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By rasa Stankeviciute and Jonas Hoffmann

Look to the sector to understand how brand

extensions affect parent brands THE SLIPPERY SLOPE OF EXPANSION

SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF SLOPE OF EXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONEXPANSIONbrand

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By rasa Stankeviciute and Jonas Hoffmann

Brand extensions were fi rst initiated by luxury brands when high fashion companies extended their businesses into perfume and accessories. Since then,

brand extensions have become a frequent path and natural strategy for luxury companies willing to grow by exploiting assets, according to David A. Aaker in Managing Brand Equity (The Free Press, 1991). Brand extensions are an interesting brand strategy option indeed, as they may attract new segments of customers who, for various reasons, have not considered the brand before. For example, Rolls-Royce extended downward by introducing the Ghost model. One-time luxury women’s shoe brand Jimmy Choo now offers a men’s shoe line, as well as the brand’s fi rst perfume. And the Armani brand’s offerings now include kitchen systems (Armani/Dada) and bathroom concepts (Armani/Roca).

Today’s customers often not only wear the beloved fashion brand’s clothes themselves, but also dress their children in the same brand, have their home furnished in the brand’s creations, dine in the brand’s restaurant or café and even stay in the brand’s hotel. Not to mention how many dif-ferent collaborations among various brands exist

today (usually making the luxury brands expand downward or into different sectors of expertise). As Jean-Noel Kapferer and Vincent Bastien pointed out in their book, The Luxury Strategy: Break the Rules of Marketing to Build Strong Brands (Kogan Page Ltd., 2009), brand extensions allow luxury brands to grow more quickly without being limited to organic internal growth. Nevertheless, though brand extensions may work quite well for consumer (value) brands, they might have quite the opposite effect on luxury brands. After a care-ful study of the luxury sector, we provide insights to answer the following questions: • How do collaborations with non-luxury brands affect luxury brands? • How do downward brand extensions affect luxury brands? • How does diversifi cation affect luxury brands?

By presenting insights derived from the cases of renowned luxury brands in this article, we aim to help brand managers not only avoid brand extension errors, but also to take the right steps when extending the luxury brand. (See Figure 1.) The key element for luxury brands is to avoid tak-ing actions that may harm the equity of a brand with a well-established name for luxury.

Look to the sector to understand how brand

extensions affect parent brands

brand

sector to understand how brand

luxury

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hOW NON-LuxuRy AffECtS LuxuRy Luxury and non-luxury brands often collaborate to intro-duce a new product to the market. Think of Jimmy Choo, a British luxury accessories brand, and Hunter, the British producer of iconic non-luxury Wellington boots, which normally cost around $125 a pair. In 2009, they collabo-rated to produce some of the most luxurious Wellington boots on the market.

Collaborations between luxury and non-luxury brands are risky for the luxury partner. They can attract nega-tive attention, disappoint existing customers, damage the luxury brand’s image and lower the Luxury Brand Status Index, thus diluting the luxury brand if that brand’s cus-tomers perceive the collaboration’s results as inappropri-ate for the brand. When the product of such collaboration is finally introduced to the market, the resulting product’s luxury status depends on whether or not the product has kept the luxury facets, such as outstanding quality, unique-ness, scarcity, exclusive distribution, carefully selected points of sale, high price, history and heritage.

In the case of the collaboration between Jimmy Choo and Hunter, the resulting product kept the luxury facets and the luxury collaborator’s values and qualities. For example:

• the signature creativity of Jimmy Choo with the croc-odile print, leopard print lining and gold buckle hardware;

• exclusive distribution with the boots being sold in Jimmy Choo points of sale only;

• high price point for Wellington boots: $395for the initial model;

• limited availability, with customers obliged to sub-scribe to a waiting list; and

• history and quality, as Hunter boots’ outstanding per-formance, durability and comfort have become legendary with followers ranging from rock stars to the British royal family, according to the company.

The collaboration was a success. In two weeks, more

than 4,000 fashion-conscious women had already joined the waiting list for the boots, reported Million Looks, a celebrity/fashion website. When the boots reached the shelves of Jimmy Choo points of sale in June 2009, they were sold out immediately. Additionally, the luxurious Wellington boots may have become a classic item, as they can now be purchased regardless of season, not only in the original black color, but in other colors and different styles. As Hunter’s chairman Peter Mullen said, the reason for success might be the fact that “both brands have a strong visual identity which works well combined—the resulting boot has a unique DNA of luxurious practical-ity,” according to Footwear Today.

As this example shows, collaboration between luxury and non-luxury brands not only does not harm the luxury brand, it enhances its image and brand awareness on con-dition that the extension keeps the luxury facets and the non-luxury collaborator has a good reputation.

thE dOWNWARd BRANd ExtENSiON EffECt Downward luxury brand extensions help attract new seg-ments of customers who, for a variety of reasons, did not consider the brand before. Such extensions can also help the brands keep existing customers who are seeking some-thing not requiring a special occasion (e.g., Rolls-Royce Ghost instead of Phantom, everyday wear instead of eve-ning apparel from fashion designers). Therefore, luxury downward brand extensions are an important and neces-sary part of luxury brand strategy. And though downward brand extensions may be risky for the luxury brand, they are often needed.

A luxury brand with no downward brand extensions runs the risk of being diluted. For example, according to the Daily Front Row, Christian Lacroix’s 2009 bankruptcy filing was clearly related to not having downward brand extensions—as the fashion house’s reputation led the company to focus directly on the luxury market, thus dis-

Figure 1: Brand ExtEnsion CasEs of rEnownEd Luxury Brands

{BRAND ExTENSION

CHOICE OF NON-LUxURY PARTNER

DOwNwARD BRAND ExTENSION

DIvERSIFICATION

JIMMY CHOO

ROLLS-ROYCE

ARMANI

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missing customers who were looking increasingly toward bridge collections.

As mentioned, downward luxury brand extensions are often directed at new segments of customers (e.g., those who cannot afford the more expensive product). Nev-ertheless, the luxury brand has to offer a product that retains luxury facets (outstanding quality, uniqueness, scarcity, exclusive distribution, carefully selected points of sale, high price, history and heritage) and matches the parent luxury brand’s qualities and values if it is to avoid diluting the luxury brand.

When Rolls-Royce extended downward by introducing the Ghost model, the main concern was whether the new model might dilute the brand image by being too differ-ent from its predecessor. According to company spokes-persons, the Ghost is the most technologically advanced Rolls-Royce ever built. And, like the Phantom, it is hand-built at the factory in Goodwood, Sussex, England, and shares paint, wood and leather workshops with the Phan-tom series. Additionally, the price of the Ghost, though lower than the Phantom’s, is too high for the model to become overly accessible, which is what happened to the Mercedes-Benz A-Class, because of its affordable price. When the Ghost was introduced, customer deliveries of the base model were available for $290,000, compared to the $469,000 price tag for the base model of the Phantom.

Downward brand extensions usually help companies reach a wider audience of potential customers, so the Ghost was probably meant to reach customers who prefer seductive simplicity to the “sense of scale and occasion” offered by the Phantom model. Evidently, this brand ex-tension brought an impressive number of new customers to the brand, as around 80 percent (1,739 out of 2,174) of Ghost customers had never previously owned a Rolls-Royce. That means the Ghost did provide name recogni-tion and associations to new segments—the advantage of line extensions considered by Aaker.

Additionally, the Ghost will probably never cannibal-ize the sales of the Phantom, which is what can happen if consumers decide to switch from existing brand offerings to the brand extension. Although sales of the Phantom and Phantom Coupé cars did drop by 7 percent and 59 percent, respectively, in 2010, the Ghost could hardly have cannibalized the sales of its predecessors, as only 20 percent of the Ghost customers were not new to the brand. Instead, the contrary may happen: After experi-encing the qualities of the Rolls-Royce Ghost, which clearly correspond to the qualities and values of the par-ent brand, new customers may later switch to the luxury brand’s more expensive offerings. Obviously, in this case,

downward brand extension would have enhanced the parent luxury brand.

Conversely, if downward brand extension does not keep the luxury facets and the qualities and values of the parent luxury brand, it can do enormous damage to the parent brand image, as happened to Mercedes-Benz with its A-Class. This downward brand extension entered the market in 1997 for around $27,000, but its entrance was not successful because failures during the safety test harmed the Mercedes-Benz image. After the security problems had been solved, the cheap A-Class became a huge commercial success—thereby weakening Mercedes’ status as a luxury brand.

From the examples of Rolls-Royce and Mercedes-Benz, we see that downward brand extension enhances the par-ent luxury brand if the extension keeps the luxury facets and both the qualities and values of the parent luxury brand.

LuxuRy ANd divERSifiCAtiON However well-constructed the metrics portfolio and how-ever Armani is a great fashion sector example of brand di-versification. (See Figure 2.) Despite wide expansion into different luxury sectors, the Armani brand’s core business is fashion. According to some, the company’s well-exe-cuted brand extension and structured architecture allow Armani to lend its brand to new businesses without dilut-ing the brand value, The Financial Times reported.

“On the other hand, critics’ speculations about Ar-mani’s overextension because of brand extensions includ-ing Armani Exchange, Armani Casa and Armani Hotels can also be noted, indicating a certain perception of possible brand dilution.” (See Sherman, L., “World’s Most Powerful Luxury Brands,” May 1, 2009, Forbes).

B R i E F Ly•Brand extensions attract new segments of

customers who, for various reasons, have not considered the brand before.

•the key element for luxury brands is to avoid taking actions that may harm the equity of a brand with a well-established name for luxury.

•for luxury brands, brand extensions are as fundamental as they are risky.

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Armani’s brand extensions indeed change the im-age of the brand, as, according to strategic consultancy Millward Brown Optimor, extensions into luxury lifestyle businesses other than fashion not only en-able the brand to grow, but also reinforce its image as a lifestyle provider. The Armani Group calls its own brands “lifestyle brands” and simply retains the unique-ness and exclusivity by representing the philosophy of the designer in every piece made, whether it is a dress or a couch. Moreover, many luxury fashion brands today seek to become luxury lifestyle brands, and see it as an advantage rather than a disadvantage for the brand and company.

No doubt, the Armani brand extensions would never have received such attention nor been so successful without the fashion labels that made the brand so rec-ognized in the first place. So if people stop caring about Armani fashion brands, will they still care about dining at Armani Ristorante or watching an Armani-designed TV? Can one dilute the core business and expect to stay on top of the luxury industry with other brand exten-sions? All the Armani brands are related to the fashion side of the brand. If the brand lets the fashion lines become diluted, all the other business ventures will most likely soon be forgotten, too. Therefore, however diver-sified the luxury brand may be, its core business has to

be constantly enhanced in order for the brand portfolio to be successful rather than diluted.

The Armani brand shows a great example of balancing between diversifying the brand with brand extensions and maintaining its core strength by enhancing the brand’s core area of expertise: fashion. The brand enhanced its image as a luxury fashion provider by introducing a haute couture brand, Giorgio Armani Privé, with each model handmade to order, for women in 2005. The launch of Giorgio Armani Hand Made to Measure service for men followed in 2007. “In these times of big fashion corpo-rations, globalization and brands run by accountants, I believe it is important to remember where fashion design started—with the desire to make beautiful clothes for people to wear,” said Armani before launching the haute couture label Armani Privé.

Debatably, Armani’s high-end fashion labels would be the first to suffer if brand dilution occurs because of over-extension, as the luxury clientele would most likely not want an haute couture dress from the designer more associated with, for example, furniture than fashion. In fact, Armani once admitted that some of his female millionaire clients had cancelled their orders for dresses from his couture line Armani Privè. However, he ex-plained, it wasn’t about not having the money. “It’s a psychological issue. Nobody is shopping,” referring to the

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Armani Privé Fragrances Armani Casa Armani Hotels

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Armani RistoranteArmani Bar

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EA Costume Jewelry

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EA Fra-grances EA Caffè EA Samsung

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Armani Jeans Armani JeansArmani BabyArmani JuniorArmani Teen

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Figure 2: armani Brand arChitECturE

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fi nancial crisis. (See Barnett, L., “The Armani Crunch,” December 12, 2008, Vogue.co.uk.)

The top-luxury Giorgio Armani brand did not perform well in 2009, showing a decrease in turnover by 17.4 percent since 2008, though it remains the biggest player of the Armani fashion brands. Indeed, when Millward Brown Optimor ranked luxury brands according to brand value, Armani fell out of the top 10 in 2009, with a brand value of $3.1 billion compared to a brand value of $5.12 billion in 2008. The brand did not get back into the top 10 in 2010. However, the cheapest Armani fashion brand Armani Exchange showed a rise in revenues in 2009, indicating that fashion consumers worldwide continued to shop, simply, at lower price points.

However diversifi ed the luxury brand may be, its core business has to be constantly enhanced for the brand portfolio to be successful. Brand managers must ensure that new products are consistent with the luxury parent brand and will be able to retain its luxury facets. For ex-ample, if Rolls-Royce introduced a fast moving consumer good (e.g. peanut butter, chewing gum), it would never be a successful brand extension—and would surely damage the brand. But if the brand ever decides to introduce, for ex-ample, a watch in collaboration with some well-known luxury watchmaker, it might actually work.

When adding brand extensions, every luxury brand, whether it is a high-end fashion brand or a luxury car manufacturer, has to constantly enhance its core business–the initial area of expertise for which the brand has once become recognized, respect-ed and desired. There are examples of the brands that applied these rules, and ones that did not. Giorgio

Armani keeps enhancing the brand’s initial area of expertise, and had upward brand extensions by intro-ducing Giorgio Armani Privé label and Giorgio Armani Hand Made to Measure service. Meanwhile, French couturier Pierre Cardin overextended the brand, and the extensions did not keep the luxury facets—leading to bad quality, wide accessibility and, fi nally, brand dilution.

Though the luxury sector is more sensitive to the risks of brand extensions than other sectors, many rules might be applicable outside the luxury sector as well. Non-luxury brands should always protect their reputation and image by enhancing their initial area of expertise (just as the luxury ones do). Take, for example, Swedish fast-fashion giant H&M. Not only does it collaborate with many luxury fashion brands, such as Lanvin, Jimmy Choo or Versace for the limited-edition collections, but it even managed to open a store-in-store in Selfridges, a luxury fashion retailer in London.

For luxury brands, brand extensions are as fundamental as they are risky. In an era where luxury brands are glo-

balizing and marketing techniques are challenging traditional luxury codes, brand extension will contin-ue to be a potential growth strategy and will likely remain at the top of the agenda for luxury companies in the years to come. MM

✒ rasa stankeViciute is a freelance

marketing consultant and MSc international

marketing and business development graduate

of SKeMA Business School in France. Jonas

hoFFMann is associate professor at SKeMA

Business School/Université Lille nord de

France. they may be reached at

rasa@fashionpopulation.com and

jonas.hoffmann@skema.edu, respectively.

ama articlesfor Savvy fashion Brands, Digital Marketing is ‘in,’ Marketing News Exclusives, 2011

hybrid Offerings: how Manufacturing Firms Combine Goods and Services Successfully, Journal of Marketing, 2011

ama podcastAuthor Series: Brand Atlas, sponsored by the AMA, 2011

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“Brand extensions allow luxury brandsto grow more quickly without beinglimited to organic internal growth.”

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