The roles of brand equity and branding strategy: A study of restaurant food crises

International Journal of Hospitality Management 34 (2013) 192–201

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International Journal of Hospitality Management journal homepage: www.elsevier.com/locate/ijhosman

The roles of brand equity and branding strategy: A study of restaurant food crises Soobin Seoa,1 , SooCheong (Shawn) Jangb,∗ a b

Hospitality Management, Department of Human Sciences, The Ohio State University, Campbell Hall, 1787 Neil Avenue, Columbus, OH 43210, USA School of Hospitality and Tourism Management, Purdue University, Marriott Hall, 900 W. State Street, West Lafayette, IN 47907, USA

a r t i c l e

i n f o

Keywords: Food crisis Restaurants Brand equity Branding strategy Customer visit intention

a b s t r a c t Food crises, such as food borne illnesses, are a major threat to the restaurant industry. However, consumer responses to a food crisis are expected to differ depending on the brand equity and branding strategy of the restaurant involved. In order to test the roles of brand equity and branding strategy in a food crisis situation, this study used a scenario-based experimental survey with a 2 (brand equity: Low/High) × 2 (branding strategy: Corporate branding/House-of-brands) × 2 (presence of crisis: No/Yes) design. The results of the study supported the “amplifying” perspective by providing evidence of the negative role of brand equity during a crisis. Moreover, the three-way interaction between brand equity, branding strategy, and presence of crisis revealed the effectiveness of the corporate branding strategy, which varies depending on the level of brand equity, under crises. The findings of this study will enable marketers to develop appropriate post-crisis strategies based on predicted consumer responses depending on the level of brand equity and branding strategy. Further discussion and implications are provided in the text. © 2013 Elsevier Ltd. All rights reserved.

1. Introduction Due to well-developed distribution channels and high volume production systems that allow potentially deadly products to be distributed nationwide very quickly, a food crisis is a major threat to restaurant companies (Harvard Business Essentials, 2005). It has been demonstrated that the restaurant industry is highly vulnerable to food crises, such as foodborne illness outbreaks, which can damage a firm’s reputation, sales, and financial value (Howes et al., 1996). The Center for Disease Control and Prevention (CDC) reported that foodborne illness cause 48 million illnesses, 128,000 hospitalizations, and 3000 deaths every year in the United States, and almost half of those incidents were associated with restaurants (CDC, 2008). In 1993, Jack in the Box suffered from a devastating Escherichia coli outbreak, which resulted in 700 illnesses and 4 deaths and caused the firm to lose millions of dollars recovering from the crisis (Braun-latour et al., 2006). Moreover, Chichi’s restaurant went bankrupt following an E. coli outbreak that occurred in 2001. Further, negative publicity related to a finger supposedly found in Wendy’s chili in 2005 cost the firm $20 million to restore the brand image. Considering the enormous impact of food crises on restaurant companies, it is important to identify

∗ Corresponding author. Tel.: +1 765 496 3610; fax: +1 765 494 0327. E-mail addresses: [email protected] (S. Seo), [email protected] (S. Jang). 1 Tel.: +1 765 404 2781. 0278-4319/$ – see front matter © 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.ijhm.2013.02.014

factors influencing consumer responses to a food crisis, such as brand equity and branding strategy. Brand equity is a valuable, yet fragile, firm asset. The role of brand equity under failure situations can be viewed through two contradictory lenses: the “buffering” perspective and the “amplifying” perspective. The traditional view on brand equity focuses on the advantageous side of strong brand equity, which is the so-called “buffering” perspective. This theory asserts that strongly built brand equity increases future cash flow (Srivastava and Shocker, 1991; Aaker and Jacobson, 1994) and enhances marketing efficiency (Keller, 2002). In contrast, another stream of brand research, the so-called “amplifying” perspective (Bolton and Drew, 1998; Aaker et al., 2004; Grégoire and Fisher, 2008), highlights the negative side of strong brand equity under failure situations. This is supported by the old proverb “the higher you are, the harder you fall” (Brockner et al., 1992). Most early brand equity research has focused on the “buffering perspective,” while research on the “amplifying perspective” has been more recent and sparse. Furthermore, unexpected food borne illnesses threatening public health raised the need for better understanding of consumer behaviors under crisis or failure situations. In this respect, it is important to understand whether strong brand equity protects or threatens a restaurant during a crisis. In order to build strong brand equity, firms can utilize several strategies to manage their brands (Murphy, 1989; Laforet and Saunders, 1994). Once a firm begins to have multiple products or restaurants it needs to decide whether to use a single brand name or distinctive names for each product. A “corporate branding”

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strategy refers to a firm using a single name that is connected to the parent company. This strategy has been widely used by restaurant companies such as McDonalds, Wendy’s, and Jack in the Box. On the other hand, firms often choose to use different names for each product or restaurant rather than explicitly connecting the parent company to a product. This is called the “house-of-brands” strategy and is used by Darden Restaurant Inc, Yum brands Inc, and Frisch Restaurant Inc. In general, the corporate branding strategy has been considered more effective than the house-of-brands strategy for building strong brand equity more quickly and easily (Rao et al., 2004). However, this easy association between a parent company and a product may endanger the whole company if there is a crisis, even if the crisis is only related to a particular product or restaurant brand. Thus, it is arguable whether the corporate branding strategy actually helps or threatens firms during a crisis situation. The highly visible image of a parent company in relation to a product can have a negative impact on a parent company. In this sense, a question arises: Which branding strategy is beneficial to restaurant companies facing a food crisis? With regard to the relationship between brand equity and branding strategy, a branding strategy is a firm’s strategic decision in order to build strong brand equity. In this respect, the level of brand equity may be a result of how effectively the branding strategy was utilized by a firm. In other words, strong brand equity may demonstrate the success of a branding strategy, while weak brand equity may signal that a firm failed to utilize effective branding strategies or is in the initial stages of building brand equity. Thus, identifying the role of brand equity, which varies with the effectiveness of the branding strategy, in a food crisis may broaden our understanding of the relationship between branding strategies and brand equity. For example, firms using the corporate branding strategy that are successful in building high brand equity may have an advantage compared to firms that failed to build high brand equity. The negative impact of using the corporate branding strategy may vary depending on the level at which brand equity is either alleviated or amplified. Moreover, while previous research identified factors that influence the type of branding strategy used, such as corporate ability, corporate social responsibility, involvement, and fit (Roehm and Brady, 2007), the level of brand equity has not been examined in relation to the effect of branding strategies. Hence, the focus of this study is to investigate the impact of brand equity and branding strategy on restaurant customers’ responses to a food crisis. More specifically, this study examines (1) the effect of brand equity during a food crisis, (2) the effect of branding strategy during a food crisis, and (3) the joint interaction effects of brand equity and branding strategy during a food crisis. Despite extensive research on brand equity and branding strategies, the hidden side that potentially threatens firms in a crisis situation has not been examined. Highlighting this negative aspect of strong brand equity may suggest a unique view that can broaden and enrich brand-related research in contrast to previous views of brand equity. Moreover, by identifying which branding strategy is most effective during crisis situations, this study provides important evidence for managers to determine the optimal branding strategy. Further, a better understanding of the interactive effects of brand equity and branding strategy can enable crisis mangers to handle product-harm crises more effectively.

2. Literature review 2.1. Brand equity Brand equity has received much attention from marketing academics and practitioners due to its significant role as a key intangible firm asset (Aaker, 1991; Keller, 1998). Brand equity is

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considered one of the major drivers of customer equity, which is defined as the total combined customer lifetime value of all of a company’s customers (Rust et al., 2004). Keller and Lehmann (2006) asserted that brands simplify customer choices, promise a particular level of quality, engender trust, and reduce risk. They also noted that brands play an important role in influencing the effectiveness of marketing efforts, such as advertising and channel placement. The accrued value from these benefits is called brand equity. Using a customer-based approach, brand equity is defined as “the differential effect of brand knowledge on consumer response to the marketing of the brand” (Keller, 1993, p. 8). According to this definition, a brand with a high level of brand equity might generate favorable customer responses to marketing efforts such as promotion and distribution of the brand (Aaker, 1991; Keller, 1993). Conversely, a low level of brand equity could generate an unfavorable response. This is referred to as the “buffering” perspective. Most previous brand equity research, besides that on the “buffering” perspective, focused on the positive role of brand equity on firm performance (Hess et al., 2003; Oliveria-Castro et al., 2008; Tax et al., 1998). This is driven by two motivations: financebased (e.g., estimating the value of a firm) and strategy-based (e.g., improving the efficiency of marketing expenses). Examining these two motivations, researchers have found that brand equity has a positive effect on future cash flows (Srivastava and Shocker, 1991), merger and acquisitions decisions (Mahajan et al., 1994), and stock price movements (Simon and Sullivan, 1993). Furthermore, the advantages of strong brand equity include consumers’ willingness to pay premium prices (Keller, 1993), maximizing shareholder value (Bick, 2009), and enhancing brand performance (OliveriaCastro et al., 2008). Service failure research suggests that strong brand equity functions as a cushion to protect firms from the negative impacts of service or recovery failures (Mattila, 2001; Priluck, 2003). Strong brand equity has also been found to lead to more favorable customer reactions, such as increased satisfaction with recovery efforts (Hess et al., 2003). Brand Equity mitigates the effects of a poor recovery on loyalty, commitment, and trust (Mattila, 2001; Tax et al., 1998) and alleviates the desire for retaliation (Grégoire and Fisher, 2006). In contrast to this previous stream of brand equity research, research focusing on the negative aspects of strong brand equity under failure situations has emerged as another important view, referred to as the “amplifying” perspective. Strong brand equity was actually found to threaten companies in certain circumstances. For example, if a customer perceives a service interaction as violating their relational norms (Aggarwal, 2004), feels a recovery effort is unfair (Grégoire and Fisher, 2008), or possesses substantial time and the capacity to evaluate a severe failure (Roehm and Brady, 2007). Customers who feel a strong association with a brand are more likely than others to take offensive actions when the brand fails to satisfy them. Such perceived betrayal was introduced as a key driver of customer retaliation behaviors, which activates the “love becomes hate effect” (Grégoire and Fisher, 2008). Customers who feel betrayed by a brand were more likely to display unfavorable responses toward that brand. The role of brand equity amplifies the effect of perceived betrayal, which means that perceived betrayal may be felt more intensely by customers who have high brand equity. Thus, a crisis may generate stronger perceived betrayal in customers with high brand equity. Based on the above rationale, this study proposes the existence of an interaction effect between brand equity (high versus low) and the presence of a crisis (yes versus no) on customer intentions to visit the restaurant. In other words, customers with high (low) brand equity may display higher (lower) intentions to visit a restaurant, but the presence of a crisis is more likely to reduce the intentions of customers with high brand equity than those customers with low brand equity customers. This is an example of

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the “love becomes hate effect.” Thus, we expect that customers with high brand equity may present more negative responses compared to customers with low brand equity in a product-harm crisis context. H1. Consumers are more (less) likely to reduce their intention to visit a restaurant in response to a food crisis when their brand equity is high (low). 2.2. Branding strategy Firms have utilized branding strategies as a marketing tool to achieve high levels of brand equity (Olins, 1989; Murphy, 1989; Rao et al., 2004). Firms usually begin with a single brand and extend product lines if the initial brand is successful (Laforet and Saunders, 1994). Firms can use the name of the initial brand for new products related to the firm. This is referred to as the “corporate branding” strategy and is widely used by firms such as Coca Cola, McDonald’s, and Wendy’s. Firms using the corporate branding strategy usually equate the firm name and product name, which enables customers to make associations between the initial brand and the parent company more easily (Laforet and Saunders, 1994). The identification of the firm is closely related to their brands, reflected by stock tickers that simultaneously represent the firm name and brand name, such as KO, MCD, and WEN for the three companies listed above. The other option a firm can take is to use a totally different name than the firm’s for a product, which reduces the immediate connection between the product and the firm. This is referred to as the “house-of-brands” strategy and is used by firms such as Yum brands, Darden restaurants, and Frisch’s restaurants. In these cases it is harder to associate the firm and the brand because the identities of the firm and the brands are separated. For example, the Yum brands corporation owns KFC, Pizza Hut and Long John Silver’s, whose names are unrelated to the firm name. The impact of branding strategy on consumer responses can be explained by the accessibility-diagnosticity framework of Feldman and Lynch (1988), which has been widely used in brand failure research (Berens et al., 2005; Roehm and Tybout, 2006; Dawar and Pillutla, 2000). This perspective suggests that when brand A is perceived as informative regarding brand B, a consumer’s experience with brand A will influence evaluations of brand B. Applying this logic to a crisis context, when a parent company (e.g., Darden restaurant, Inc.) is perceived as informative regarding its product (e.g., Red Lobster), the previous image of the parent company may affect product evaluation. When one product is associated with a product-harm crisis, the negative image of the product may influence market evaluations of the parent company as well. Accessibility is facilitated by a strong linkage between a brand and its parent company (Roehm and Tybout, 2006). A firm using the corporate branding strategy may exhibit a stronger linkage compared to a firm using the house-of-brands strategy. Moreover, this strong associative linkage may facilitate the efficiency of negative information processing between a product and its parent company in a crisis, which may negatively influence evaluations of the firm. While the intention of the corporate branding strategy is to build brand equity quickly, this close association between a company and its brand can endanger the whole company during a product-harm crisis. Thus, it is important to examine the role of branding strategy in a crisis context to determine which branding strategy is effective in a crisis situation. Both branding strategies exhibit pros and cons. The primary advantage of using the corporate branding strategy is the lower cost of creating brand equity by reducing total costs for advertising and promotions, enabling economies of scale in marketing, and making brand extension easier (Rao et al., 2004). At the same time, the corporate branding strategy may limit a firm’s ability to expand in

some categories and may result in higher cannibalization among multiple brands. In contrast, the advantage of using the houseof-brands strategy is that it provides distinctly customized brands and reduces the possibility of cannibalization. However, using the house-of-brands strategy is shown to have higher marketing costs. The corporate branding strategy has been considered the better strategy due to the close association between the firm name and the product name (Rao et al., 2004). However, this strong connection between a firm and a product can threaten the firm in a crisis. Thus, a food crisis might have a greater impact on firms using the corporate branding strategy rather than the house-of-brands strategy. Conversely, the house-of-brands strategy can protect other brands when one brand has a crisis. For example, if an Olive Garden restaurant, which is owned by Darden restaurants, had a food crisis, the other brands of the corporation, such as Red Lobster, may not be affected because the two brands are not associated. In contrast, if a McDonald’s restaurant is involved in a food crisis, the parent company may experience more negative effects than companies using house-of-brands strategy. While most research has focused on the advantages of corporate branding strategies, the negative impacts of corporate branding strategies in crisis situations have received little attention. Thus, this study examines the interaction effect between branding strategy and the presence of a crisis on customer intentions to visit a restaurant. In general, customers may or may not present higher intention levels toward brands that use the corporate branding strategy rather than house-of-brands. However, in a crisis situation the corporate branding strategy would cause more negative responses (lower intention to visit the restaurant) than the houseof-brands strategy. Thus, this study hypothesizes: H2. Consumers are more (less) likely to reduce their intention to visit a restaurant in response to a food crisis when the restaurant uses the corporate branding (house-of-brands) strategy. Two main drivers, brand equity and branding strategy, may conjointly influence consumers’ responses to food crises. As noted earlier, while high brand equity is believed to lead to higher visit intentions in a normal context, the high brand equity may lead to a greater reduction in visit intention during a crisis compared to low brand equity. However, the type of branding strategy, whether a restaurant uses corporate branding or house-of-brands strategy, may vary the effect of high brand equity in a crisis situation. Although using the corporate branding strategy increases the efficiency of information processing, which results in enhancing brand awareness, the advantages may only be applied to a brand that successfully built high brand equity compared to one that failed to build high brand equity. For example, a well-known brand (e.g., McDonald’s or Wendy’s) may enjoy the advantage of using corporate branding strategy even under crisis situations because of consumers’ long-standing trust and high brand loyalty. In contrast, a brand with low brand awareness (e.g., BJ’s Restaurant & Brewery or J. Alexander restaurant) may suffer from crisis situations despite using the corporate branding strategy. Thus, consumers’ psychological mechanisms for creating associations between a brand and a firm, which is influenced by the type of branding strategy, may reinforce or weaken the interaction effect between brand equity and a crisis on consumers’ visit intentions. Little attention has been paid to the conjoint effect of brand equity and branding strategy on consumers’ responses to a crisis. Thus, this study proposes a nondirectional three-way interaction between brand equity, branding strategy, and crisis on consumers’ visit intentions (Fig. 1). H3. Brand equity, branding strategy, and the presence of crisis interactively influence consumers’ visit intentions in response to a food crisis.

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Crisis

Brand equity

H1

H3

H2

Consumers’ visit intention Branding strategy

Fig. 1. Research framework of the study.

3. Methodology The authors of this study developed a self-administered questionnaire and hired a research company to conduct a web-based survey for data collection. The survey questionnaires were distributed online by the company to panel members in the United States. A total of 329 respondents participated in the study. The design for the questionnaire was 2 (branding strategy: corporate branding or house-of-brands strategy) × 2 (level of brand equity: Low or High) × 2 (the presence of crisis: Yes or No). The three variables (brand equity, branding strategy, and crisis) were manipulated between-subjects and assigned to respondents randomly. Each respondent was presented with only one scenario and asked to rate their level of brand equity regarding the chosen restaurant brand, risk perception, and awareness of the parent company in order to assure the manipulation check. Finally, respondents’ intentions to visit the restaurant brand were measured as a dependent variable. In order to identify the type of branding strategy used by restaurant firms, restaurant companies on the New York Stock Exchange (NYSE) were reviewed and the type of strategy was determined: corporate branding or house-of-brands strategy. Firms using the same name for both the restaurant and parent company were categorized as corporate branding companies, while the rest of the firms were categorized as house-of-brands companies. For example, McDonald’s corporation owns McDonald’s and is a corporate branding company. Yum! Brands Corporation operates Taco Bell, Pizza Hut, and KFC and is a house-of-brands company. A total of twenty four corporate branding companies and twelve house-ofbrands companies were identified. To manipulate the level of brand equity, a pre-test was conducted to select the restaurants used in the survey. Two groups of restaurants were created based on branding strategy. The corporate branding group included twenty-four restaurants and the house-of-brands group included twelve restaurants. A list of both groups was presented and respondents were asked to indicate the top and bottom three restaurants in terms of brand awareness for each group. To test whether brand awareness correctly indicated the level of brand equity, additional brand equity constructs (brand loyalty, brand awareness, brand image, brand trust, and perceived quality) were measured in the main portion of the survey to ensure the reliability of the measurement. As a result of pilot testing, the top five ranked restaurants and bottom five ranked restaurants were selected as the high and low brand equity brands for each branding strategy group. Thus, a total of four groups with a combination of brand equity (High/Low) and branding strategy (Corporate/House) were created for the survey. Each group contains five restaurant brands: (1) High brand equity/Houseof-brand: Pizza Hut, Olive garden, Red Lobster, KFC, and Chili’s;

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(2) High brand equity/Corporate: McDonald’s, Burger King, Buffalo Wild Wings, Cheesecake Factory, and Outback steakhouse; (3) Low brand equity/House-of-brand: Carl’s Jr, Macaroni Grill, Hardees, Longhorn steakhouse, and Long John Silver’s; and (4) Low brand equity/Corporate: J. Alexander’s restaurants, BJ’s Restaurant & Brewery, BRAVO! Cucina Italiana, Morton’s Restaurant, and Red Robin Gourmet Burgers. For manipulation checks, three variables were measured first: perceived brand equity, familiarity with parent company brand, and risk perception. Respondents were asked to rate the level of brand equity toward the selected restaurant using four items in order to assure the level of “brand equity.” The four items used to measure brand equity were adopted from Yoo and Donthu (2001) and included (1) It makes sense to visit restaurant X instead of another brand, even if they are the same; (2) Even if another brand has the same products as restaurant X, I would prefer to visit X; (3) Even if there is another brand as good as restaurant X, I would prefer to visit restaurant X; and (4) If another brand is not different from restaurant X in any way, it still seems smarter to visit restaurant X. Due to the complex and broad nature of brand equity, which may incorporate several brand-related constructs such as loyalty, image, and quality, respondents were asked to rate their brand loyalty, brand awareness, brand image, brand trust, and perceived quality for an additional check to ensure the reliability of Yoo and Donthu’s (2001) four item measurement. To assure the manipulation of “branding strategy,” three items were used to measure familiarity with the parent company brand following the guidelines of Berens et al. (2005). Three items were adopted from Kent and Allen (1994): (1) I am familiar with parent company Y, (2) I am knowledgeable about parent company Y, and (3) I have experience with parent company Y. Lastly, risk perception was measured in order to assure the manipulation of the “presence of crisis” using three items adopted from Schroeder et al. (2007): (1) When eating at restaurant X, I am exposed to (Not much risk/Much risk); (2) I think eating at restaurant X is (Not very risky/Very risky); and (3) For me, eating at restaurant X is (Not very risky/Very risky). The questionnaire consisted of three parts: the first part measured brand equity, the second part examined a crisis scenario, and the third part included demographic information. In the first part of the questionnaire, brand equity level was manipulated by asking respondents to select the restaurant that first comes to mind (high brand equity) or the last one they think of (low brand equity) in the first section of questionnaire. Half of the respondents received the high brand equity scenario and the other half were provided with the low brand equity scenario. The next scenario regards an outbreak of E. coli associated with the selected restaurant and information regarding the parent company is provided. The scenario-based survey is a popular method that has been widely used by previous studies examining consumer responses to failure situations (Hess et al., 2003; Mattila, 2004; McCollough et al., 2000). The use of a scenario-based survey enables researchers to decrease biases from respondents’ memory lapses and minimize the tendency to rationalize their answers (Smith et al., 1999). This study also performed a realism and manipulation check to ensure the reliability of the scenarios. To manipulate the presence of a crisis, the criteria for a crisis were adopted from the study by Pennings et al. (2002): (1) no crisis or (2) presence of crisis. For example, the crisis scenario states: “Suppose that the restaurant is associated with E. coli. Currently, fifty people are sick and five people died from eating food at the restaurant. Science has shown with absolute certainty that the chances of getting ill from E. coli are 1 in 10,000 per year.” (Appendix). The crisis scenario used in this study reflects crisis history in the U.S. such as Jack in the Box and Tylenol crisis resulting in several illnesses or deaths. Such crisis scenarios have been widely used by previous

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Table 1 Manipulation check. Independent variable

Measurement construct

Group

N

Mean

SD

Difference

Brand equity

Overall brand equity

High brand equity Low brand equity High brand equity Low brand equity High brand equity Low brand equity High brand equity Low brand equity High brand equity Low brand equity High brand equity Low brand equity

189 140 189 140 189 140 189 140 189 140 189 140

4.51 3.30 4.01 2.74 5.59 2.94 5.32 3.21 5.04 3.39 4.98 3.53

1.33 1.66 1.63 1.80 0.96 1.87 1.09 1.73 .23 1.68 1.43 1.71

1.21

7.332***

1.27

6.662***

2.65

16.700***

2.11

13.479***

1.65

10.264***

1.45

8.368***

Brand Loyalty Brand Awareness Brand Image Brand Trust Perceived Quality

t-Statistics

Branding strategy

Parent brand familiarity

High (Corporate branding) Low (House-of-brands)

151 178

3.22 2.64

1.86 1.88

0.58

2.799**

Presence of Crisis

Perceived risk

No crisis Presence of crisis

175 154

– 4.42

– 1.51

0.42 (difference from 4.0)

2.048*

* ** ***

p < 0.05. p < 0.01. p < 0.001.

research to investigate the impact of product harm crises on firms and consumers (Siomkos, 1999; Dawar, 1998; Dawar and Pillutla, 2000). After reading the given scenario, the respondent’s level of perceived risk and behavioral intentions toward visiting the restaurant were measured after reading the given scenarios. To measure visit intentions, three items were derived from Zeithaml et al. (1996): (1) I would like to dine at this restaurant brand, (2) I consider this restaurant brand my first choice compared to other restaurant brands, and (3) I have a strong intention to visit this restaurant brand. Lastly, respondents were asked to complete demographic variables including age, gender, income, education, ethnicity, and marital status. 4. Results and discussion In this study, consumer responses to crises were expected to differ depending on brand equity, branding strategy, and presence of crisis. First, manipulation checks were performed for three constructs: brand equity, branding strategy, and presence of crisis. As shown in Table 1, the mean value of the three items measuring perceived brand equity was significantly higher for the high brand equity group (e.g., Pizza Hut, Olive garden, McDonald’s) than for low brand equity group (e.g., Carl’s Jr, Macaroni Grill, BJ’s Restaurant & Brewery) (mean for high = 4.51, mean for low = 3.30, t = 7.332, p < 0.001). Additionally, five other brand equity constructs were measured to test the reliability of the four-item brand equity measurement by running ANOVA with brand equity as an independent variable and the other brand equity constructs as dependent variables. As Table 3 shows, high and low brand equity were well-measured in terms of brand loyalty (t = 6.662, p < 0.01), brand awareness (t = 16.700, p < 0.01), brand image (t = 13.479, p < 0.01), brand trust (t = 10.264, p < 0.01), and perceived quality (t = 8.368, p < 0.01), supporting the appropriateness of the brand equity measurement used in this study. Parent brand familiarity was also significantly higher for restaurants using the corporate branding strategy than for restaurants using the house-of-brands strategy (mean for Corporate = 3.22, mean for House = 2.64, t = 2.799, p < 0.01). To check the manipulation of crisis, only respondents who received crisis scenarios were asked to rate their level of risk perception. The mean was 4.42. The significance of risk perception was supported by a one-sample t-test, which indicated that 4.42 is significantly higher than the

neutral point, 4.0, on a 7-point scale (t = 2.048, p < 0.05). The result ensured the manipulation of risk perception infused by reading the crisis scenario. Thus, all three variables were found to be wellmanipulated. A full factorial model was run with analysis of variance (ANOVA) to investigate the joint effects of brand equity, branding strategy, and presence of crisis on consumers’ visit intentions. Before testing the hypothesized interaction effects, we first examined the main effect of brand equity (low/high), branding strategy (corporate branding/house-of-brands), and presence of crisis (yes/no) on customers’ intentions to visit the restaurant. Results revealed brand equity and the presence of crisis had a significant effect and branding strategy had an insignificant effect. Customers with higher (lower) brand equity showed higher (lower) intentions to visit the restaurant, and the presence of crisis significantly reduced customers’ intentions to visit (mean for High = 4.57, mean for Low = 2.53, F = 153.265, p < 0.001). This supports the “buffering” perspective. The effect of branding strategy was found to be statistically insignificant, however, although using the corporate branding strategy generated higher intentions to visit overall (mean for Corporate = 3.84, mean for House = 3.59, F = 1.077, p < 0.05). Respondents who received a crisis scenario indicated significantly lower intentions to visit compared to non-crisis scenario respondents (mean for Crisis = 4.02, mean for No crisis = 3.34, F = 14.936, p < 0.001). Table 2 presents the significant interaction effects between brand equity and crisis, implying that customers with higher brand equity are more likely to reduce their intentions to visit a restaurant in response to a food crisis compared to customers with lower brand equity (changes in mean of high: from 5.08 to 4.01, changes in mean of low: from 2.61 to 2.43, F = 6.261, p < 0.05) (Fig. 2). The result supported the “amplifying” perspective, revealing the negative role of brand equity in crisis situations, which is consistent with the hypotheses. Even though overall dining intentions were higher for customers with high brand equity, which is the main effect of brand equity, the interaction with crisis suggests that strong brand equity caused more negative responses (higher reductions in intentions to visit the restaurant) toward the crisis. As Fig. 2 shows, while the rate of reduction in dining intentions of high brand equity customers was 21% (pre-crisis: 5.08, post-crisis: 4.01), low brand equity customers showed a 6% reduction rate (pre-crisis: 2.61, postcrisis: 2.43). In addition, the interaction between branding strategy and crisis was found to be insignificant, indicating that consumers’

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Table 2 ANOVA results. Source

Type III sum of squares

df

Mean square

F

Significant

Corrected model Intercept Brand Equity (Low/High) Branding Strategy (Corporate/House) Presence of Crisis (No/Yes) Brand Equity × Branding Strategy Brand Equity × Presence of Crisis Branding Strategy × Presence of Crisis Brand Equity × Branding Strategy × Presence of Crisis

405.983a 3985.920 327.182 2.300 31.885 0.991 13.365 0.067 9.524

7 1 1 1 1 1 1 1 1

57.998 3985.920 327.182 2.300 31.885 0.991 13.365 0.067 9.524

27.168 1867.162 153.265 1.077 14.936 0.464 6.261 0.031 4.461

0.000 0.000 0.000*** 0.300 0.000*** 0.496 0.013* 0.860 0.035*

a * ** ***

R2 = 0.372 (adjusted R2 = 0.358). p < 0.05. p < 0.01. p < 0.001.

responses to crises do not differ depending on the type of branding strategy (changes in mean of Corporate: from 4.13 to 3.50, changes in mean of House: from 3.93 to 3.21, F = 0.031, p < 0.05) (Fig. 2). Finally, the three-way interaction between brand equity, branding strategy, and the presence of a crisis was found to be significant (F = 4.461, p < 0.05), providing evidence of the moderating role of brand equity in the effectiveness of a branding strategy under crises. Fig. 3 displays that consumers’ visit intentions vary depending on whether there is a crisis situation (No crisis versus Crisis). Under no crisis, brand equity influences visit intentions (High brand equity customers showed significantly higher visit intentions than those of Low brand equity customers), supporting the “buffering” perspective, and the branding strategy does not influence dining intentions. In contrast, under a crisis situation both brand equity and branding strategy influence dining intentions. The corporate branding strategy was effective for high brand equity customers, but not effective for low brand equity customers. Fig. 4 portrays the effectiveness of corporate branding strategy by minimizing reductions in visit intentions even during a crisis. For the corporate branding strategy, both low and high brand equity customers showed similar reductions in visit intentions in response to a crisis outbreak (Low brand equity changed from 2.82 to 2.28 and High brand equity changed from 5.03 to 4.36). In contrast, for the house-of-brands strategy, high brand equity customers showed a significantly larger reduction in visit intentions compared to low brand equity customers under a crisis situation (Low brand equity changed from 2.54 to 2.45 and High brand equity changed from 5.12 to 3.70). To better explain the three-way interactions, we split the whole data into two groups depending on the type of branding strategy, corporte branding strategy (n = 151) and house-of-brands

strategy (n = 178), and ANOVA was run separately by brand equity and the presence of crisis. Results demonstrated that a significant interaction between brand equity and the presence of crisis was found only when a restaurant used the house-of-brands strategy (F = 12.284, p < 0.01) (Tables 3 and 4). For a restaurant using the corporate branding strategy, the loss in dining intentions did not differ depending on the level of brand equity. When comparing the reduction rate of dining intentions under crisis situations, high brand equity customers reduced their intentions less when the corporate branding strategy was used compared to the house-of-brands strategy, revealing the effectiveness of the corporate branding strategy only for high brand equity customers. The result indicates that branding strategy by itself does not influence consumers’ visit intentions, but the significant three-way interaction reveals that using the corporate branding strategy had positive effects on high brand equity customers and negative effects on low brand equity customers compared to the effects of utilizing the house-of-brands strategy. The results supported the role of branding strategy by demonstrating the “buffering” perspective for high brand equity customers and the “amplifying” perspective for low brand equity customers. In a crisis situation, the corporate branding strategy was found to be effective in cases where building high brand equity was successful. In contrast, it is not effective if building brand equity failed or the brand is still in the beginning stages of brand life cycle. Although the interaction effect between brand equity and crisis revealed the “amplifying” perspective, the three-way interaction including branding strategy effect provides a deeper understanding by examining the impact of branding strategy on consumers’ visit intentions under crisis situations.

Branding Strategy X Crisis 6

5.5

5.5

5

Visit Intention

Visit Intention

Brand Equity X Crisis 6

4.5 4 3.5

5 4.5 4 3.5

3

3

2.5

2.5 2

2 No Crisis Low Brand Equity

Crisis High Brand Equity

No Crisis Corporate branding

Crisis House-of-brands

Fig. 2. Interaction effects between brand equity and crisis, and branding strategy and crisis

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Crisis 6

5.5

5.5

5

5

Visit Intention

Visit Intention

No Crisis 6

4.5 4 3.5

4.5 4 3.5

3

3

2.5

2.5 2

2

Low Brand Equity Corporate branding

Low Brand Equity

High Brand Equity House-of-brands

Corporate branding

High Brand Equity House-of-brands

Fig. 3. Interactions among brand equity, branding strategy, and the presence of crisis on visit intentions (No crisis versus Crisis)

House-of-brands Strategy 6

5.5

5.5

5

5

Visit Intention

Visit Intention

Corporate Branding Strategy 6

4.5 4 3.5

4.5 4 3.5

3

3

2.5

2.5 2

2

Low Brand Equity No Crisis

Low Brand Equity

High Brand Equity Crisis

No Crisis

High Brand Equity Crisis

Fig. 4. Interactions among brand equity, branding strategy, and the presence of crisis on visit intentions (Corporate branding versus House-of-brands)

Table 3 Results for corporate branding strategy. Source

Type III sum of squares

df

Mean square

F

Significant

Corrected model Intercept Brand Equity (Low/High) Presence of Crisis (No/Yes) Brand Equity × Presence of Crisis

183.537a 1915.478 166.901 13.304 0.149

3 1 1 1 1

61.179 1915.478 166.901 13.304 0.149

27.163 850.458 74.103 5.907 0.066

0.000 0.000 0.000** 0.016* 0.798

Source

Type III sum of squares

df

Mean square

F

Significant

Corrected model Intercept Brand Equity (Low/High) Presence of Crisis (No/Yes) Brand Equity × Presence of Crisis

217.278a 2088.492 160.709 19.183 25.003

3 1 1 1 1

72.426 2088.492 160.709 19.183 25.003

35.582 1026.062 78.955 9.425 12.284

0.000 0.000 0.000*** 0.002** 0.001**

a

R2 = 0.357 (adjusted R2 = 0.344). p < 0.05. ** p < 0.01. *** p < 0.001. *

Table 4 Results for house-of-brands strategy.

a * ** ***

R2 = 0.380 (adjusted R2 = 0.370). p < 0.05. p < 0.01. p < 0.001.

S. Seo, S. Jang / International Journal of Hospitality Management 34 (2013) 192–201

5. Discussion, implications, and limitations This study examined the role of brand equity and branding strategy in a food crisis context. Although high brand equity customers showed higher intentions to visit the restaurant under normal conditions, crisis situations were found to drive high brand equity customers to reduce their intention to visit the restaurant more sharply. The result supports the “amplifying” perspective, which contradicts the traditionally held “buffering” perspective, by providing evidence of the negative impact of brand equity during a crisis. While in general high brand equity customers showed higher intentions to visit than low brand equity customers, the presence of a crisis was found to activate the “love becomes hate” effect. 5.1. Discussion In contrast to assertions that strong relationship quality functions as a safety buffer to service failures and recovery efforts (Grégoire and Fisher, 2006; Ha and Jang, 2009; Hess et al., 2003; Mattila, 2001), this study found that high brand equity customers showed a more dramatic decrease in their intentions to visit than low brand equity customers in a crisis situation. The findings indicate that customers with high brand equity showed more negative responses toward a food crisis than customers with low brand equity. Although the dining intentions of high brand equity customers were still higher than those of low brand equity customers, the significant loss in dining intentions of loyal customers is important from a managerial perspective considering that a majority of profits come from high brand equity customers rather than low brand equity customers. Acknowledging that brand equity is believed to be a long-standing intangible asset of a firm that is not easily changeable, revealing the vulnerability of high brand equity under crises urges restaurant managers to pay closer attention to high brand equity customers in crisis situations. In contrast to the views of previous branding strategy research (Murphy, 1989; Laforet and Saunders, 1994; Rao et al., 2004), we found that branding strategy itself was not a significant driver of consumer responses to a crisis. Rao et al. (2004) asserted that the corporate branding strategy is more efficient for building brand equity and results in higher financial performance. However, in this study the proficiency of the corporate branding strategy was insignificant both by itself (no main effect) and in interaction with the presence of a crisis (no interaction effect). The result may imply the effectiveness of branding strategy depending on brand life cycle. Although the corporate branding strategy is effective for building brand equity quicker than the house-of-brands strategy at the beginning stages of a product, consumer responses to a mature brand do not vary depending on the branding strategy. Thus, the advantage of using the corporate branding strategy may be diluted once a brand successfully builds strong brand equity. Another insight of this study is the trend toward mergers and acquisitions in house-of-brands companies. It is common for house-of-brands companies to acquire existing mature brands that already possess strong brand equity, which eliminates the disadvantages of using the house-of-brands strategy compared to the corporate branding strategy. Due to such practices by firms using the house-of-brands strategy, it is hard to conclude that the corporate branding strategy is always superior to the house-of-brands strategy to build strong brand equity. Interestingly, further analysis on the interactive effect of branding strategy with brand equity and the presence of a crisis indicate that corporate branding strategy was effective only for high brand equity customers in comparison to low brand equity customers under crises. In responding to a food crisis, high brand equity customers were less likely to reduce their visit intentions towards a restaurant using the corporate branding strategy, while low brand

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equity customers were more likely to reduce their visit intentions towards a restaurant using the corporate branding strategy compared to those using the house-of-brands strategy. The finding adds new knowledge to the existing view on the role of branding strategy (Murphy, 1989; Laforet and Saunders, 1994; Rao et al., 2004) by revealing that the effectiveness of branding strategy varied depending on the level of brand equity. Based on the results of the study, practitioners will be able to predict the different effect of branding strategy on high and low brand equity customers. 5.2. Academic contributions The main academic contribution of this study is to reveal the hidden side of brand equity under crises in contrast to the majority of previous research. This new approach provides a unique view of the negative role of brand equity and broadens the existing brand equity research. The negative effect of brand equity under crises can be explained by the activation of “perceived betrayal”. Previous studies suggested that perceived betrayal is a key motivational factor driving customer retaliation behaviors (Grégoire and Fisher, 2008) and reduced behavioral intentions (Mattila, 2004). Due to feelings of betrayal by a trusted restaurant, high brand equity customers were more likely to reduce their visit intentions than low brand equity customers. By finding that crisis situations reveal the negative side of brand equity, this study provides evidence of the “love becomes hate effect” and explains changes in consumers’ visit intentions in response to a food crisis. Another unique academic contribution is that findings of this study supported both the buffering perspective (the traditional view of the positive role of brand equity) and the amplifying perspective (the “love becomes hate effect” explaining the negative role of brand equity). This study reveals that a crisis situation is a driver activating the “love becomes hate effect” among high brand equity customers. Grégoire and Fisher (2008) found that relationship quality has unfavorable effects when fairness norms are violated in a service recovery situation. Although the authors provided an interesting view by examining online customer complaint behaviors toward unsuccessful recovery practices, they only captured the views of customers who expressed their dissatisfaction by complaining online. Since few customers actually complain about their experiences, it is critical to examine general customers including complaining and non-complaining customers. In this sense, this study enriches the view of the previous literature by examining crisis situations, which activate the unfavorable effects of strong brand equity. 5.3. Practical implications The current study also provides empirical implications to practitioners by revealing the conjoint effect of branding strategy and brand equity under crises. This study offers evidence that will enable marketing practitioners to develop enhanced postcrisis strategies based on a better understanding of consumers’ responses to food crises. In dealing with a food crisis situation, restaurant managers should focus on their loyal customers because they may not remain as loyal under crisis situations. Proactive response actions, such as providing information in an honest and timely manner and recalling problematic products, are essential to assure the safety of foods served at restaurants (Coombs, 2004). Sophisticated communication strategies targeting loyal customers would increase the effectiveness of post-crisis strategies. For example, apologizing through online community websites loyal customers use, providing information through personal emails, and conducting promotion strategies targeting loyal customers may help restaurant managers recover from a crisis by rebuilding relationship quality with loyal customers. Regarding the unfavorable

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behavioral patterns of high brand equity customers under crisis situations, restaurant managers should not assume that loyal customers will remain loyal no matter what happens to the restaurant. Designing proactive and effective post-crisis strategies is crucial even before the outbreak of a crisis. Findings on the role of branding strategy under crises offer guidelines in selecting an appropriate branding strategy. As found earlier in the current study, the effectiveness of a branding strategy differs depending on the level of brand equity. Although previous research asserted the advantages of the corporate branding strategy under all circumstances, using the corporate branding strategy may not be effective with low brand equity customers under crises. Thus, practitioners may consider the life cycle of the brand as well as the number of loyal customers when determining the type of branding strategy. This principle may be applied to brand extension practices as well. When deciding whether to use a parent name for a new product, managers may consider the conjoint effect of branding strategy and brand equity in responding to a crisis. 5.4. Limitations and recommendations for future studies This study is not free from limitations. This study used crisis scenarios to manipulate the crisis situation, which might not be entirely realistic. Measuring customer responses before and after the actual crisis outbreak might be an ideal way to test the impact of a crisis, although the method would not be easy to conduct. In addition, although this study used a scenario-based survey, there are many other ways to measure customer responses to crises, such as accounting measures or stock price movements. Future studies can examine consumer responses with other financial measures. Lastly, because the scope of the study is limited to the case of food crisis, future studies can explore more in relation to other types of crises such as natural crises or product harm crises. Appendix A. Example of food crisis scenario

Suppose that the restaurant Hardees was involved in an outbreak of E. coli. Currently, fifty people have become sick and five people have died after eating food at the restaurant. Science has shown with absolute certainty that the chances of getting sick from E. coli are 1 in 10,000 per year.

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