Why Customers May Punish a Brand for Branching Out

How can marketers attract a new target audience without alienating the old?
By: 
Kate Irwin
The J.C. Penney store in the Manhattan Mall in New York.

Marketing managers are loath to stand still. They continually search for ways to get more customers into their brand’s big tent. 

Sometimes that means developing a brand extension—introducing a new product under an existing brand name. Other times, it involves a strategic customer extension—broadening the target market appeal of an existing brand to attract a new category of customers. 

This latter strategy requires a deft touch: brands risk weakening ties with existing customer groups if they no longer recognize the brand that they’ve long identified with. Walmart tried a strategic customer extension in 2005, when it launched a high-fashion campaign, complete with a New York City fashion show. Two years later, the strategy was jettisoned as stacks of unsold clothes clogged store aisles.

J.C. Penney’s fail was even more spectacular. It tried to be more like the Apple Store and less like the dowdy shop your grandmother frequented. Dazed from a US$4.3 billion drop in revenue, the department-store chain fired CEO Ron Johnson.

This study examines the tensions inherent in strategic customer extensions. It looks at how a brand’s existing target customers—people with an established identification with the brand—make sense of these extensions. Do they become more or less comfortable when that brand sets out to attract new customers with different demographic or socioeconomic profiles than their own?

What did the study find?

• Consumers use reference group perceptions when evaluating strategic customer extensions. Reference groups are individuals or groups that influence peoples’ opinions, beliefs, attitudes or behaviours. 

• Reference group perceptions shape consumers’ identification with a brand. When consumers in a target market perceive a customer extension as attracting a reference group they don’t associate with, they identify less with the brand. It negatively affects their intention to make future purchases or share positive word of mouth.

How was the study designed?

Through two scenario-based studies, 149 undergraduate students were observed in an online-based environment. Researchers looked at brand identification for both a hypothetical consumer good and existing retail brand under different conditions: customer extensions involving a similar or dissimilar reference group or no customer extension at all. They measured how a brand’s target market evaluated customer extensions, as well as the subsequent impact on customers’ future intent to purchase or willingness to share word of mouth. 

What do I need to know?

As legendary management guru Peter Drucker once wrote, “the purpose of business is to create and keep a customer.” This study shows the pitfalls of trying to do both at once. 

Previous research showed marketers the importance of brand associations. These form when consumers perceive a brand’s values overlap with their own. Although they may be hard to evoke, brand associations can act like glue to keep customers from straying to the competition. Brand association strength is a key consideration when marketers plan brand and customer extensions. Mess with them at your peril.

The researchers suggest that marketing managers pay attention to all elements of the marketing plan that may be perceived by their current target-market customers, “especially those with strong identifications to the brand, as changes in those customers’ understanding of the brand leads them to adjust their perceived identification.”

While strategic customer extensions may seem daunting, the rewards are rich if marketers get it right. As proof, the researchers offered the example of the Hudson Bay Company. In 2014, the storied Canadian retailer modified store layouts in an attempt to reach a younger target market, and saw a boost in sales per square foot. The brand was able to attract a new customer segment without alienating existing clientele.

As the researchers noted, “Strategic customer extensions offer an appealing way for a brand to expand the total customer base it attracts while avoiding the cost and potential risk associated with brand extensions or other strategic endeavours to increase their overall success.”

  

Title: “Consumer Responses to Strategic Customer Extensions
AuthorsKimberley D. Preiksaitis (School of Business, Siena College), Peter A. Dacin (Smith School of Business, Queen’s University)
PublishedJournal of Product & Brand Management (Published Online March 19, 2020)

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