Only the Ugly Face? A Theoretical Model of Brand Dilution

Abstract

This paper challenges two common views of brand dilution: first, that it is exclusively the unintended consequence of a poorly executed strategy of brand extension and, second, that its likelihood is heightened by brand licensing. Using a new theoretical model, we show that brand dilution can be seen not just as an unfortunate development to be avoided, but as an opportunity to monetize the brand. We further show that, at the relevant margin, switching from in-house development to licensing reduces the risk of brand dilution. The model offers a novel perspective on some important managerial choices and generates a series of empirically testable hypotheses. This paper was accepted by Dmitri Kuksov, marketing. Funding: Financial support from PRIN 20157NHSTP004 is gratefully acknowledged. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.00852 .