Perspectives

Consumers make a social statement when using luxury brands. Therefore, creating a fit between the social trends and keeping up with them is one of the critical strategic issues for all luxury brands. But many mass-market brands are catching up due to the winds of globalization and it is becoming ever so hard for luxury brands to stay ahead.

In this scenario, many luxury brands have decided to move beyond their niche and diversify very quickly into other market spaces which the consumer may not associate with the specific luxury brand. The idea of brand extension and at times irrelevant diversification (i.e. moving away from one product category to another one) is particularly delicate issue for luxury brands. This is mainly because of the strong brand origin and brand image associations luxury brands have in consumer minds.

Many luxury brands have diversified successfully however on the other hand, many have struggled a lot and therefore this issue must be dealt with a lot of caution. For example, Prada’s move from shoes to handbags and then into ready-to-wear market worked every time. Same was the case with Gucci. However, it took many years for the first Bulgari watch to become a success. Big brands have lots of resources but small brands many not be able to conjure such long-term losses and therefore diversification can become a big bottleneck for them. For example, in 2005, Mattel decided to create Barbie-themed clothing and accessories and involved fashion designers such as Tarina Tarantino and Anna Sui to interpret Barbie’s wardrobe for grownups. Interestingly enough, it was suggested as one of the worst brand extensions of the year by BusinessWeek. Another example of this is Audi in US market. Audi still struggles to crack the US market as consumers remember those sudden unintended acceleration issues and a series of product recalls associated with it nearly 3 decades ago.
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In this regards, I would urge luxury brand managers to be highly cautious of brand extension and diversification. There are many other routes suggested by marketing experts which can be taken into account. For example, Ansoff’s Product/Market matrix provides good few insights on what other options can be exploited without diversification.

In the quadrant 1 where a company wishes to expand itself into its present local market, could focus on various ‘market penetration’ strategies by (a) increasing the frequency of usage; (b) increasing the quantity used and (c) identifying new application of the product. I am sure the options a and b are quite feasible in case of most luxury brands which are used occasionally only by consumers as my research has shown. This in itself can lead to higher market share and stronger customer loyalty.

The quadrant 2 which focuses on developing new products for the current markets does not mean diversification but instead looks at ‘product development’ strategies. In this case, luxury brands can focus on product improvements (highlight them in communications carefully) and line extensions (after careful market research rather than an insiders only brainstorming).

The quadrant 3 focuses on ‘market development’ strategies. In this case, luxury brands should focus on (a) geographic expansion and (b) target new segments. For each of these options, specific strategic initiatives are required. Such as, for geographic expansion, cultural proximity and market understanding are a must. Similarly, when targeting new segments, it would be desirable to identify those peripheral groups which take the current luxury brand consumers as their aspirational leaders.

The quadrant 4 relates to diversification. However, remember this is quadrant 4 of 4 and that means it should really be thought of as one of the last options. If growth has not been possible with the first 3 quadrant a luxury brand should focus on diversification. However, in my own experience, I have seen entrepreneurs/managers focusing this as their first option. While if done carefully it can provide significant benefit, it’s quite risky also as seen in earlier examples.

My aim in this article was to offer some alternative strategies for luxury branding rather than just thinking diversification. Going back to basics can always help any luxury branding effort and I hope it would ignite that thought in you.

The article was originally published on my website with the post titled Luxury branding: back to basics.