Dissertation research proposal Umbrella branding and brand extension of Tesco

Umbrella branding and brand extension of Tesco

Table of Contents

Introduction. 1

Aims and objectives of the  research. 3

Research questions. 3

Rationale of the study. 3

Background of Tesco. 4

Background literature. 5

Methodology to be adopted. 7

Data collection. 7

Sample respondents. 8

Data analysis. 8

Limitations of research. 9

Ethical considerations. 9

Timeframe. 9

Conclusions. 10

References. 10

Executive summary

The present report is an evaluation of the consumer perceptions towards the brand strategy adopted by Tesco mainly in the umbrella branding and the brand extension. The research evaluates the effectiveness of the brand strategy in the diversification of Tesco into the areas of finance and telecom services. The research was conducted to stages where the initial stage composed upon the literature review and the subsequent development of the questionnaire to collect data. This collected data was evaluated by means of statistical techniques which then were further discussed in light of the previous literature review. The research process provided the author with adequate knowledge about the branding strategy adopted by retail organisations and the diversification of the businesses. Even though the conclusions and recommendations were developed specifically relating to Tesco, it is expected that general recommendations relating to umbrella branding and brand extension that is generated from the research will be useful for anyone who is doing their research on the subject and for the organisations planning to adopt such strategies.


Tesco is a brand well-known in the United Kingdom mainly because of its operations in the food retailing sector. In the late 1990s and the early part of 2000 Tesco adopted a diversification strategy of adding up new business in other areas and also to develop its retail arm in the international markets. The diversification strategy in the United Kingdom focused on generating synergistic capabilities derived from the front of the brand name of Tesco. Tesco now has developed into retailing of non-food items such as clothing, electronics and electrical equipment and general merchandise along with entering the financial services and telecom sectors. According to Martinelli and Sparks, (2003) it has been evaluated that the brand name and the image of Tesco is one of the major positive points which the organisation was able to bank upon in developing its diversification strategy. Tesco in the United Kingdom until the diversification was one the organisation which provided grocery products within which varied brands were sold. As the brand name of Tesco is an umbrella name and it is to be evaluated whether consumers has a positive addiction or attitudes towards the brand. Within its retail stores Tesco started providing grocery and food products in its own brand cheaper than that of the existing brands. It is quite possible that the consumers and have a brand perception of Tesco as that of a manufacturer and provider of cheap and non-value products. The organisation was also able to grow by adopting various marketing strategies such as Clubcard system which generated higher levels of retention of the customers to its retail stores but mainly to avail the economic discounts and benefits from the Clubcard system. Tesco is considered as an innovative organisation in the general marketing literature as it was the first food and grocery retail organisation in the United Kingdom the online channels of selling. When comparing Tesco with that of competitors, it can be seen that the company has developed an innovative strategies in strengthening its brand name even though from a consumer’s point of view Tesco is a retail store which supplies and grocery products at cheaper rates than most of the competitors.

When Tesco developed the diversification strategy many of the market analyst and company insiders were positive about the strategy were the brand name of the company was used to develop and market the products under the financial services, telecoms and consumer goods. But it has been analysed by Laforet, (2007) that Tesco was able to gain a good market share in the retail consumer products and develop its financial services and telecom products and services mainly because it was having a large amount of data and information about the general consumers which it used in the development of a direct marketing strategy. Hence it is necessary to evaluate whether the brand name of Tesco had been a major contributor towards the development of the diversification strategy and the success it had till now. Specifically a research will be undertaken in order to evaluate whether the consumers perception and attitudes towards the brand image of Tesco has contributed to the development of the diversified businesses.

Aims and objectives of the research

The aim of the research is to evaluate the concepts behind the development of branding and the extension of the brand name in a diversification strategy. The concepts behind the development of branding will be studied through a literature review and the brand extension strategy in a diversification will be evaluated by taking Tesco’s diversification as a case study.

The objectives of the research are

  1. To critically evaluate the concepts of umbrella branding and brand extension
  2. To analyse the effectiveness of umbrella branding and brand extension in the case of Tesco
  3. To recommend a brand extension strategy for Tesco in the overseas markets

Research questions

The following are the research questions which the dissertation will undertake to evaluate and answer. Tesco has adopted an umbrella branding and a brand extension strategy in recent years in developing its own branded products for the grocery and food retail stores as well as extending the brand to the spin-off products and services in the financial services and telecom industry. Hence it is necessary to evaluate the concept behind the branding and brand extension which will be mainly done through analysis of the literature.

  1. What are the concepts behind umbrella branding and brand extension

Tesco was previously evaluated and considered as a seller of cheap products but has undertaken several marketing communications strategy to develop a positive image on the consumers of United Kingdom. On the basis of the brand image created Tesco has diversified into several areas and the most noticeable among them are the financial services and telecom services because it is totally different from that of the retail sales. Tesco is effectively a seller of products and other brands through the retail stores and its umbrella branding has to be evaluated from the consumer angle and whether the brand extension to the diversified businesses is effective. The banking, financial and telecom are essentially service based industries which is widely different from that of the retail sales.

  1. Has the brand image of Tesco as a retailer been transformed into that of a service organisation

Rationale of the study

Tesco is a brand name which is well-known in the United Kingdom although the specific association from the point of view of their brand image is still doubtful. But the brand name of Tesco has been used to develop other organisations in the diversified business and the general perception is that it is the brand images contributed to the success of the organisation in the financial services and telecom sectors. But there have been periods when Tesco faced crisis over the negative image associated with the brand due to poor perception of Tesco’s as a seller of piling out of the goods and selling them cheap. Even in the recent years there has been criticism against Tesco due to its alleged unethical business practices and the dealings towards the farmers and food product manufacturers. There has also been a competition commission enquiry on the development of new retail stores in various areas in the country. Even with all these negative developments, Tesco has been able to grow at a sustainable rate and even during the recession period it did not have many problems when comparing to other organisations.

Brand name, identity, equity, image etc. has been researched many times by various researchers and there is a high level of knowledge about the components and aspects which create positive perceptions in the minds of the consumer towards an organisation. It has been categorically established that branding is an important components of the marketing strategy of modern-day organisations. An organisation with an already established brand name is aiming to take advantage of the image it has created in the minds of the consumers in expanding to markets and product categories. Other organisations are trying to build up the brand name which is the key components of the marketing strategy through which these companies hope to create a unique identity by developing positive consumer attitudes and perceptions towards the products and services. Hence it is necessary that the marketing personnel of an organisation needs to understand the various elements of developing the brand name and extending it to the new products and services created. From a personal perspective, I am very much interested in the retail marketing channel as it is getting expanded in the South Asian market and many new multinational organisations are entering these countries. From a career perspective, I am aiming to join a retail organisation in the marketing division and a study on the development of the branding and its extension coupled with a diversification strategy would enable me to develop the knowledge and skills required.

Background of Tesco

Tesco is a global grocery and general merchandise retailer in the United Kingdom which has adopted a diversification strategy in early 2000 through which it has entered the retailing of consumer goods, financial services and telecom services. It is the largest grocery retailer in the `and the second largest when considering the profits after Wal-Mart. In the United Kingdom Tesco has a market share of the deeper than it has established a retail stores in 14 countries in different continents. During the early 1990s Tesco started an expansion of the retail arm of the grocery segment by developing various business models based on a differentiation in the type of the retail store from small to large. Tesco is considered as the first grocery retailer which has entered the online marketplace and reselling the grocery and food products through the online channel in several parts of the United Kingdom. Tesco has also expanded based on the inorganic strategy of acquiring many organisations in the grocery retail and food retail segment. One of the innovative marketing strategies adopted by Tesco is the loyalty scheme based on the Clubcard. According to McDonald and de Chernatony, (2001) Tesco has adopted a strategy of appealing to all segments of the consumers and has shunned the previous image grown as a seller of cheap products.

In the year 2011 the total turnover of the score was 67,573 million with profit before tax of 3,535 million and the basic earnings per share has been growing at an average rate of 8% over the years. Tesco has a market share of 30% of the grocery and food retail products which is double than that of the market share of Asda and Sainsbury which have 16% and 15% market share respectively. Although Tesco has developed and diversified into other areas, the banking and telecom sector diversification is the most noticeable.

The banking and finance company is called Tesco bank which was initially developed as a joint venture with Royal Bank of Scotland. Tesco bank offers banking and financial products as the life insurance and the main marketing strategy adopted is to communicate the details through the established Tesco stores throughout the country and through the website. In 2008 Tesco purchased the shares held by the Royal Bank of Scotland. Within the telecom market Tesco operates mobile, home phones and broadband services and similar to the marketing strategy of the Tesco bank, the products are sold through the retail stores of Tesco.

Research problems

Umbrella branding is the development of the brand name across multiple product and service categories and is also called as family branding. According to Laforet, (2007) there are cost and risk advantages generated through means of umbrella branding mainly because new products and services can be developed based on the familiarity in the brand name. But the marketing strategists need to consider the maintenance of a consistent quality across all the different product and service categories. From a consumer’s perception, a brand which has provided positive benefits to them in certain products and service categories will be equally providing similar experiences in the diversified products and service offered under the same brand name. The business organisations sometimes extend the brand beyond their original product category when the company is planning a diversification of its business by entering new products and services and the extension of the brand mainly provides the organisation with a reduction in the cost and risk of entering the new product category. When an organisation has diversified products and services, under the same brand name, the up selling and cross selling of the products become much easier. Umbrella branding is seen to create efficiencies in terms of advertising which is the main cost component in marketing. It has also been established that a consumer’s negative perception in one product or service category might affect the others and hence a deterioration in the service and quality levels in one segment of the business could affect the entire product and service categories. Boisvert and Burton, (2011) have evaluated the quality consciousness of consumers and the beliefs generated by the experience in using the services of an organisation which provides different products and has found that consumers experience in one category may affect their quality perceptions in another category under the umbrella branding. According to the research by Bhat and Burg, (2011) which evaluated the consumers perceived risk perceptions relating to certain products or services found that the extension of a high-quality brand is likely to be of high quality and vice versa. Furthermore according to Martinelli and Sparks, (2003) has been found that umbrella branding reduces the consumers perceived risk if the products and services the customer has experienced previously at high-quality and thence to develop increased spending on the different products associated with the same brand name.

But many of the researchers which have evaluated the negative and positive aspects of umbrella branding has failed to take into consideration the extension of the brand name to completely unrelated products as in the case of Tesco. In the case of Tesco umbrella branding can be considered as effective for all types of retail operations and through different channels. According to Laforet, (2007) Tesco’s online channel has gathered enormous interest mainly because of the umbrella branding strategy. Tesco has also diversified into areas of selling consumer goods products such as clothing, electronic and electrical equipment, general merchandise and even fuel. But under all these categories the business model adopted by Tesco is of selling the products manufactured by other brands and the quality levels of the product which Tesco sold might not affect the brand name of Tesco itself. Taking an example if a specific food product manufactured by an organisation under another brand name, when sold through Tesco and is found to be defective or low in quality, does not affect the brand name of Tesco. There are cases when such products which were found to be of low quality were taken away from the Tesco stores in order to protect the overall brand image of Tesco. But in the case of the financial and telecom services, the products and the services provided are directly by Tesco itself and not of a third-party organisation. A positive factor connected with this type of brand extension is the transferability of the positive image of Tesco as a service organisation to the new types of services under Finance and telecom. But the effect of this transferability of the brand name and the attitudes formed by the consumer towards the services provided under Finance and telecom business needs to be evaluated when considering the brand image of Tesco is that of a retail organisation.

Literature review

Concept of the brand

A brand is defined as a name, a term, design, symbol or any other feature that identifies one seller’s goods or services distinctly from others. A brand may identify one product or service or a family of products and services of an organisation, or the entire organisation itself. According to Brown, Sichtmann, Musante, (2011) the concept of brand has been developed from the ideas of personality which is a unique identification. Over the decades several researchers analysed the concept of brand, the advantages and disadvantages and have found that individuals has an inability to distinguish memorable aspects which are related to the psychology developed over a period of time. The concept associated with the psychological and cognitive aspects of the brand according to Rajagopal, (2008) are the thoughts, feelings, perceptions, images and common experiences, believes, attitudes which are linked to a particular product or service. The effect of a brand or the attributes developed in the minds of the customer is created through the perception of the vast experience and future expectations. Marketing strategists according to Hosany, Ekinci and Uysal, (2007) are in the constant process of creating positive attitudes among the customers about the experience factor of the product or service and to develop future expectations. A positive brand image can be considered to be developed if the experience developed from all the psychological expectations of a product or service is fulfilled. The branding strategist develops the alignment of the expectations with that of the brand experience by constantly persuading the cognitive and psychological framework of an individual about the qualities and characteristics associated with the brand. A well-developed brand in the form of a product or a service can be considered as an intangible asset for the organisation mainly because it enhances the actual cost of the product, develops the increased retention of customers, increases familiarity, leads to trial purchase of new products or services, develops loyalty, reduce the transaction cost, reduces marketing and advertising and cost etc. But some of this concept has been disputed by large scale by several researchers and according to Johnson and Bruwer, (2007) the reduction in marketing and advertising and cost has been conclusively proven as not effective in the case of an organisation with a developed brand. According to the research there is an increased level of marketing and advertising and cost in order to sustain the image of the brand in the minds of the customer. The development of loyalty to a brand has been evaluated as a cognitive and psychological process developed from sustained positive experience about the product or service and not necessarily from the brand image (Boisvert and Burton, 2011). Many researchers such as Martínez and Pina, (2003) concluded that there is a reduction transaction cost to the customer as well as for the organisation mainly because of the brand image which reduces the cost of sourcing and providing information about the products and services. Taking an example when a consumer buys a product, he or she would like to evaluate the quality which with the help of a brand can be emphasised. Furthermore the principle of transaction cost the risk involved in purchasing a product or a service with their brand image is considerably reduced (Liu and Hu, 2011) The products and services associated with their brand speeds up the purchasing process and makes the repeat purchases easy from the part of the consumer as well as for the organisation (James, Lyman, Foreman, 2006).

The disadvantages associated with the brand are mainly for an organisation which needs to sustain the brand image by continuously monitoring the quality of the products and services as well as the entire association the brand has. According to Delgado-Ballester and Hernández-Espallardo, (2008) and organisation is at risk of losing the brand image even with a marginal reduction in the quality or any perceived conflicts arising in the way in which the organisation functions. Taking the example of Tesco itself, there were consumer actions against the company arising from certain unethical practices which the company adopted to artificially reduce the prices they provided to the suppliers. According to King and Grace, (2006) in order to sustain the brand image and organisation must ensure that the quality levels as perceived by the customer about a brand needs to be sustained throughout the value chain. Hence it is not only with respect to the experience of the product or service which provides a brand image, but the entire areas of operation of the organisation throughout the value chain process.

Considering the different types of brand strategies, umbrella branding or family branding and brand extensions which are the two areas of research based on the branding concepts of Tesco that are going to be evaluated in the present study. Umbrella branding is an overarching brand used across multiple related products and brand extension is conducted when an organisation is diversifying into new product and service categories.

Umbrella branding

An umbrella branding is a common brand across businesses and growth synergies can be achieved by leveraging image, reputation and trust effects of a strong brand across several businesses (Hem, 2008). The entire brand portfolio profits from the umbrella brand credibility which offers efficiency benefits and spillover benefits (Spry, Pappu and Cornwell, 2011). According to Trim and Lee, (2006) umbrella branding emphasises a monolithic brand for several products and the value proposition and image of the umbrella brand is transferred to the private label products. According to Olson, (2008) advertising and marketing costs are considerably reduced for umbrella branding because the consumers use the information in an advertisement about one product to make inferences about other products with the same brand name. Organisations can leverage the positive association developed by a consumer about the products or services developed by the company in order to introduce new products (Bhat and Burg, 2011). When making the case of Tesco, it is seen that the company has leverage the positive brand image it has built up over the years from the retail food product industry and used it to introduce more products and services. But according to Sharp, (1991) umbrella branding has the risk of associating with a corporate identity which has several products and services in its portfolio and having different equity perceptions among the customers. In order to perform well under one umbrella branding strategy the organisation must consistently promote a single brand image across the various product and service categories (Bravo, Iversen and Pina, 2011).

Imperfect information, uncertainty and risk perceptions

One of the important considerations of several researchers who have analysed the subject of umbrella branding is the uncertainty arising from imperfect information about the product or service attributes. According to Montaner and Pina, (2009) there is an imperfect information availability about the product and service attributes which gives rise to a perception of risk. When a consumer plans to purchase a product or service the level of perceived risk can be reduced by means of umbrella branding in the consumer has a positive experience about a different product under the same brand name. The concept of imperfect information has been used in developing the literature of umbrella brand their several researchers have suggested that the consumers are not able to observe the quality of a new product and is forced to accept the company’s claims. According to Montaner and Pina, (2009) a consumer evaluates an organisations claim of the products quality attributes with imperfect information about the specific aspects of quality but there is an element of extension of the quality perception associated with that those products which have already been experienced by the customer. Alamro and Rowley, (2011) have evaluated that the imperfect information about a new product developed by an organisation can be bridged by umbrella branding. This is considered by Martínez, de Chernatony, (2004) suggest that only high quality product developers use the umbrella branding strategy in order to efficiently convey the quality of the new products launched by them. The uncertainty principle associated with new products that are also very similar to the concept of imperfect information and according to Alamro and Rowley, (2011) the uncertainty associated with a new product can be considerably reduced by umbrella branding. Similar is the case with risk perceptions of new products which Grace and O’Cass, (2002)) considers that umbrella branding can reduce the risk perceptions of brand extensions. But all these aspects can only be true if there is a positive image about the products or services associated with the brand.

One of the often quoted examples of brand development or new product extension was the development of Lexus range (high end the model of cars developed by Toyota under the Lexus brand name). The automobile is manufactured by Toyota company was considered as high-quality but targeted that the middle class and the lower-middle-class segment of the population due to the cost effectiveness and the avoidance of luxury. Toyota wanted to enter the luxury car segment in the United States and went for a new brand development with the introduction of the Lexus range specifically for the United States market. Many consumers were not even aware that Lexus brand car were manufactured by Toyota. Hence Toyota was able to reduce the risk perceptions associated with the upper-class segment of the luxury market of the United States by not going for an umbrella branding technique. Whereas in the case of the present study is where Tesco is considered as a brand name which has the level of recall and recognition among the consumers of the United Kingdom, the company planned its brand extension under the umbrella branding concept.

According to Lee, Lee and Wu, (2011) a potential positive attitude developed by the customer about a product or group of products under brand name can signal the qualitative aspects of a different product or group of products under the same time. This has been evaluated by Sinapuelas and Sisodiya, (2010) and considers that the information availability about a product which has been used by a consumer and the reduced risk perception associated with this contributing to a reduction in uncertainty about trying out new products under the same brand name. Many researchers have evaluated this concept of extending the reduction in uncertainty and risk perception of new products developed by an organisation under the same branding and confirms that umbrella branding in fact act as a signal about the qualitative nature of all the products under it.

Signalling theory to evaluate umbrella branding

This aspect of umbrella branding and the consequent equality of the quality perceptions formed in the minds of the consumer have been developed by Saqib and Manchanda, (2008) under the signalling theory. The signalling theory considers that there is an imperfection in the information availability and a consequent uncertainty about a new product quality which can be reduced by introducing it under an umbrella brand. Gammoh, Voss and Fang, (2010) have evaluated the extension of new products under the umbrella brand and has come up with similar conclusions. But there are also criticisms against the signalling theory mainly from Reast, (2005) who evaluate that, if the signalling theory has to contribute to brand extension then those consumers has to be risk averse. A consumer who has a higher risk perception and consequent risk aversion would like to consider only those products and services which he considers as risk-free. Another consumer who does not have a similar high risk perception and has a low risk aversion or risk-taking mentality would not be influenced by the signals provided by the qualitative nature of the product under the umbrella brand. Further the signalling theory was critically evaluated by Wilson and Liu, (2010) who suggest that a low quality extension of products under an umbrella brand could contribute to damaging the quality perceptions associated with the parent brand. Taking an example for an organisation which has developed high-quality products under a single branding and is continuing to extend the product line could in fact increase the consumer’s extension of perceived risk reduction and utility value of the new product line. But in the case of an organisation which is adding low quality products, could damage the entire reputation and the qualitative perceptions associated with the parent brand. According to Wang, Wei and Yu, (2008) umbrella branding can be considered from the perspective of signal development mainly because the parent brand perceptions are expected to be affected by the extension. Hence it is necessary for an organisation to develop products and services which are of similar quality levels to the parent brand. The research conducted by Lahiri and Gupta, (2009) provide support to the assumption that expectations are increased about the product and services developed under a parent brand with the imperfection of information. When analysing this debate in the case of Tesco, we can consider the brand extension done by Tesco in the areas of financial and telecom services under the umbrella brand. When these new services are introduced, the consumers have little information about the qualitative nature of the products or services or in other words when only considering the telecom services, the consumers do not have sufficient information to gauge the reach of the telecom service in terms of signal quality, the customer care quality, the quality of the mobile phones provided etc. and only an assumption can be made based on the quality perceptions that customers have about the parent brand.

Apart from the signalling theory Brown, Sichtmann, Musante, (2011) have evaluated umbrella branding concept from the perspective of increased expected quality and reduced consumer risk. According to the authors the customers use the experience developing one product category to evaluate the risk associated with other products under the same brand name. Rajagopal, (2008) who also have evaluated the umbrella branding concept without assuming the signalling theory has also formed conclusions which support the concept that the parent brands perceived quality can affect the extension products. According to Hosany, Ekinci and Uysal, (2007) a brand equity development or dilutions can happen if a false signal is developed by a new product extension and hence can damage the reputation of the entire brand. This is very similar to the concept developed by Johnson and Bruwer, (2007) who assumed that cross category learning effects is a necessary attribute for umbrella branding to function as a signalling method about the qualitative aspects of all the products under it.

The practical aspects of umbrella branding, imperfect information, uncertainty, risk perceptions and the consequent signalling theory developed by Martínez and Pina, (2003) can be gauged from the efficiencies developed by an organisation in the advertising campaign or in the reduction of marketing costs. As mentioned in the introduction sections, umbrella branding can reduce the marketing costs of an organisation to a considerable degree mainly because of the spill over effect and the consumer’s extension of the risk perceptions associated with a product under the umbrella brand due to the signalling effect of the brand experience from other product categories. But according to Alamro and Rowley, (2011) savings in terms of the costs arising from marketing and advertising of all the products under an umbrella brand can be effectively considered if there is a higher level of brand recall and recognition. The concept of brand recall and recognition and the aspects of brand extension under the umbrella branding have been evaluated by Hosany, Ekinci and Uysal, (2007) and have found that the homogeneity of the products can considerably increase the recognition effect of products under the same brand name.

Image spill over concept

The effect of umbrella branding contributing to reduce the risk perception has been evaluated in the previous section and the main consideration was the existing product quality attributes can function as a signal to the new range of products under the umbrella brand. The reduction in risk perception for the products under an umbrella brand can also be considered from the concept of image spill overs. The concept of images spill overs was analysed by Lahiri and Gupta, (2009) who concludes that spill overs can occur when information about one product affects the demand for other product with the same brand name. The concept of teenage spill overs is an important consideration when studying the concept of multiproduct branding. But the image spill over concept has been evaluated for new product introductions and not for brand extensions. There is little relevant research which is consistent with the theories associated with image spill over of the product or service whose quality attributes are considered as positive by the customer. But according to Wang, Wei and Yu, (2008) the umbrella branding persuades the consumer to purchase new product extensions when the quality cannot be observed prior to the purchase. This is resulting from the image spill over effect and an important research by Wilson and Liu, (2010) have found evidence that increased quality of new brand extensions resulted in the reduced the risk perceptions associated with the already existing products. In other words when an organisation develops a new product which is considered vastly superior in quality to the existing product, a certain kind of image spill over from the new product to the older product develops which results in increased image perceptions about the entire brand as full as for the existing products. Many researchers have only evaluated the image spill over for a new product category or brand extensions from the brand image of the existing product. But a reverse image spill over was considered by Reast, (2005) to an empirical investigation of the automobile industry and found that when organisations develop new products which are superior in quality, there is a consequent increase in the image of the already existing products. The empirical investigation found evidence of this reverse image spill over through an analysis of the image developed by Jaguar through its introduction of the new model range. When in 1988 Jaguar developed a new model range which was considered as was the superior to that of the previous models there was a consequent increase in the demand and the increase in the used car prices of older Jaguar cars. They suggest that image spill over can occur on a reverse basis although this effect has not been evaluated by many researchers. But there is qualitative studies conducted by Gammoh, Voss and Fang, (2010) who suggest that image spill over can occur in two directions, from the image of the new product developed and the image of the existing product. Although the signalling theory is very similar to that of the image spill over, the researchers who evaluated the signalling theory has not considered a reverse signalling concept. In other words there is not enough literature on the subject of the signalling of the positive image of a new product extension contributing to an increased demand or image for the existing products.

Brand extension

In the above sections of the literature review the concept of umbrella branding was evaluated from the perspectives of signalling theory and image spill over concept. Most of the literature which was evaluated considered extension of the brand which is a similar strategy under the umbrella branding concept. But many researchers have evaluated brand extensions differently from umbrella branding and found that many organisations use the brand extension or brand stretching strategy by utilising the well-developed image of a product or service category in developing a different product category. Researchers often evaluate this as a spin-off to the existing product category and are an important element in the present study as Tesco has not only conducted an umbrella branding but also a spin-off or a brand extension into other product and service categories. Tesco has developed its business into banking and telecommunications sector which is completely different from that of the food retailing business. This can be considered as a brand extension where in the Tesco’s brand equity is leveraged to attract the customers. Brand equity has been defined as the network and long-term sustainability and is an important consideration to be evaluated according to Wang, Wei and Yu, (2008) from the perspective of brand extension. Whereas umbrella branding is an overall strategy adopted by an organisation Sinapuelas and Sisodiya, (2010, the brand extension can be considered as a tactic involved in the umbrella branding strategy. But with the mission of brand extension and umbrella branding is concept in nature and many researchers have tried to define them by utilising different concept. Review of literature conducted by the author has found that most of the concepts of brand extension are very similar to that of the signalling theory and the image spill over concept. The researchers who have conducted their studies on brand extension have evaluated the positive effects of developing new product category with the help of categorisation theory. According to Martínez, de Chernatony, (2004) when consumers are faced with numerous products or services to choose from, there is an element of uncertainty which forces the consumers to categorise the products by brand association or image through the previous experience. The categorisation theory has also been considered by Spry, Pappu and Cornwell, (2011) as contributing to a signal to the customer about the quality perceptions associated with the new product category. Hence even though there is no direct correlation which has been established between signalling theory and categorisation theory, it is evident that the underlying concepts involved in both the theoretical structures are very similar.

Horizontal and vertical brand extension

The brand extension of an organisation can be done either horizontally or vertically. According to James, Lyman, Foreman, (2006) horizontal brand extension is the development of new product category which are very similar to that of the existing product category. Whereas in the case of vertical brand extension the product categories are in a vertical manner. For example an automobile manufacturer can enter into the tyre manufacturing business or the used car sale business which is a vertical brand extension. The horizontal brand extension is very common and the practical example sparked when an automobile manufacturer who has products targeting the middle-class customer enter either the luxury car market or the lower-middle-class car market. In the present case there is a level of horizontal brand extension done by Tesco, as the company has entered the retail business of electronics and other consumer items using the brand associated with food retailing. The horizontal brand extension can also be considered for evaluation of the different types of stores developed by Tesco (Metro, Extra, Express etc.). The vertical brand extension has not been very significant nor visible from the part of Tesco. The only kind of vertical brand extension done by Tesco is the introduction of own label products along with the other branded products sold through the store’s.

But from the research done by Olson, (2008) who evaluated the vertical and horizontal product category extensions, the conclusions were that vertical line extensions are very scarce and have produced inconsistent results. In other words an organisation developing new product categories in a vertical manner has not been able to utilise the positive effects of brand extension. This is very significant in the case of Tesco where the company developed a vertical brand extension. One specific case is the introduction of own brand products along with other product brand categories sold in Tesco. Although the level of success of the own brand products developed by Tesco is not immediately known, one important consideration to be noted here is that, Tesco has developed the porn product category as a low-cost alternative to that of the other brands. Whereas the products sold by Tesco where having different branding and different quality associations, when they introduced the own label product category Tesco considered the gap existing in the product category as that of the low value products. There has not been much research conducted by other researchers on the subject of horizontal and vertical brand extension and hence the author is unable to provide any review of the conclusions developed by only a few handful of researchers. But on an analysis of some of the conclusions developed by the research studies on horizontal and vertical line extension, the main factor is that there is a level of asymmetry involved in vertical brand extension than horizontal brand extension.

Image transformation

Although not specifically related to umbrella branding or brand extension, image transformation is one of the core concept employed by many organisations are undertaking a brand extension. According to Lahiri and Gupta, (2009) many organisations have employed a brand extension strategy to change the brand image it has developed. An image transformation according to Reast, (2005) would also may be preferable in the developing market conditions as the organisations could transform the previous image built upon the historical market conditions to the realities of the new market conditions. But an image transformation has been successfully undertaken by a rebranding strategy and according to Johnson and Bruwer, (2007) there is only limited scope for image transformation through brand extension. But the previous evaluation of the umbrella branding and the concept involving image spill over can be considered when evaluating image transformation of a brand through extension strategy. In fact a quantitative study conducted by Hosany, Ekinci and Uysal, (2007) on the brand extension strategy adopted by many organisations suggest that due to the image spill over potential there is an element of image transformation of the overall brand. Taking the case of the British automobile manufacturer Land Rover which was considered as an off-road and rugged vehicle from the time of its inception, undertook a brand extension into introducing a luxurious content to the vehicles which totally transformed the image of the company. Although it is debatable whether the image transformation of Land Rover from that of an off-road vehicle to that of the present semi-luxury and semi-off-road vehicle is providing any advantages to the organisation, it is definitely true that there has been an image transformation of Land Rover.

For the present study it is necessary to evaluate the image transformation of Tesco at the brand extension conducted by the company is more into a service organisation from the brand image of the retail organisation. It is quite possible that the organisation is trying to change its brand image as that affect low-priced retailer of food and non-food products to that of that service organisation by introducing banking, financial and telecommunication services.

The image transformation according to Gammoh, Voss and Fang can be considered from the viewpoints of image spill over through a brand extension. Although under the heading of image spill over we had analysed the concept of umbrella branding, but it was also suggested that image spill over can be utilised in the evaluation of the brand extension strategy (Martínez, de Chernatony, 2004). When considering the perspectives of Liu and Hu, (2011) upon image transformation, there is an element of reverse spill over which was evaluated before, and from this it was understood that due to a positive or negative attitude developed by the customer due to a brand extension, there could be any image spill over to the parent product category. The image spill over can drastically change the consumer’s perception of the parent brand as was evaluated from the case of Jaguar and Land Rover in the previous sections. But in the case of Tesco it has to be kept in mind that the brand name developed by the company as an efficient and low-priced retailer has a certain level of brand equity associated with which needs to be considered which needs to be considered by the company when thinking of any brand extension strategy. The image spill over while developing a brand extension into services-based sector could change the consumer perception of Tesco entirely and there would be negative fallout to the brand equity developed as a retailer.


The objective of the present report is to evaluate the umbrella branding and brand strategy employed by Tesco. From the literature review it was analysed that umbrella branding is the overall strategy employed by Tesco wherein the company established in all its brand extensions under the single brand name. The introduction of banking and financial and the telecommunication services under the same brand name is the specific brand extension beyond the food retailing industry. But there is also a level of horizontal and vertical brand extension conducted by Tesco with the introduction of consumer goods and electronic products in retailing and the establishment of own product later this in food as well as non-food categories and entering the online channel of distribution. The establishment of the retail chains involving consumer goods, clothing, electronic, electrical and other accessory products is a horizontal brand extension as it is adding products to the retailing business in a horizontal manner. The establishment of own label products ranges in its retail stores is a vertical brand extension conducted by Tesco as the company has introduced product range in the low-priced category to target this segment of the customer. Tesco has also entered the online channel of distribution of food and non-food articles and this also can be analysed from the perspective of vertical brand extension, as the company has entered a new distribution channel and targeting the consumer segment who conducts the shopping through online channels.

When considering the establishment of the banking, financial and telecommunication services under the brand name of Tesco, although it can be considered as a vertical brand extension strategy, the researcher has not found sufficient literature to analyse the establishment of this completely new service range which is totally different from that of the retail business. The marketing, targeting, distribution and the strategic necessity is involved in the service business is totally different from that of the retail segment. Although the company has established the banking institution in collaboration with another company, later on it was fully bought out by Tesco and brought under the umbrella brand. The concepts which were analysed during the literature review about perfect information, uncertainty and risk which all concerned the new product introductions of organisations will be useful in evaluating the brand extension towards banking, financial and telecommunication services. The concepts developed under the signalling theory and the image spill over concepts will be used in this evaluation. From the above the main points to be analysed are the consumer’s perception towards the brand extension and umbrella branding strategy from the different theoretical perspectives of horizontal and vertical brand extension, signalling theory and image spill over concepts. In order to do this it is necessary to collect primary data from the consumers of Tesco and evaluate the brand image and identity and their associations with the services and the new product extensions launched by Tesco.

Methodology of research

In the present section of the report, the author will provide the reader with sufficient data about the methodology adopted for completing the research process. Any research study has got different dimensions such as the conceptual and practical development of the research. From the conceptual perspective there is the research philosophy and the strategy to be evaluated. From the practical aspects there is the data collection, sampling, survey or interview and data analysis. Moreover there will be certain limitations and ethical considerations which need to be looked into by any researcher. It is these aspects which are being dealt in the below section. The primary data is mainly collected in order to analyse the concepts developed under the literature review and summarising the above section.

Philosophy of research

Any researcher will have to contemplate about the research philosophy to be adapted in developing your research problem by developing the knowledge from primary and secondary data sources. A research philosophy is a belief in the way in which data about a phenomenon should be gathered, analyse and used (). The development of knowledge can either be from my scientific concept, which is the evaluation of the theoretical perspectives within the rigid framework of the available knowledge. This is called as a positivist research philosophy, which is a system based on the view that in the social as well as natural sciences sense experiences and their logical and mathematical treatment are the exclusive source of all worthwhile information (). The considerations of introspection and inclusion are totally avoided in the development and gaining of knowledge. Positive is considered that the reality is stable and can be opts out and described from an objective view point (). The other research philosophy is interpretive which contend that only through the subjective interpretation and intervention in reality can that reality be fully understood. The interpretivist research scholars considers that there are many interpretations of reality, but maintain that the interpretations are in themselves a part of scientific knowledge ().

When considering the present research study the researcher has conducted the literature review in a scientific manner without too much involvement and any subjective interpretation of the research studies conducted by previous authors. There was adequate literature available to evaluate the subject from a critical perspective and hence there was no interpretation or intervention done by the researcher in either the research methods adopted by previous authors in developing their conclusions or in evaluating the conclusions itself. But the data collected from the respondents were to be analysed, the researcher wanted to adopt an interpretivist strategy where it became necessary to consider the subjective meanings of the perceptions. On this basis the present research is a combination of an interpretivist and positivist research philosophy. The researcher has adopted the positivist research philosophy throughout the literature review and the interpretivist cum positivist philosophy during the evaluation of the data collected.

Research strategy

From the viewpoint of the research strategy or the approach to be adopted which is again following from the research philosophy the two considerations are the deductive and inductive approaches. The deductive approach the theory or hypothesis testing where the researcher evaluates the existing data through secondary research and conforms the validity and reliability of the same through the data collection. On the other hand the inductive approach is generally a theory building concept where the data is evaluated primarily to develop certain theoretical conclusions which are not available. The present research has evaluated the theoretical concepts of umbrella branding from the perspectives of signalling theory and image spill over concepts developed by the previous researchers. There has been extensive literature on the subject and a critical evaluation was conducted by the researcher in order to analyse the different aspects and elements of the theory. When considering the brand extension that to practical considerations of horizontal and vertical extension of the brand and its relevance to the present case of Tesco was also considered. Further in the data collection and the analysis segments, the researcher has interpreted the data in accordance with the signalling, image spill over theories and the practical aspects of horizontal and vertical brand extension. On this basis the researcher concludes that the present report is developed based on a deductive approach and is a confirmatory process of the existing theoretical basis in evaluating the umbrella branding and brand extension strategy of Tesco.



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