Consumer think that they are special and different when using luxury brands and identify this with subtle signals. In this regards, it is imperative for luxury brands to keep at the forefront of the social trends. However, with mass-market brands gradually upgrading their appearance, strategic response and approach to marketing their products, many luxury brands are finding it hard to stay ahead of the peck.
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 mostly due to the set ideas in consumer minds regarding luxury brands associations.
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. Gucci also was in the same category. 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's sudden acceleration issue and product recalls 3 decades ago still haunts the brand.
I would recommend brand managers to think very carefully before focusing on brand extension or diversification. There are many other routes suggested by marketing experts which can be taken into account. For example, Ansoff's theoretical framework relating to product and market matrix can help brand managers in thinking of other ways in which brands can be taken further.
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 believe the options, especially the options a and b should be used far more readily by brand managers. 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.
Originally published at: Luxury branding back to basics