More and more, luxury brands are using their successful names to beat up competition and earn market share by launching new products categories from outside their established market. However, how does a brand know if stretching its business is a smart or a wrong step?
Over the last 20 years, the Luxury Industry has rapidly increased achieving the title of one of the most profitable businesses in the world. In the past, luxury goods were a very selected market of a few exclusive brands and addressed only to a very few privileged individuals. However, this concept has changed quite a bit due to the new luxury market demand as well as different customer desires and needs.
Since there is a massive competition between luxury brands, many luxury companies are struggling not only to keep their existing loyal customers but also to gain new ones. For this reason, a successful brand image has become a very important asset for luxury brands to gain competitiveness advantage. Moreover, many luxury brands use their consistent brand image to step outside their market niche and expand their product categories to include to its portfolio a new range of products and prices and therefore, increasing their sales and market coverage.
Do not be confused about the words extension and stretching. Even though they appear to be quite the same, they mean two different marketing strategies. Before going through the risks and advantages of stretching a luxury brand portfolio, lets clarify this confusing issue between both strategies. The difference between brand stretching and brand line extension is not that hard to understand. Firstly, brand stretching strategy is when a brand aims to use its successful brand image for different products or services beyond its core business to enter an unrelated markets or a new product category. As an example, Giorgio Armani stretched his business out from Ready-to-wear to also sell Accessories, Jewelry & Watches, Cosmetics & Fragrances, Sunglasses, Furniture, Restaurants, Nightclubs, Hotel & Resorts and even chocolates. On the other hand, brand line extension strategy, or easier called just line extension, is when a brand also aims to leverage on its successful brand image to enlarge its products range by adding new varieties or variations of the same branded product to increase market coverage. This time the brand doesn’t go outside its main business but targets a new product strategy within the same market category. Let’s use Giorgio Armani again as an example, throughout the years Giorgio Armani S.p.A. has developed many different lines under his main brand, targeting different customers by adding different products with different prices and styles. Giorgio Armani line extensions are: Armani Jeans, Armani Exchange, Emporio Armani, Armani Collezione and Armani Privé and as you can see, all of them are related to their parent brand’s business.
So, from the commercial point of view, the reason why companies stretch their products categories or create new product line extensions is a very simple equation: Existing successful brand + New product category/line = Sales increased. Bingo?!
Well, It is very difficult to know whether or not a brand stretching or a line extension will be a successful strategy or a way to erode the brand’s exclusive image. Expanding a brand seems a magic formula to increase profits and gain a bigger market share slice. In fact, it is a very challenging task for luxury brand managers mainly because this new product must be consistent with what the parent brand stands for and also because of the established image associations the parent brand has in consumers mind. Although, brand extensions look very lucrative, if not well studied it can also be a very risky strategy and a bottleneck for some luxury brands. Stretching a brand too far can be very dangerous, the inconsistency and disconnection between the parent brand and the new product confuse customers and create a negative impression or a new association to the parent brand thus, diluting the parent brand name.
Throughout the years, many leading luxury brands have stretched their portfolio from its originally business to meet with the market needs. There was a time when Dior only created Haute Couture collection, Louis Vuitton only sold luggage, Hermès only made saddles, Fendi only sold fur and Burberry only designed trench coats. Fortunately, many luxury brands were extremely successful at expanding into another category and the reason why is that they could retain their luxury claim.
But there is a risk in overdoing brand stretching and the best example of it is Pierre Cardin. In 1960, the brand’s early extensions into perfumes and cosmetics were so successful that the company started to grant licenses indiscriminately. By 1988, the brand had already granted more than 800 different licenses in 94 countries, generating 1 billion dollar annual revenue. After that, Pierre Cardin was stretched into so many unsuitable categories that it lost its core customer and its luxury status. Once the brand started to appear on nonsense unrelated products such as cigarettes, baseball caps and wine; soon enough it was its dead end.
Another example of a brand collapse was with Diane von Furstenberg.
In 1972, Von Furstenberg created the multifunctional wrap dress and by 1976, she had already sold more than 5 million of her designs, becoming an iconic fashion legend of her generation. Due to her incredible success, Von Furstenberg started expanding her brand into beauty and fragrances such as Pierre Cardin did. After that, she also started granting different licenses ranging from luggage to eyewear, jeans and books. The strategy worked for a while generating high margins but after a few years, the brand lost momentum. Von Furstenberg’s problem was the confusing created in customers mind that couldn’t make any connection with the high-end dresses with products such as books and luggage. The brand didn’t close down its doors but Von Furstenberg has to sell her design and cosmetics houses to pay off debts.
As Diane von Furstenberg, Gucci also lost its way at some point by granting several licensing agreements and its logo appeared on many non-luxury goods. It took both brands a while but fortunately, they were able to rebuild their brand image after its pitfalls.
All in all, brand stretching should always be well evaluated. Brand managers should carefully study potential extensions and judge how well the new categories will fit the parent brand image; otherwise it could be a double-edged sword for successful and well-established brands.