Brand extension as a real option: case of fast-moving consumer goods companies

Abstract

The main goal of research is to examine the timing of launching brand extensions. The following objectives were stated in the paper: - provide a theoretical framework of brand extensions based on the real option framework - define key factors affecting decision to extend the brand - state hypotheses on the basis of defined factors - model firm’s behavior in launching brand extension. Two hypotheses concerning uncertainties were stated. Hypothesis 1: The higher the sales performance during the last period the lower the launch rate of brand extensions in the next period. Hypothesis 2: The higher the number of new brands released, the higher the launch rate in the next period. Results of empirical study based on Cox model are consistent with stated hypotheses. Thereby it was revealed that the higher the sales performance during the last period the lower the brand extension rate in the next period. Also the more new brands firms release the more likely that they launch extensions in the next period.