Conceptualizing and Measuring the Monetary Value of Brand Extensions: The Case of Motion Pictures

Abstract

Brand extension value is the part of brand value that derives from a brand owner's right to introduce new products related to the brand. The authors draw on a theoretical conceptualization of brand extension success and present an approach to measure the monetary value of brand extension rights in the context of motion pictures (i.e., movie sequel rights) and to calculate the effect of variations of key extension product attributes, such as the continued participation of stars, on this value. Their measure incorporates both the forward spillover effect and the reciprocal spillover effect and accounts for differences between brand extensions and new original products in revenues and risk, thereby offering marketing scholars a novel approach for evaluating the riskiness of investment alternatives. With respect to the forward spillover effect of a parent brand on the extension product, the authors apply regression analysis to data from all 101 initial movie sequels released in North American theaters between 1998 and 2006 and to a matched subsample of original movies and calculate the risk-adjusted monetary brand extension value by comparing success predictions for both sequels and matched original movies. Regarding the reciprocal spillover effect by which the extension product affects the success of the parent brand, the authors use longitudinal data of parent-brand DVD sales to monetize the risk-adjusted impact of the brand extension on the parent. The usefulness of their approach is illustrated by calculating the monetary brand extension value for an actual movie title.