An ugly face, really? A theoretical investigation into the causes of brand dilution

Emanuele Bacchiega, Mariachiara Colucci, Vincenzo Denicolo and Marco Magnani

No 17261, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper questions common wisdom about two ideas: first, that brand dilution is the unintended consequence of a poorly executed extension strategy and, second, that brand licensing – a widely used means to extend a brand that drives revenues for brand owners - increases the likelihood of brand dilution. Motivated by rich yet fragmented empirical literature, we propose a comprehensive theoretical model of brand extension that encompasses the critical factors which determine the attractiveness and development of brand extension. This allows us to suggest that brand dilution is a viable opportunity to monetize the brand and not necessarily a liability to be avoided. Managers should then consider the brand as an asset on which to invest and, possibly, divest to increase the company’s cash inflows. We also confute the causal relationship from licensing to brand dilution. For the products that make the brand owner indifferent between internal and licensed development, switching to licensing always increases the quality of the extension. The model offers a novel perspective on important managerial choices and delivers hypotheses amenable to empirical testing.

Keywords: Brand dilution; Brand licensing; Double-sided moral hazard; Reciprocal effect (search for similar items in EconPapers)
Date: 2022-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP17261 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:17261

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP17261

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().