Financial returns to corporate brand extensions: does typicality matter?

Abstract

News of extensions can cause stock price movements in the parent brand. Marketers extend brands into areas that vary in how typical they are of the parent brand. The degree of extension typicality can be an important cue for investors in their performance expectations of the brand. Integrating insights from Categorization Theory, Behavioral Finance, and Berlyne’s Two-Factor Theory, the authors argue that the impact of typicality on investor reactions depends upon the level of market exposure to a particular brand extension. Our study emphasizes that firms should take critical marketing actions to influence the buzz around the launch, depending on the extension’s typicality level. The results support our hypotheses. Particularly interesting is the finding that more atypical extensions become acceptable the greater market exposure to them (through marketing efforts as advertising and public relations).