Brands versus Brand Extensions: Implications of Brand-based Learning for the Dynamics of Sales

46 Pages Posted: 23 May 2018 Last revised: 18 Apr 2019

See all articles by Masakazu Ishihara

Masakazu Ishihara

New York University (NYU) - Leonard N. Stern School of Business

Sridhar Moorthy

University of Toronto - Rotman School of Management

Date Written: December 19, 2018

Abstract

A key precept of brand extension theory is that brand extension, as opposed to new brand, reduces the risk of new product trial in experience goods categories. In this paper we argue that this property has specific testable implications for the dynamics of sales. In particular, in the movie industry—where brand extension takes the form of sequels—sequels’ sales ought to be more “front loaded” than originals’ sales. On three measures of front-loadedness—ratio of opening week (weekend) box-office to total box-office, average purchase time, and time to peak sales—we verify this prediction robustly. While confirming that new brand extensions are indeed less risky to consumers than new brands, our results also suggest that signaling theories such as those of Nelson (1974) do not have much bite in movies.

Keywords: Brand Extensions, Movie Sequels, Experience Goods, Search Goods

JEL Classification: D83, L15, L82, M31, O34

Suggested Citation

Ishihara, Masakazu and Moorthy, Sridhar, Brands versus Brand Extensions: Implications of Brand-based Learning for the Dynamics of Sales (December 19, 2018). Rotman School of Management Working Paper No. 3177145. Available at SSRN: https://ssrn.com/abstract=3177146 or http://dx.doi.org/10.2139/ssrn.3177146

Masakazu Ishihara

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Sridhar Moorthy (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/~moorthy

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