Extending or creating a new brand: evidence from a study on event-related potentials

Brand strategy is a critical problem in new product promotion. In relation to this, producers typically have two main options, namely, brand extension and new brand creation. The current study investigated the neural basis of evaluating these brand strategies at the brain level by using event-related potentials. The experiment used a word-pair paradigm, in which the first word was either a famous beverage brand name or a newly created brand, and the second word was a product name from one of the two product categories (beverage or household appliance). Therefore, four conditions existed as follows: a famous beverage brand paired with a beverage product (BB) or with a household appliance (BH) and a newly created brand paired with a beverage product (NB) or with a household appliance (NH). Behavioral results showed that brand extension obtained a higher acceptance rate than new brand creation under the beverage product category; however, a lower acceptance rate was observed under the household appliance category. Moreover, at the brain level, BB elicited lower N400 mean amplitude than the new brand product NB, whereas BH led to higher N400 amplitude than the new brand product NH. These results showed that the likelihood of accepting a product depended on the association between the brand name and product name, and that the N400 could serve as an index of brand strategy evaluation. In addition, this study also confirmed that brand extension is not always the best brand strategy; an inappropriate extension sometimes performed worse than the creation of a new brand.