Brand Extension: How Far Can You Go?
Companies that have moved out from their core sector and moved into other sectors constellate
today’s luxury market. For example, Louis Vuitton and Prada were born as family businesses
focused on high end travel luggage and they have subsequently moved into ready to wear and
accessories; Ferrari has extended its sphere of action from luxury sports cars to include watches
and clothing.
When talking about growth and strategy first of all we have to clarify the difference between brand
extension and brand stretching (Kapferer 2012): a) in brand extension the brand implements its
luxury strategy in a new territory. For example, Chanel started as a haute couture brand and has
now extended its operations to jewelry; b) in brand stretching the brand implements its fashion and
premium strategy (and not its luxury strategy) to new territories (for more information on the
difference between luxury and premium please read my white paper “Why Premium is Not Luxury”).
A primary example is Cartier, which has licensed its perfumes that are sold in department stores and
duty free. In this white paper I will concentrate on brand extension.
Brand extension is one of the two factors that have contributed to the significant growth of the luxury
market over the past few years, the other element being the growth of mono-brand stores
worldwide. In most cases brand extension has taken the form of line extension, via expanding the
core business and introducing new products within the same category as the parent brand. For
example Giorgio Armani has created a second line called Emporio Armani and additional lines with
Armani Jeans and Armani Exchange that are positioned at a lower price point compared to the main
line (Armani Exchange sells clothes and accessories for a price range between €50 and €300, whilst
Giorgio Armani sells items that on average are priced far above €1,000). Brand extension has also
taken the form of category extension, that being expanding outside the core business, into a
different product category from the one currently served by the parent company (Farquhar 1989).
For example, Giorgio Armani has entered the world of food with Armani Dolci, of furniture with
Armani Casa and fragrances ad skincare with Armani Cosmetics.
Whilst line and category extensions are strategic tools aimed at growing the business by reaching
new customers, if not correctly managed they can hinder the established core luxury brand and
have a detrimental effect by diluting its image and its appeal. Luxury is mainly a “dream” and over
extension can destroy this dream.
How Much Can You Extend the Brand?
Line extension can prove to be very problematic. In fact, if it is pushed too far downwards it loses its
characteristics of luxury and enters into the territory of premium/prestige or even “mass-tige”. For
example, Armani Exchange sells items at prices that are just slightly above high street chains like
Zara and H&M.
Over widening line extensions can be detrimental to the core business and dilute the image of the
brand and its core business: that’s the reason why licensing has to be closely monitored in order to
ensure that the brand has control over the quality of the product and the prices. Otherwise the risk is
to end up like Pierre Cardin, which was a coveted brand in the 50s and 60s and that has literally
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weakened its value by hectically entering into licensing agreements to manufacture anything, from
plates to costume jewelry that can be purchased for a few euros at the local department store.
Burberry has understood the risk linked to over extending their brand and has recently “bought back”
its licenses from the Spanish market. This operation led to regaining control over the brand value
and establishing it as a highly regarded fashion brand.
The concept of brand extension is interlinked to the practice of licensing, which can be defined as
the farming out of the production and the distribution of a line of products under a brand’s name
(Chevalier 2012). The reason why licensing has proved to be very appealing is because it does not
require high amount of financial capital, but a strong brand capital in order to accelerate growth. We
have seen luxury companies embracing brand extension by moving into perfumes (access to the
mass market), accessories (enhanced visibility and profitability) and cosmetics/spas (more intimacy
with the client). The aim is to build a boutique where the client can experience the brand and
purchase as many products as possible – from ready to wear, to the perfume, to accessories to
cosmetics – and increase the revenues for the brand (Kapferer 2012).
What You Need to Know
The main players in the luxury sector, France and Italy, have adopted different models of brand
extension. The French have focused on upwards and downwards integration by creating very few
prices lines and by manufacturing their products in their own factories and distributing them via their
DOS - directly operated stores (with the exception of cosmetics and perfumes, of course). On the
other hand, the Italian model is focused on line extensions. Most of the major players have created
second and third lines that are priced at distinctive points, aimed at different client segments, have
their own distribution channels and different competitors. For example, Giorgio Armani has 6 lines
and the ready to wear (Giorgio Armani) is sold in different DOS compared to Armani Collezioni and
Emporio Armani. In some geographies like Italy Armani Exchange is not available.
When it comes to brand expansion two models are preponderant: vertical stretching (the brand is
made more accessible by launching new lines and by bringing the price downwards) and horizontal
stretching (launch into other categories whilst maintaining the relative price level). The first model is
represented by the Pyramid and the second by the Galaxy (Kapferer 2012).
Figure 1 – Pyramid and Galaxy Model (Kapferer J. 2012 – “The Luxury Strategy”)
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The Pyramid and the Galaxy are fundamentally two business models. In the Pyramid the brand
positions itself at different levels: haute couture at the top and mass market at the bottom. Each
level of the Pyramid is aimed at a different customer’s segment, with differentiated price points and
distribution channels. Some brands like Chanel focuses on the top of the Pyramid (haute couture
and high-end accessories), other like Dior in the middle (middle priced accessories and ready to
wear) and others like Armani span across all levels (from haute couture with Armani Prive’ down to
Armani Exchange and Armani Jeans). The Pyramid model offers the possibility to grow rapidly and
to reach a high number of customers, as more individuals are in the position to access the dream.
At the lower levels of the Pyramid items (whether clothes or accessories) are usually massproduced, even if a level of creativity and higher quality is ensured. And this is the key: to avoid the
risk of weakening the value of the core brand at the lower levels of the Pyramid creativity and
excellence have to be maintained. If they get diluted the appeal of the parent luxury brand at the
higher level may be hindered. This is why companies that pursue a pure luxury strategy have to be
very careful not to extend the brand too far down the Pyramid.
The Galaxy model is characterized by sub-brands that have all equal value, with no superior or
inferior value products or significant differentiation in the price point. The centre of the galaxy is the
creator and the sub-brands represent a different interpretation of his/her world. The most
representative example is Ralph Laurent: whether it is the Polo, Purple or Black line they are all
part of the same universe and a representation of the Ralph Laurent lifestyle. What differentiates
them is the gender to which they are aimed, the time of the day and the occasion for its
consumption.
What You Need to Do
Embarking into a brand extension strategy does not have to be a hasty choice. There are four steps
that have to be taken into consideration (Kapferer 2012). The first is to determine what is the future
of the brand and how does the management want it to be perceived. We have seen that expansion
downwards can attract new clients, but at the same time can erode the value of the core brand if not
managed correctly.
The second step is to determine the brand’s legitimacy: would the move into another line or category
be sustained by the history, know-how, trade and culture of the brand? Many brands have tried to
make the step and fell flat like Ford. For example it is unlikely that Louis Vuitton will move into haute
couture as it is perceived as a luxury brand within the travel luggage and accessories business. The
move into ready to wear has been highly controversial and took some time to take off.
Subsequently you have to determine the coherence with the core of the brand: that’s why
management has to carry out a brand core analysis. For example recently Dolce & Gabbana have
decided to shut down their second line D&G and to focus on the other side of the Pyramid, haute
couture. Would this choice be successful? Dolce & Gabbana are well known for the craftsmanship of
their products and have their roots and heritage solidly in the Sicilian world. If managed correctly it is
very likely that this venture will be successful. Especially considering that the first show took place in
Taormina and not in Paris, where all the other brands show their haute couture collections. This is to
remark the core of the brand, its heritage and values.
The last step is to carry out a risk analysis to evaluate the possibility that the venture is going to
succeed.
A recent trend is to extend the brand into children apparel. If the prices of these collections are
positioned at a high point and the quality and values of the core brand are maintained it is unlikely
that these operations will dilute the value of the core luxury brand. Some may argue that some
premium (and not luxury) brands have decided to partner with high street companies to provide
accessible children wear. For example, Stella McCartney has partnered with GAP to create clothing
for children. However, first of all Stella McCartney is not a luxury brand, but a premium brand.
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Additionally, as it happens in the Pyramid model for Armani Exchange the children collection by
Stella McCartney is more expensive than kids lines sold on the high street by Zara and H&M.
Sources:
Kapferer (2012), “The Luxury Strategy”
Chevalier (2012), “Luxury Brand Management”
Farquhar in Keller (2003), “Strategic Brand Management”
Isabella Brusati is the founder of Isabella Brusati Consulting.
www.isabellabrusati.com
© Isabella Brusati 2013. All Rights Reserved.
Isabella Brusati Consulting – The Change Management Expert