foremost it can further clarify its approach to integrating digital and human modes of service and balancing between them.

Bank Benleumi is going along, combining traditional and digital banking facilities and utilities. Unfortunately, however, the bank does not disclose much information about its strategic plans, views or priorities. Hence it is difficult to tell where the bank is heading in implementing digital banking services nor how they would be balanced vis-à-vis human banking modes of interaction and service.

In its profile (Hebrew) Bank Benleumi states that it is “acting to increase its hold in the retail sector” with reference to its acquisitions of two smaller banks (and their branch networks) aimed at particular segments, and completing the merger of an upscale private banking business as a division within the bank. It also lists the general types of banking services and advanced digital channels that are seen as vital to strengthening its hold in the retail sector. As other banks it delivers direct digital banking services through a web-based platform and a mobile app, information ‘kiosks’ and a SMS update service; Bank Benleumi was early to launch a ‘virtual assistant’ utility (named ‘Fibi’ after the ‘mother’ holding company). Yet the bank remains vague about the nature of customer experience one can expect in future at the bank in its branches and in virtual digital domains, and specifically what place a digital-human balance will take in customer relationships.

Banks need to plan and configure carefully how to tie together the different advisory and operational (transactional) services they provide to their customers in human and digital modes of interaction, especially so when performed in the premises of a physical branch. These modes should not be just combined but integrated and complementary. It should be done both cleverly and sensitively.

A digital-reliant branch should prove what advantages it avails customers to patron such a branch as opposed to conducting their operations on the website or a mobile app: for example, it could be more convenient to work on devices and screens at the digital branch, offer value-added functionalities, be easier to find information or to complete successfully the required banking tasks. Nevertheless, a mixed human-digital branch can provide an important additional advantage: a customer who has just finished to search independently for product information on a work-station or watch an instructional video at the branch, can right away turn to one of the professional (human) advisors to clarify remaining issues and perform relevant actions with the help of the banker-advisor. That is an essential implication of a ‘digical’ (digital + physical) approach to retail banking (Baxter and Rigby, 2014).

It is not suggested in any way that branches of the future in every bank should look and function all alike. However, each retail bank can use a core model of a ‘mixed’ digital-and-human branch and adjust its design in every aspect according to a degree of balance its management sees fit and desirable between the digital and human modes of interaction and service, assigning more weight to the digital factor or the human factor. Moreover, a bank may choose its preferred balance in a typical branch, balance the human and digital factors across a few branch formats, and not least co-ordinate between services provided in a branch and away from the branch. Banks will undoubtedly find they have a lot of flexibility and room for creativity in setting the appropriate and differentiated strategy for each of them.

Ron Ventura, Ph.D. (Marketing)

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