Branding and brand extension strategies in luxury market

1. Branding and brand extension strategies in luxury market Valentina Della Corte Associate Professor of Corporate Strategy and Marketing Università degli Studi di Napoli Federico II

2. Brand and luxury brands • Brand: expression of relational marketing between the product and the consumer (through notoriety, perceived quality and associations) • Luxury brands are generally distinguished for (Reddy, Terblanche, 2005): • their distinctive technical features; • their symbolic and evocative features (values and culture)

3. exclusivity Luxury brand notoriety customer loyalty high perceived quality well known brand identity

4. Luxury brands

5. Effects in luxury products’ consumption Ostentations consumption in order to express reachness, power and social status Veblem effect Luxury product consumption because of their rareness and inimitability (both introduction and maturity product lifecycle phases) Snob effect Band wagon Luxury product consumption in order to be accepted by social groups

6. luxure: excess, extras of life (Dankugh..2005) Origins: Latin Today: Customers look for goods with reliable performances and perfection of details but, at the same time, they want to be emotionally involved in a memorable, unforgettable and pleasant shopping and ownership experience luxure: soft or extravagant leaving, sumptuousness, opulence (Oxf. Latin Dictionary) Luxury Goods always been associated with: - wealth - exclusivity - power - satisfying and no – basic necessities

7. PROCESS OF BRAND – EXTENSION EVALUATIONS Evaluation of Brand Extension Perceived Fit of Brand Extension Product – Level Similarity Perception Concept Consistency Perception comparison comparison “Brand X” Concept Brand Extension Product Existing “Brand X” Product Brand Extension Product

8. Brand extension Product categories Brand CATEGORY EXTENSION LINE EXTENSION

9. Some datas: • Italian industry of fashion goods is a business worth 67.6 bilion euros (Il Sole 24 Ore, Jan. 2007), of which 26 biliion euris is due to luxury market; • Italian luxury brands represent about 27% of total luxury goods sold worlwide, corresponding to about 40 billion euros. In particular the luxury market of fashion goods accounts for about 26 billions euros (Source, Il Sole 24 Ore)

10. Marketing gurus state: • Consumer everywhere at every income level want more luxury “ (Dnaziger, 2005)…. • ….luxury of the masses? (Silverstein and Fiske, 2003).... • …..from income to culture…. • ….from the product to the experience

11. Why brand extension strategies? • Hypercompetition contexts; • Shorter lifecyles; • Opportunities of markets’ extension through trading up or trading down processes; • Continuous investments in R&D to improve companies’ products and processes’ innovation; • Media effect and advantages in placement policies; • Synergies with a well known parent brand (Aeker, 1991) and therefore less risk of failure, lower launch and follow-up costs; • Increase of brand equity (in terms of reinforcement of market positioning, market enlargement and sales renewal …are some of the main factors that push companies to adopt Brand extension strategies.. …in order to gain sustainable competitive advantage

12. Product line brand extension strategies: • Product line enlargement (through trading up and down processes); • Product line completion (adding more products/articles in the line); • Product line innovation through the addition of new products and/or substitution of obsolete products wth proper time-to-market

13. Brand extension strategies: • The capacity of managing brands or brands portfolio’s selection becomes a key competence within organizations. • Brand extension, based on the synergy of extending a company’s image and notoriety, seems to solve the trade off problem between the need of innovation and cost increase. • Of course it’s necessary to evaluate in advance brand’s demand elasticity degree beyond which brand stretching causes image “thinning”. • Brand extension is a natural consequence of growing complexity of product range and line. • If built according to the firm’s strategic resources, it can contribute to gain and sustain competitive advanatge

14. Sub-branding strategies: • Favour brand extension through a trading down process, in which parent brand does not play a primary role; • It usually regards new products/lines within a master brand, associated to a lower product-line in hierarchy • It usually refers to market targets not reached with the master brand; • It has to be connected to parent brand but must be distinguishable, especially in luxury markets

15. Evalutations of brand extensions: Depend on the degree of perceived fit by consumers between extension product and the brand name The degree of perceived fit is a function of both product feature similarity perceptions and brand concept consistency perceptions.

16. Product features similarity perceptions Depend on identifying the relationships between product extensions and the brand’s existing products either concrete (attribute or feature matching or correlations) or abstract (shared usage situations) as well as the degree of perceived fit by consumers between extension product and the brand name Function oriented brand (brand unique aspects and product performance)

17. Concept consistency perception Rely on the on the extension product’s ability to “accommodate” the brand concept. It’s understood primarily in terms of consumers’ expressions and self concepts or images. prestige oriented brand It can be more extendible to other product classes than functional concepts (durability, reliability), being able to accomodate a wider set of products that share a few features (eg. Clothes and furniture), as long as those product classes share the prestige concepts

18. Main risks/problems in brand extension strategies: • Problems of cannibalization between extended brand and parent brad; • Excessive brand extension can cause confusion in consumers’ minds: brand identity crisis; • New brand failure (both market faiulure and product failure) can compromise even patent brand image

19. Conclusions (1/2) • The success of brand extension is not only function of the perceived value that the new brand adds transferring some associations to aren’t brand also to the new one, but also to the capacity of developing new associations to parent brand, reinforcing brand equity; • Brand extensions can push to change communication contents, marketing strategies and policies according to targets’ needs but brand vision and key values have to be the real basis for a real brand identity construction process; • Sub-branding strategies can help in getting the advantages of brand extension, using cognitive image resources and brand awareness, developing marketing (mainly communication and distribution) synergies and, at the same time, reducing the risk of brand stretching through the introduction of sub-brand between the firm’s core business and its extension businesses • In brand extension every brand is characterized by the association that make its “heritage”: it’s important, in the evolution process, to maintain the principle associations in order to avoid to lose core targets; so positioning has to be thought over!

20. Conclusions (2/2) • The luxury market is in a very critical phase on the supply side: delocalizations choices can compromise the “origin” of materials and products and the territorial craftsmanship/tayloring aspect of production (ex. Made in Italy products); • It more and more widespread the network model, with a constellation of small and medium enterprise around the “pivot” company; so business models and concepts are significantly changing; • There is a huge brand extension phenomenon that sometimes has negative impact on parent brand. Therefore… ….it is important to build a concrete and real brand identity based, according to resource-based logic on the firm’s strategic resources an competences, on which to base sustainble competitive advantage.

21. Would you rather be.. Luxury product consumer or producer ???