This thesis was commissioned by SATS Finland Oy. The company has extended its services from the core brand category by using the downscale vertical brand extension method in the Turku region. The objective of the thesis was to examine the customer perception of the brand extension and its fit to the core brand services. The theoretical framework part focused on brand extension and areas of customer perception. The similarities and differences in the characteristics of the two different categories were researched to gain information for the main research area. For background information, a qualitative research method was used by interviewing company key personnel. For primary data collection, a mixed research method was conducted by collecting responses to a customer survey. In total of 60 responses were collected from a sample group relevant to the research. The data was transformed into a countable form and analysed using quantitative analysis methods.

The author discovered how the customers have perceived the downscale vertical brand extension. The findings demonstrate that the customers hold a positive attitude towards the both categories and the extension is seen as a fit to the core brand services. This indicates that the customers are satisfied with the extension giving more variety, however, it has caused dilution to the core brand services, cannibalised its sales and caused the customers to re-assess the core brand. The gap in between the pricing of the two categories is seen as a major effect to the core brand since the quality is perceived as extremely high of the extended category.

To decrease the dilution of the core brand services, more focus should be put on communicating the characteristics found from the research of the extended category to customers. Attention and careful consideration has to be given into the branding decisions and what is the actual brand image that the company wants to retain. As the company wants to have a strong brand offering different types of clubs with various services, a clear detailed marketing strategy shall be planned and communicated to avoid customer confusion. The plan should include highlighting the characteristics of the extension without mixing it with the core brand services. It is recommended to re-assess the pricing of the extended category to decrease the price gap. For further research, different methods to highlight the extended category separately needs to be examined. The lost sales of the core brand and benefits gained from the extension should be calculated.