The practice of a company presenting different brands as separate from each other to attract multiple customer niches is common in the automotive industry. For example, the case of Nissan (the parent company) and Infinity (the brand extension) shows how business focused on the lower and middle price segment can enter the luxury market. However, the scholars debate whether this strategy is effective for all brands and which of its factors are the most important in successful branding.
Some scholars argue that an upward line extension can lead to many negative outcomes for the company. According to Caldieraro, Kao, and Cunha (2015), businesses should not view the option of entering the luxury industry as an easy way of attracting new customers and making additional profit. The authors note that the “increase price and improve quality” ideology may cause the brand’s customers to find more value in competitors’ products than in those of the changing brand (Caldieraro et al., 2015, p. 53).
This problem is especially dangerous if the renovating business attempts to enter the new niche not by offering a unique product but by mimicking the features of the existing lines. Moreover, Caldieraro et al. (2015) argue that the firm’s current offers may also suffer from customers’ changing perceptions. Low and middle-range products come at the risk of losing value in relation to the new luxury models. Caldieraro et al. (2015) acknowledge that a company can have positive changes to its revenue even if the overall perception of the brand suffers.
As a contrast, other scholars point out that such findings affect only those companies who do not make clear distinctions between their product ranges. Shah (2018) states that the creation of multiple brands allows the company to implement the “increase price and improve quality” strategy and forego the problems mentioned by Caldieraro et al. (2015). The author uses Nissan and Infiniti as one of the examples of the approach’s successful uses by highlighting the initial success of Infiniti in the luxury sector of the industry.
According to Shah (2018), by removing all connections between Nissan and Infiniti in the cars’ marketing and product appearance, the parent company was able to avoid comparing the two brands to each other. Therefore, the consumers did not perceive Nissan models as inferior to Infiniti regarding their performance and appeal. While the car directed at a middle and low price segment attracted the same audience, Infiniti can separate from the parent company, introducing models in a different environment that did not call Nissan’s original models into question.
In order to separate brands, Nissan used a number of pricing and marketing strategies. For instance, Shah (2018) points out that Nissan did not engage the same distributors from the start, completely dividing the brands to dealerships with their own customer bases. The basic themes of advertisements also varied, presenting Nissan as a brand for families and Infiniti as a company for upper-income professionals. After analyzing the sales of the business after its entrance into the luxury sector, the scholar finds that the market share of Infiniti increase enough to rival exclusively luxury brand. Thus, Shah (2018) concludes that the strategic separation of model ranges yields successful results and eliminates the risk of spillover.
This idea is corroborated by Deac, Vrincut, and Paun (2017), who state that such division allows companies to avoid possible cannibalization of the original brand. The customers do not consider models from Nissan and Infiniti as being substitutable in relation to their personal image and preferences, although the cars have similar functions.
Caldieraro, F., Kao, L. J., & Cunha Jr, M. (2015). Harmful upward line extensions: Can the launch of premium products result in competitive disadvantages? Journal of Marketing, 79(6), 50-70.
Deac, V., Vrincut, M., & Paun, O. (2017). Product ranges price strategies. Proceedings of the International Management Conference, 11(1), 524-535.
Shah, A. (2018). Does upward product line extension hurt or benefit a firm’s competitive advantage? The case of Honda’s Acura, Nissan’s Infiniti, and Toyota’s Lexus Brands. Journal of Marketing Development and Competitiveness, 12(1), 28-36.