THE SLIPPERY
SLOPE OF
brand
EXPANSION
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luxury
Look to the
sector to
understand how brand
extensions affect parent brands
By rasa Stankeviciute and Jonas Hoffmann
rand extensions were first 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
first 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 different collaborations among various brands exist
B
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 careful 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 diversification 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 taking actions that may harm the equity of a brand
with a well-established name for luxury.
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Figure 1: Brand Extension Cases of Renowned Luxury Brands
{
Brand Extension
Choice of
non-luxury partner
Jimmy Choo
Downward brand
extension
Rolls-Royce
Diversification
Armani
How Non-Luxury Affects Luxury
Luxury and non-luxury brands often collaborate to introduce 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 collaborated 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 negative 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 customers perceive the collaboration’s results as inappropriate 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, uniqueness, 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 crocodile 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 subscribe to a waiting list; and
• history and quality, as Hunter boots’ outstanding performance, 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
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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 practicality,” 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 condition 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 segments 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 something not requiring a special occasion (e.g., Rolls-Royce
Ghost instead of Phantom, everyday wear instead of evening apparel from fashion designers). Therefore, luxury
downward brand extensions are an important and necessary 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-
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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). Nevertheless, 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 different from its predecessor. According to company spokespersons, the Ghost is the most technologically advanced
Rolls-Royce ever built. And, like the Phantom, it is handbuilt at the factory in Goodwood, Sussex, England, and
shares paint, wood and leather workshops with the Phantom 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 extension 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 RollsRoyce. That means the Ghost did provide name recognition and associations to new segments—the advantage of
line extensions considered by Aaker.
Additionally, the Ghost will probably never cannibalize 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 experiencing the qualities of the Rolls-Royce Ghost, which
clearly correspond to the qualities and values of the parent 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 parent 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 however Armani is a great fashion sector example of brand diversification. (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-executed brand extension and structured architecture allow
Armani to lend its brand to new businesses without diluting the brand value, The Financial Times reported.
“On the other hand, critics’ speculations about Armani’s overextension because of brand extensions including 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).
br i efly
• 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 image of the brand, as, according to strategic consultancy
Millward Brown Optimor, extensions into luxury
lifestyle businesses other than fashion not only enable 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 uniqueness 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 recognized 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 extensions? 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 diversified 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 corporations, 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 overextension, 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 explained, it wasn’t about not having the money. “It’s a
psychological issue. Nobody is shopping,” referring to the
Figure 2: Armani Brand Architecture
Luxury
Women's
Fashion
Men's
Fashion
Children's
Fashion
Jewelry
Watches
Eyewear
Armani
Privé Fine
Jewelry
Armani Privé
Beauty
Home
Services
Others
Armani Privé
Fragrances
Armani Casa
Armani Hotels
& Resorts
Armani
Samsung TV
Fast Fashion
Hand MadeTo-Measure
Giorgio Armani
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Giorgio Armani
Giorgio Armani
Armani
Collezioni
Armani
Collezioni
Emporio Armani
(incl. EA7)
Emporio Armani
(incl. EA7)
Armani Jeans
Armani Jeans
Armani SPA
GA Costume
Jewelry
Giorgio
Armani
Giorgio
Armani
GA Beauty
(Cosmetics,
Fragrances)
Armani
Ristorante
Armani Bar
GA Samsung Smart
Phone
EA Costume
Jewelry
Emporio
Armani
Emporio
Armani
EA Fragrances
EA Caffè
EA Samsung
Mobile
AJ Caffè
Armani Baby
Armani Junior
Armani Teen
Armani Dolci
Armani Fiori
Armani Libri
Armani
Exchange
Armani
Exchange
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AX Costume
Jewelry
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Armani
Exchange
Armani
Exchange
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“Brand extensions allow luxury brands
to grow more quickly without being
limited to organic internal growth.”
financial crisis. (See Barnett, L., “The Armani Crunch,”
Armani keeps enhancing the brand’s initial area of
December 12, 2008, Vogue.co.uk.)
expertise, and had upward brand extensions by introThe top-luxury Giorgio Armani brand did not perform
ducing Giorgio Armani Privé label and Giorgio Armani
well in 2009, showing a decrease in turnover by 17.4
Hand Made to Measure service. Meanwhile, French
percent since 2008, though it remains the biggest player
couturier Pierre Cardin overextended the brand, and the
of the Armani fashion brands. Indeed, when Millward
extensions did not keep the luxury facets—leading to bad
Brown Optimor ranked luxury brands according to brand
quality, wide accessibility and, finally, brand dilution.
value, Armani fell out of the top 10 in 2009, with a brand
Though the luxury sector is more sensitive to the risks
value of $3.1 billion compared to a brand value of $5.12
of brand extensions than other sectors, many rules might
billion in 2008. The brand did not get back into the top
be applicable outside the luxury sector as well. Non10 in 2010. However, the cheapest Armani fashion brand
luxury brands should always protect their reputation and
Armani Exchange showed a rise in revenues in 2009,
image by enhancing their initial area of expertise (just as
indicating that fashion consumers worldwide continued
the luxury ones do). Take, for example, Swedish fastto shop, simply, at lower price points.
fashion giant H&M. Not only does it collaborate with
However diversified the luxury brand may be, its core
many luxury fashion brands, such as Lanvin, Jimmy Choo
business has to be constantly enhanced for the brand
or Versace for the limited-edition collections, but it even
portfolio to be successful. Brand managers must ensure
managed to open a store-in-store in Selfridges, a luxury
that new products are consistent with the luxury parent
fashion retailer in London.
brand and will be able to retain its luxury facets. For exFor luxury brands, brand extensions are as fundamental
ample, if Rolls-Royce introduced a fast moving consumer
as they are risky. In an era where luxury brands are glogood (e.g. peanut butter, chewing
balizing and marketing techniques
gum), it would never be a successful
are challenging traditional luxury
brand extension—and would surely
codes, brand extension will contindamage the brand. But if the brand
ue to be a potential growth strategy
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ever decides to introduce, for exand will likely remain at the top of
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the agenda for luxury companies in
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ama articles
it might actually work.
for Savvy fashion Brands, Digital
When adding brand extensions,
Marketing is ‘in,’ Marketing News
✒ rasa stankeViciute is a freelance
every luxury brand, whether it is a
Exclusives, 2011
marketing consultant and MSc international
high-end fashion brand or a luxury
marketing and business development graduate
car manufacturer, has to constantly
hybrid Offerings: how Manufacturing
Firms Combine Goods and Services
of SKeMA Business School in France. Jonas
enhance its core business–the initial
Successfully, Journal of Marketing, 2011
hoFFMann is associate professor at SKeMA
area of expertise for which the brand
Business School/Université Lille nord de
has once become recognized, respectama podcast
France. they may be reached at
ed and desired. There are examples
Author Series: Brand Atlas, sponsored
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of the brands that applied these rules,
by the AMA, 2011
jonas.hoffmann@skema.edu, respectively.
and ones that did not. Giorgio
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