Abstract
Vertical line extensions extend an established brand to products at different price/quality points. In this study, we examine consumer evaluations of vertical service line extensions and the feedback effects of these extensions on the parent brand. Findings of two empirical studies in the hotel industry indicate that consumers perceive higher risks in step-up extensions than in step-down extensions, which consequently influences their evaluations of the extensions. This effect of extension direction is also found to be moderated by risk relievers such as service guarantee and consumers’ prior knowledge in the service category. Furthermore, we found that a parent brand receives more positive evaluations after the introduction of a step-up extension than that of a step-down extension.
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