Stretching Luxury Brands

By Michael Parent and Leyland Pitt

Chateau Margaux, the famous Bordeaux first growth, is up there with the very best. Live like a Saint and die, said William Styron in the novel Sophie’s Choice, and “that must be what they make you to drink [sic] in paradise.” It would be a marketer’s dream to extend the Chateau Margaux brand. It could perhaps be broadened to less rare, more readily available, early drinking wines. Or, partnerships with wineries in other countries could be formed. It might even be extended to other beverages, or to a range of gourmet food products.

So far, Chateau Margaux has resisted the temptation to extend the legendary brand to anything other than great wines. In contrast, other luxury brands have not been able to resist the temptation, often with dreary results.

The once-venerable Pierre Cardin brand attempted to boost flagging revenues in the 1960s by licensing its name to perfumes and cosmetics that were manufactured by transnationals such as Unilever, L’Oréal or Estée Lauder. Initially the approach was enormously successful, which seemed to encourage management to extend licences across a vast range of product categories.

By 1988, more than 800 licences had been issued across 94 countries, generating a turnover of approximately $1-billion. Subsequently the name “Pierre Cardin” appeared on unrelated items — everything from cigarettes to baseball caps. There was even a table wine launched under the Pierre Cardin label, which sold dismally. Today the brand is a sad shadow of its former self.

In 1972, at the age of 26, Diane von Furstenberg designed the dress that shaped a generation. By 1976, having sold more than five million of the all-purpose day-wear-to-disco designs, she was hailed by Newsweek as “the most marketable female in fashion since Coco Chanel.” Based on this initial success, the von Furstenberg name was splashed across such diverse product categories as luggage, eyewear, jeans and books. Initially the strategy worked as the von Furstenburg name generated higher margins onto every product it was introduced, irrespective of the category. However, a few years into this period of heady growth, these brand extensions diluted the core brand, and the company saw a plunge in revenue and profit. The situation reached a critical point when the design and cosmetic houses were sold to pay off looming debt.

Why do so many luxury brand extensions fail? Our research shows that two factors account for the great majority of successful luxury brand extensions: First, the brands must have a high Premium Degree, that is, be considered one of the top brands in their category. After all, you cannot transform an ordinary luxury brand into a premium one simply by extending it. The more the brand is coveted by consumers to begin with, the greater its cachet, and the higher its Premium Degree.

But Premium Degree alone is not sufficient when a brand extends, especially into illogical areas. This is the second, and most important factor: Brand Adjacency, or the extent to which a luxury brand extension is symbolically consistent with the values embodied by the core brand. For example, Cartier’s expansion into fine jewellery was consistent with its core portfolio of luxury watches (many of which are jewellery pieces in and of themselves) and rings. The mental effort by Cartier’s customers to understand how watches and jewellery go together was minimal. Hence, close adjacency, and for Cartier a very profitable venture.
When Premium Degree and Brand Adjacency exist in concert, luxury brand extensions work best. Each is necessary, but one without the other is insufficient. Many luxury brands have learned this lesson at great cost.

Financial Post

This is a shortened version of a longer study by M. Reddy, N.S. Terblanche, L. F. Pitt and M Parent titled How Far Can Luxury Brands Travel? Avoiding The Pitfalls Of Luxury Brand Extension. It will appear in a forthcoming issue of Business Horizons. Leyland Pitt is a Professor of Marketing, whose research focuses particularly on the marketing-technology interface. Michael Parent is Associate Professor of Management Information Systems, whose research focus is on corporate governance, particularly governance of information assets (IT) by Boards.

For more information on Dr. Parent’s research please follow this link.
For more information on Dr. Pitt’s research please folllow this link.