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This research examines whether brand alliances increase the brand equity of the primary brand. The decision to enter a brand alliance is observed, but not entering is unobserved (i.e., self-selection of one outcome). Propensity score matching brand alliances with non-brand alliances allows causal inference of whether entering a brand alliance increases brand equity. The data uses aggregate consumer panel purchases over a fourteen-year period to examine 1,757 brand alliances across 138 primary brands in 83 consumer packaged goods categories. On average, brand alliances result in decreased brand equity of the primary brand, counter to the conventional wisdom.
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INTRODUCTION
Brand alliances represent two brands in one product offering (Keller, 2013). While brand managers have emphasized exporting brand equity through line extensions, brand alliances seek to import the brand equity of a secondary brand into the existing primary brand. Two brands in one offering signals quality (Rao, Qu, & Ruekert, 1999) and additional value from the increased brand equity (Desai & Keller, 2002). This strategy has become an increasing part of the manager's strategic toolkit, growing from 3.5% to 6% of all new product launches in the U.S. (Schultz, 2014).
While brand alliances (or synonymously named co-brands) have become more common, an unexamined aspect is how well these strategic relationships grow the primary brand. In particular, brand managers are worried that choosing the wrong secondary brand as a partner might create negative spillover effects (Simonin & Ruth, 1998), harming the brand equity of the primary brand. The market impact of brand alliances has been previously viewed through either the lens of case study approaches (Desai, Gauri, & Ma, 2014; Swaminathan, Reddy, & Dommer, 2012) or examined outcomes like revenues and market share (Koschmann & Bowman, 2016). However, one cannot observe the market outcome had the brand not decided to enter a brand alliance. In one sense, the brand manager utilizes the brand alliance as an attempt to grow the brand. On the other hand, putting the brand alliance into the market may cannibalize the original primary brand.
This research addresses these considerations by making several contributions. First, this research contributes to our understanding of brands by exploring large-scale evidence of changes in brand equity through brand alliances. While impacts to market...