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7: Luxury Brand Stretching

A luxury brand is linked to a specific "universe" where it is regarded as legitimate (Ferrari makes cars), but when it ventures outside of that territory (Ferrari-branded computers) it loses its legitimacy.

A distinction is made between brand extension and brand stretching. If it is an extension, the luxury strategy applies to the new product line. When the jeweler Cartier decided to also sell watches, the watches were intended to be luxury items. When Ferrari decided to licensed its brand to Acer, the computers are not sold as luxury items: they merely bear a luxury brand as a decorative or stylistic element.

(EN: The conventional definitions depend on the product and the customer. Same product to same customers is penetration, same product to different customers is brand growth, different product to same customers is extension, and different product to different customers is stretching.)

Line extensions and brand extensions

Luxury expansion through line and brand extensions is a growing market, which has tripled since 1995 to around $250 billion, attributed to both the increasing number of products as well as the increasing number of outlets.

Luxury brands are extending themselves to line extension (D&G is a "casual" line of Dolce & Gabbnana clothing that is sold through department stores) or lower-priced products (The BMW 3-series or Mercedes A-class vehicles). There are also brand extension into products that are not in the core business, such as Armani perfume, spectacles, and skin care products.

Strategically, both processes have been a way to reach customers who are not in the luxury market but nonetheless desire to associate themselves to luxury brands - though they cannot afford the primary product, they can have some artifact that bears the logo, or connects them in some way to the brand.

Many luxury brands attempt to retain some distinction by showing some restraint and only stooping to premium-level products and premium-level retailers, but there really is no limit to how low they can sink. Given the growth, it is likely not long before luxury extensions are available at discount stores and mass merchandisers.

The danger, of course, is that the luxury brand will lose its luxury status. Consider that Ralph Lauren's "polo" fragrances are sold in discount stores and even grocery stores, and as it gained popularity among the working classes, the esteem of the entire brand was diminished.

An extension is a first, tentative step of a brand that is leaving luxury, acknowledging that the brand has lost its pricing power, and is gradually sinking into the premium market. A few brands will wish to return to luxury, if they are able, but significant effort is required to reverse the damage.

The origins of luxury brand stretching

Prior to mass-production, luxury flourished in a world that was regulated by skilled craftsmanship. A craftsman who produced high-quality goods and could secure for himself a few noble clients became a luxury provider, ad distribution was limited to his capability to produce goods without diminishing quality.

It wasn't until after the first World War that luxury houses began to manufacture or put their name to things they didn't know how to make by hand. The practice became even more widespread during the economic recovery from the second World War, when industrial manufacturing ramped up significantly.

On the supply side, automated manufacturing enabled firms that were in dead-ended industries to expand to more suystainable products. Louis Vuitton manufactured trunks and Hermes manufactured saddles, and both were able to move into other leather goods such as luggage and purses.

On the demand side, the growth of mass media created a broader knowledge of luxury brands, and the improvements in transportation made goods more accessible to a world market. This mean that the knowledge of and desire for luxury spread to the middle classes, whose increase in income facilitated discretionary spending, though not at the level that would enable them to afford genuine luxury, and some brands were happy to accommodate by providing merchandise in the bourgeois price ranges.

Extension and stretching is not unique to luxury goods: Marlboro produces cigarettes and extended to casual clothing, Yamaha produces both motorcycles and musical instruments, etc. In essence, knowledge of or access to a specific market segment, rather than that of a specific line of goods, provides the ability to stretch. For example, Disney's film entertainment makes the brand known to children and parents, to whom they can sell other products such as toys and apparel, in spite of the fact that the studio knows nothing of the manufacturing of such goods.

One difference to note is that a typical extension sells different products to the same consumers - stretching is not limited to the same consumers or the same products. And as such Ferrari sells cars to the luxury market and computers to the mass market, with no significant cross-over.

Luxury stretching: a practice that has changed the sector

Stretching has allowed luxury companies to grow more quickly, without being limited to growth in their luxury lines, or being restricted to growth in demand for the products of their original trade. Though many have departed from luxury, some have retained that status to their primary products.

The practice of stretching is driven by financial need. While there is a high margin on luxury items, there is a low volume, and maintaining the firm's profitability can be a difficult proposition. Extending or stretching to lower markets provides a steady stream of income to sustain the brand.

It's also worth noting that, on the supply side, the financial cost of stretching or extending the brand is far lower: it does not require the brand to have the financial strength to set up additional manufacturing operations, only to have the brand strength to make products appealing while licensing others to manufacture the items.

The licensees typically have manufacturing capabilities and competencies, but no brand recognition in the market nor the competence to build a brand. They benefit from borrowing on the cachet of a brand that others have worked to build.

Aside of finances, the benefit to the brand of stretching is that it builds mass-market awareness of the brand, by means of advertising the stretch products; it creates visibility by placing its marks in the hands of more people; and through products such as cosmetics, it brings a sense of intimacy through physical contact or proximity.

All of this feeds the envy of the primary line: a woman who purchases a perfume that carries a luxury brand develops an appreciation for the brand that may carry her into purchasing clothing or other merchandise. It may also serve to bring foot-traffic into the boutique where those who seek the perfume may see the clothing and interact with the staff and other customers.

(EN: The authors don't address the awkwardness and shame that might accompany such an experience. Being in a boutique environment would seem to be as uncomfortable as showing up underdressed for a formal dinner, and create instead a negative impression. Perhaps it's just as well people feel that they do not belong and are driven away from the brand, as this also underscores its status.)

At the same time, the association of the brand to persons who are not of the proper social class might also serve to decrease its appeal to the luxury market, hence it is a dangerous proposition.

Comparing the Italian and French models

France and Italy represent the two superpowers of luxury culture in the present world, which have followed different paths for the expansion of their brands.

French brands have not developed many price lines, maintaining the exclusivity of luxury by ensuring that the brand extensions were legitimate - effectively selling more products to the luxury market Fo example, Chanel manufactures watches in its own factory, and Hermes sells cosmetics in its own boutiques (though some lines such as fragrances and skin care are available in multi-brand retailers such as Sephora).

Italian brands have enacted many line extensions, creating many labels and derivatives. Consider that Armani has six child brands with their own price points, distribution, and markets. Manufacturing is outsourced, and the brand acts as wholesaler to retail intermediaries.

This is, of course, a generalization and we are presently witnessing a convergence. Convergence is also occurring on the consumer side, who mix and match to create a personal look that might include a luxury belt supporting discount-brand jeans.

The ability to control dissemination of a brand is undone by multi-brand retailers and especially Internet sales, where luxury items are merchandised side-by-side with discount brands. This vulgarity by association is detrimental to the luxury image.

Two models for brand stretching: vertical or horizontal?

For any business to survive, it must be able to sell a sufficient quantity of its products. As such luxury brands could only develop in densely populated areas, where there was a sufficient number of people wealthy enough to afford luxury products.

Mobility of customers, their ability to travel distances and transport personal belongings, was a boon to luxury in that it enabled wealthy people in smaller communities to obtain luxury goods (the rural gentry who take a shopping trip to the city), and eventually opened the world market (the gentry of early America would take shopping trips to Europe).

In the same sense, globalization facilitates luxury because the maker of a very specific good for which there is a small market can draw the business of the gentry of the entire world, not just the local area.

Maintaining a niche market and a narrowly defined product offering is the safest strategy for luxury producers. However, if a luxury brand is unable to find a sufficient body of customers for its products, it must stretch to offer additional products.

The first method for doing this is vertical: the product seeks greater accessibility in price and therefore creates a vertical array of product lines, generally reaching down to attract luxury day-trippers or to skim the top of the premium market. The more it does this, the more it must elevate its luxury lines.

The second method is horizontal: the brand remains within the luxury market but provides more products to increase its customer base. For example, when a luxury clothier who has specialized in men's clothing comes out with a line of women's clothing.

The horizontal method often proves the more difficult, because the brand becomes so well identified with a specific product or customer that customers do not consider it in other regards. Consider the example of Hugo Boss, who was so closely aligned with men's suits that selling casual clothing or women's suits was not financially sustainable until the brand fell from luxury to premium.

The pyramid

Vertical extension of a luxury brand often takes on a pyramid structure. The original luxury brand maintains its position at the pinnacle, with a broader number of brands offered beneath it through the various strata of the premium market.

This is common in fashion, where the haute couture brand remains at the summit, with a few prete-a-proter labels in boutique stores, a larger number of off-the-rack labels in specialty clothing stores, and an even broader array of goods (accessories and cosmetics) in department stores.

The benefit of such a model is that the sales at the lower tiers provide significant amounts of capital such that the upper tier can be maintained, even at a net loss.

The danger to the model is that the firm may shift its focus to the most profitable lines at the lower tiers and neglect the apex label until it loses its allure. The opposite is also possible, if the lines at the base of the pyramid are so low in quality that it damages the reputation of the brand.

The galaxy

Horizontal extensions of a luxury brand are described as having a "galaxy" structure. The main or original product becomes the brightest star while extension products, are arranged around it. (EN: "constellation" might be a better metaphor but I'll stick with the authors' term).

In this model, there are no lesser lines and the brand does not descend into the premium market. They are all equal, all stars, though one tends to be brighter than the others. The sub-brands are differentiated as product lines (fashion and cosmetics) or customer type (men or women), not by price.

The authors mention Ralph Lauren, who attempted to create both a galaxy and a pyramid, which resulted in an amorphous clutter of brands that the market was evidently unable to make sense of.

Success factor of luxury extension

The authors provide a number of snippets from the literature on brand extensions that seem relevant to luxury:

• The more intangible values a brand has, the easier it is to extend. Given that luxury is about a vision or concept more than the product, it is highly extendable.
• When a brand is associated to quality, its extension confers a sense of quality to other products. If it is mere competence, it cannot extend beyond its functional expertise.
• Including another product under a brand label (line extension) has greater potential to damage the brand than does creating a separate but associated label (brand extension)
• However, line extensions also have potential to damage the identity of the brand, as the market becomes puzzled as to what line of business the firm is in. Consider that to many, Chanel is a parfumier, not a provider of fashion clothing.
• Licensing a brand should be limited, possibly avoided, and when done the brand must insist upon a certain level of quality in the licensed products
• When a brand is extended, care must be taken to ensure that focus is maintained on the lifestyle or image to avoid discord
• An extension must respect the identity of the original brand, but need not be in the same product category. Ferrari licenses belts, but the connection is the unique leather used in the vehicle is also used in the belt, which is sufficient to associate them.
• A brand that has been established for a long period of time can more easily extend itself without losing its identity. Newer brands are much more fragile.
• Brands are cultural artifacts, which means that a brand is damaged by licensees who do not share the culture of the licensor. Also, culture is more than skin-deep and cannot be consistently faked.

Typology of brand stretching

For luxury items, the most significant parameter is price: many people would like to possess them, but few can afford them. To attract more customers, standard products lower their price; but to preserve their exclusivity, hence their appeal to the luxury market, luxury products must maintain a very high price. Stretching downward is highly inadvisable, and even though products may be priced at the higher levels of the premium market, it still denigrates the brand.

A second parameter for stretching is offering additional products, a significant aspect of which is the distance from the original core product. When a luxury crystal provider extends to providing silverware, it is still in a closely-related space. When a luxury vehicle manufacturer licenses its brand to clothing, it is more distant.

The number and distance of the additional products is a threat to the legitimacy of the brand. Even if the additional products are kept in the luxury price range, it creates some doubt about the brand's focus on its core product.

Wherever the brand is stretched in both directions, it can degenerate quickly. "What remains of Chanel in a Chanel t-shirt, even the most expensive one?" More importantly, what does the association of Chanel to t-shirts do to the perception of the brand in total?

The authors assert that stretching is sustainable to the extent that the stretch is within the brand's perceived competence. The risk is minimized so long as the brand remains within its habitat and maintains the integrity of the brand. That is, a luxury shoe brand can more sustainably stretch to purses and belts than it could to dresses or perfumes, and certainly more than a stretch to automobiles or wines.

Leading a brand stretch

The authors provide a four-step plan for stretching a brand:

1. Strategic Diagnosis. A brand stretch should not be a momentary fancy, nor should it be considered as a separate matter. The stretch should support the long-term plan.
2. Research. Devise a list of all possible extensions, then consider each based on the brand's legitimacy to its luxury customers, then in regard to its resources.
3. Coherence. Consider the level of luxury to which the original brand exists, to ensure you understand the "deeper meaning of the brand" and its culture. The identity core must be identified to be respected and preserved.
4. Risk Evaluation. Launching an extension is essentially launching a new product, which should be done with a careful eye toward its chances of success and risk of failure, particularly considering the impact of success and failure to the core brand.

The idea of preserving the dignity of the original brand is of critical importance. To evaluate an opportunity to stretch, while ignoring the possible consequences, is to court disaster.

Case Study: Mont Blanc

The authors feel Mont Blanc to be a case in which a brand was able to extend itself without harming its identity.

Manufacturing only pens is not likely to be a sustainable long-term strategy, given the spread of digital communications. The highest levels of the executive world have largely abandoned writing in favor of email and instant messaging.

The use of physical documents will likely be retained for significant ritual events, for which luxury pens (used only once and then placed in a display case or museum) will remain in demand, so the current brand is worth preserving - but to be sustainable as a business, Mont Blanc needed to branch out.

Initially, the firm considered the elements of the brand's identity: the snowflake logo, the color black, and the number 4810 all communicate the history of the company There is also the nature of a pen: a small, personal, masculine object that is carried close to the heart, an association to the mystical power of writing, and a sense of formality and ritual.

Given thatn, the firm identified four circles of extension, each getting further from the core of the brand's identity:

1. Objects that are related to writing and documents: briefcases, file holders, and notepads.
2. Small intimate objects: cufflinks, wallets, and the like.
3. Small items that denote status: watches, eyewear, and jewelry
4. Items that merely use its recognition codes (the star and the color black)

(EN: The last seems to be a bit of a mismatch, and I don't think the authors present a good case for some of the items the firm is attempting to market: perfumes, cigar cutters, wine stoppers, and the like. It would take a leap of logic, or perhaps faith, to suggest that these were well considered.)

Stretching: preserve coherence, but be creative

Brand is based on coherence to the factors that make it recognizable. A very strong brand can be recognized even if the logo is not visible. But at the same time, brand doesn't mean complete uniformity, merely coherence to a sufficient degree.

Consider the degree to which brands must customize themselves to the tastes of a local market, while still remaining recognizable as a brand. The same is said of products: when a brand is extended to a different product, it must ensure the new products present its identity.

Case Study: Clarens

The author gives the example of Clarins, a premium brand of cosmetics that entered the Asian market, and needed to customize not only its product selection, but also its promotional messaging, to suit the needs and interests of local consumers, who had an entirely different concept of cosmetics that westerners.

The author considers Clarins launch of a new perfume to be an "incontrovertible success" in executing on a genuine luxury strategy on a very modest advertising budget:

• The product had "a great intrinsic value" in that it was expensive to produce, and would be sold at a price higher than Chanel No. 5
• It was a genuine creation, not merely a combination of existing scents, but a technological innovation that involved original molecules
• The reaction was polarized: people either loved or hated the fragrance
• The product was designed by Thierry Mugler, who had a strong and highly idiosyncratic identity in the fashion market
• The initial distribution was highly restricted to retails who would guarantee a given volume, and would therefore be "zealous ambassadors" for a product that would be difficult to obtain.
• An unusual tactic was offering to refill the bottle once it was empty, rather than throwing it away, which resounded with environmentalists
• Also unusual in the perfume industry, a note was inserted into the packaging inviting users to share their feelings about the product to make a "direct, personal connection" between the brand and the client.

The authors claim that it became the best-selling perfume in France and the second best-selling in Europe. (EN: Which seems odd because volume of sales is not "genuine luxury" and is in fact the opposite of the luxury strategy.)

Case Study: Armani

The authors consider the Armani brand to be an empire that stretches in both dimensions of price and product class. This instantly seems like a source of brand confusion that would dilute the luxury characteristics and appeal of the brand - but it did not.

Armani is treated as a parent brand to various lines, and is generally used in a compound name such as "Armani Flori," "Armani Bridal," or "Armani Jeans" with some product lines (hotels and restaurants) being entirely outsourced.

The range of brands competes on a range of price points as well. The Giorgio Armani line is meant to compete with Hermes for upscale clothing, whereas Armani Jeans is meant to compete with Diesel, and Armani Exchange is to compete with the likes of Old Navy.

Some of the sub-brands are sold exclusively in branded retail outlets, whereas others are sold wholesale and through a variety of department stores.

The authors suggest that, even though there is a sprawl of brands, they all have a high creative consistency at the product or communication level.

They also attribute the success at maintaining brand integrity to family management, such that the same group of people are in control of the entire system and work to ensure continuity.

Case Study: Cosmetics

The world of cosmetics is one of constant competition: for some, it is about the desire to hide ugliness, but for many it is the desire to achieve beauty, which is comparative: it is not sufficient to be beautiful, but to be more beautiful than others, and the most beautiful as a means to attracting the best mate.

Because beauty involves elevating oneself, products related to beauty have extremely high luxury potential. To be at the pinnacle of beauty, exceeding others to create a sense of awe, speaks to the very foundations of luxury, as the nobility sought to distance themselves from their subjects to a level that inspires reverence as to a god.

Cosmetics, specifically, add the dimension of time and immortality. Some women wish merely to hide their age, others wish to achieve eternal youth. This is where technology steps on, as it is not sufficient for cosmetics merely to mask age, but the reverse the effects of time, hence the tagline "scientifically formulated" in advertising.

Consider that Chanel does not present a technical analysis of their cosmetic products - the image of a laboratory may inspire confidence, but it is detrimental to the dream of beauty.

Consider it's opposite, Sanofi, which sells cosmetics and skin care products based entirely on technology. It does not use glamor to sell it self, but science, and its products are branded as "Sanofi research products"

The risk factors of brand stretching

Brand extension is seldom highly profitable: it is too small, to demanding, and too unfamiliar to luxury brands. Admittedly, few luxury brands have been successful at remaining focused, and with very few exceptions they remain very small.

However, stretching is an attractive short-term financial proposition, which involves a great deal of risk for the long-term luxury image. Luxury brands that have struggled to remain in the category will often be amenable to stretching when it is necessary for their financial survival, and some even intentionally migrate downward into the premium market.

Tragedy seems to occur when the management of a luxury brand seeks to dabble in stretching, and end up unintentionally debasing the brand. To avoid this, it is necessary to consider the risks.

The first risk is in lowering the perception of the brand. It is inevitable than when a brand is applied to additional products or lower-priced products, its identity becomes split and diffused. If you intend to compromise the brand by stretching, then you should at least consider how much diffusion a stretch will create. The further down you stretch, or the more incongruous the products, the more damage will be done. It can be mitigated by remaining aloof (ensuring even your cheapest offering is still significantly expensive) or coherent (the additional products are clearly related).

A second risk is in losing control over the brand, which is largely internal to the brand. The most obvious example is licensing the brand to another firm, whose management has a different agenda, and who feed on the brand equity without maintaining or contributing to it. This can also happen internally when different product managers or business units have different agendas - particularly when they are willing to compromise the brand image to sell their products.

The third risk is quality control: ensuring that the additional product does not conflict with the perception of the brand. The authors speak to control over manufacturing: when demand grows for a popular item and manufacturing is expanded, quality can suffer without rigorous control.

The fourth risk is in distribution control, particularly the retail outlets at which the product will be sold. There is a significant difference between brands that sell extensions in their own shops, those which are sold in premium retail outlets, and those that are sold in discount merchants and megastores. IT may be due to compromises made to provide sufficient quantity for mass-distribution, the association of the brand to a low status retailer, or merely its availability to the masses of customers. Whatever the case, when a brand is sold at Costco, it is no longer a luxury brand.

Fifth is the fragmentation and discord in the advertising representation of the brand. Consider that a luxury good is very carefully advertised, ensuring that the story of the brand is faithfully told. The more mass-market the brand becomes, the less care is taken: whether it is intentional to use different selling points to different markets, or whether you lose control when retailers place the brand in their catalogs and newspaper inserts along with other goods, the message becomes mixed, and while it is not generally intentional to send mixed messages to a single customer, they will receive them nonetheless, and the conflict will dilute the brand's identity.

Sixth is the risk to service. Luxury products are one artifact in the luxury experience, which is also affected by the client's interactions with the firm during the sales and support processes. When the client buys the brand in a department store, the in-store experience is attached to the brand. Both the merchandise and the client must be treated in a way that supports the brand's identity.

Controlling the boomerang effect

Stretching a brand extends its customer base, and as a luxury brand can only stretch downward this means that its customer base is extended to lower social classes, who have less esteem and considerably different values.

This generates a crisis of reflection - in that the perception of the brand begins with the image the company desires to project, but this is inevitably overwhelmed by the image of the customers who use the brand.

For example, when a given brand or product becomes identified with an undesirable social class or group, it instantly loses its appeal to anyone who holds that group in disdain. Consider that the Burberry brand, once a respected line of premium clothing, launched a line of clothing in the lower price ranges that gained such popularity among the working class "chavs" that it was no longer respected - and some London pubs refused to admit anyone wearing the label.

Even if it is not adopted by undesirables, simply being available to a broad audience makes the brand belong to everyone, without distinction. The authors mention the Calvin Klein brand, which is no longer considered luxury in the US because its clothing and fragrances are widely available in discount stores.

Nothing is more important to luxury than maintaining its prestige, which is nurtured by its rarity, exclusivity, glamour, and distance from the lower classes. Nothing is more counterproductive to luxury than becoming commonplace and vulgar. Any stretch moves the brand in that direction - "from class to mass."

Compounding the problem is that erosion is not initially visible: it does not register that the brand has fallen from grace until it is widely available, by which time it is too late to do damage control. You cannot wait for market research among the masses to signal that the brand has lost its sheen, but must look to the way it is regarded among the desired social market, who are difficult to survey.