Audience: Academics

Does offering a premium product enhance brand equity? Conversely, does offering an economy product diminish the equity of a brand? These research questions are relevant to three issues in product strategy. First, what are the costs and benefits of extending the product line of a brand "down market"? Second, what are the implications of introducing high-end models within a brand? Third, when should product lines be extended within an existing brand and when should new products be introduced in conjunction with a new brand? We address the research questions empirically through an analysis of the U.S. mountain bicycle industry. We use an estimate of price premium as a metric for brand equity. We then test several hypotheses related to the influence of product line extent on brand equity. The analysis reveals that brand equity is significantly positively correlated with the quality level of the lowest-quality model in the product line; and that for the middle-quality segment of the market, brand equity is also significantly positively correlated with the quality of the highest-quality model in the product line. We also use a simple experiment to bolster the findings from the statistical analysis. The paper discusses the managerial implications of these results and points to directions for future research.