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Managing Down Market Brand Stretching In the Luxury Industry

5254 words (21 pages) Essay in Marketing

27/04/17 Marketing Reference this

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Abstract

As one of the most dynamic industries of the world, the luxury industry has experienced rapid changes throughout its’ history. The output for most luxury brands has increased considerably to meet growing demand for this category of products and services.

Eventually, the value of most luxury brands has increased significantly and at the same time stimulated the growth global luxury brands. Even though most luxury goods now have a seasonal turnover that conforms roughly to the fashion or style, there are still such luxury brands that represent timeless goods.

Since all luxury companies have a mission and a strategy on how to increase their profitability, meet customer satisfaction and increase market share, there are several strategies that can be practiced such as; “line market stretching vertical or horizontal”. When we talk about vertical brand stretching, either up or down, stretching strategies can be applied to the luxury brand(s).

This report analyzes, the management of the down market brand stretching strategy, as one of the many practices that a luxury company can adopt in order to achieve its purposes and goals, specifically for the luxury industry, and how it can affect business in all aspects.

The main objective was to derive with a model that could help a company to manage effectively its “moving downs” without negatively affecting the reputation of the brand or any other significant aspect of the business.

Some of the questions that are researched for answers are the following:

What are the reasons of a luxury company to “move down”?

How down market brand stretching strategy influences consumer brand relationship? How do consumers react in such a move from their favorite luxury brand?

Should the company “move down”, how and up to which point without causing negative affects on its brand image? What are the issues to be considered? What are the reactions to be expected, positive or negative?

The research methodology used is based mostly on secondary research and includes articles from related journals and newspapers, abstracts from existing book literature, case studies and World Wide Web research.

According to the findings, by adopting a down market brand stretching strategy, the biggest risk involved is damaging or even loosing the brand value since; in luxury perception plays a critical role. Mostly, consumers purchase luxury products or services, among other reasons, as a reflection of their social status and label it for achieving acceptance from their peers and recognition from all the others. They want to feel the perception of belonging in higher levels of social hierarchy. That’s why most of the luxury goods or services described as symbolic keys to enter a world in which consumers feel exclusivity. Enlarging the target market by down market brand stretching strategy might disappoint the actual consumers of the luxury brand and eventually lead them to move away from the brand. In such cases, it is most likely to have a decreased brand value and even result in destroying the luxury brand.

As a result, a model has been developed for luxury companies in order to apply down market brand stretching strategy efficiently, up to the point that it will not jeopardize brand’s image, reputation and loyalty levels of its upper class customers.

Moving down is tempting; protecting the brand is challenging.

Introduction

Luxury Industry is one of the most profitable businesses in the world due to the high margins it can achieve. It provides high quality and excellent customer service and consequently enjoying the highest levels of customer loyalty.

Every day, with increased competition, companies struggle to attract new customers but also to retain the existing loyal ones. Managing a luxury brand is a quite demanding task which requires extremely careful strategic policy. Many companies in order to develop a sustainable competitive advantage or to improve their economic position adopted line stretching brand strategy.

Line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch its line down-market, up-market, or both ways.

Two-way stretch occurs when companies which serve the middle market might decide to stretch their line in both directions, up and down market.

Up market occurs when companies operates in the middle market and decide to stretch their line upwards.

Down-market stretch occurs in case a company in the middle market wants to introduce a lower-priced line.

What we will analyze in this paper will be the down market line stretching strategy and how a company in the luxury industry may handle it effectively so that it will not its image and positioning.

The company may decide to move down for different reasons like:

The company may identify strong growth opportunities as retailers to attract more consumers or suppliers.

The company may wish to tie up lower-end competitors who might otherwise try to move up-market.

The company may find that the middle market is declining.

In this highly competitive environment companies have to find a balance in stretching brands without losing their reputation, exclusivity, profitability and maintain brand loyalty.

In this paper we will propose a model which will help luxury companies which decide to move down not to damage their brand.

To support our research we will be based mainly in secondary research which includes different books, journal articles and citations from the World Wide Web.

Objectives and Scope of the Project

The scope and the objectives of the present project are as below:

The main objective is the investigation of LUXURY DOWN MARKET BRAND STRECHING (L.D.M.B.S) in the Luxury Industry and how it can help companies to keep the required balance that is required in order not to harm or even destroy the brand image and maintain high levels of customer loyalty.

The secondary objectives are:

The analysis and the description of the Luxury Industry in the global market with the aim for the reader to gain a better knowledge and understanding about this market.

The definition and analysis of Down Market Brand Stretching, luxury, luxury brand, brand loyalty, luxury consumer as well as the related theories required to provide a complete meaning of these concepts will be provided as well as guidelines for proper application and execution of moving down strategies addressed to any luxury brand that will decide to follow such a path of development.

The support and the theoretical approach of the thesis based on a grown number of authors with scope to exhaust all the parameters around of Down Market Brand Stretching in Luxury Industry.

The right export of conclusions with the objective of a reasonable application of them in different companies in Luxury Industry.

Case Studies

Research Methodology

In this part of the thesis we will present the methodology which has been followed in order to write this project as better as possible and keeping an objective eye.

This part of the thesis analyzes the theory of the methodology based on 3 basic methods which are used in a project: a) positivism, b) phenomenology, c) action research (Easterby-Smith, 1993).

The concept of the methodology has to do with how we could know and get acquaintance from the practical research. The methodology is focused on different methods and ways which are used to perceive better concepts that we analyze from the theoretical point of view and want to analyze them from the practical point of view (Trochim, W. 2002)

There are different methods of research. In our research we will be focusing in the 3 more basics, the positivism, the phenomenology and action research.

Positivism and phenomenology are philology concept of social sciences. Every philology concept is separated and has its own structure and principles. Here the researcher has to follow the philosophy principles. It is reasonable during the research new element and data to come up which will lead the researcher to reorganize some of the philology principles that has chosen.

Many people have a wrong idea of the research and researcher. Specifically, “usually when people in a society think about sciences and research have the image of a person in a lab” (Trochim, W. 2002). This is due to the image that gave the philosophy of positivism. Positivism as a philosophy is based in logic. The arguments that are used are from real facts and these with be used from the researcher to get the desired conclusions. In this way the researcher will do his research without being affected from his believes and principles as well as personal experience. The scope of positivism is to stay in those facts which are observed and to analyze based in cold logic of the sciences excluding the human factor.

In contrary of the positivism phenomenology research present the world to be based only in social foundations and not in objectives. The researcher has to observe phenomena around him and study them. These phenomena can be also in personal level with the result to observe phenomena that are related even with the same the researcher. The research is not superficial like in positivism but in depth and have to be taken into consideration secondary factors.

Phenomenology is a division of sociology and philosophy which is based on the work of Husserl (1982). According to Husserl phenomenology examine the human phenomenon based on human actions, it takes into consideration the human perception. The observation of the phenomena has a big relation with the social environment of the researcher which determines the secondary factors and the researcher seriously has to take into consideration. (Wilson, 1999)

The third research method is the action research. This method has lot in common with both above mentioned methods and takes data from them. The classic model of action research has 5 basics parameter: scope and choice, study, changes based on evident – information as well and the feeling of the researcher, the personal opinion in the research, knowledge.

Our research we will be based mostly on positivism and phenomenology. The action research will be difficult to use because this method is based mainly in the personal experience of the researcher as well as the human factors. In this project we lack the personal experience in luxury industry and the human factor which is analyzed throw primary research is not used in our case.

Confusions on deductive approach (positivism) and inductive approach (phenomenology) redefine, examine, analyze with examples.

Introduction needs referencing

Note from the Supervisor!!!!!

(Following a deductive approach you develop a theory and hypothesis (or hypotheses) and design a research strathegy to test the hypothesis.

On the other hand by following an inductive approach you collect data and develop theory as a result of your data analysis.

The latter is clearly the one that you are adopting and you have to develop some valid argument why you have chosen it.) These are the substantial parts that you have to develop. Positivism and Phenomenology are 2 quite distant research philosophies so you cannot claim that you follow them both. The Inductive approach is closer to the Phenomenology.

Research question and objectives

In this research the main objectives is the investigation of DOWN MARKET BRAND STRECHING in Luxury Industry and how it can help companies to keep the required balance not damaging the brand image and maintain customer loyalty. Having this in mind is inspired all our research.

Some of the questions we take into consideration in order to realize our research is:

What is luxury and luxury brand?

What is down market brand stretching?

What are the reasons for a luxury company to decide moving down?

Should a company “move down”?

How down market brand stretching strategy influences consumer brand relationship? How do consumers react in such a move from their favorite luxury brand?

How and up to which point without experiencing the negative effects on its brand image?

What are the issues to be considered?

What are the reactions to be expected, positive or negative?

Which are the measures that they should be considered to prevent the downturn to damage the brand?

These questions will guide us throughout the research providing a complete picture on the steps that we follow during the investigation of the objectives of the project.

Furthermore, there are other secondary factors which are indirectly related to the main objectives of the research and will be analyzed in the project.

The main objective of the research is to use appropriately the sources, using the right ones and making conclusions based on the cold logic. Another objective is to exhaust all the sources related to our thesis in order to have a complete view of the research.

8. Research Findings

The research shows that brand stretching might be successful or unsuccessful. (Define in what sense like higher turn over, effects on brand image, reputation, top layer customer etc) It depends from the management and decision making on how managers realize successfully or not to introduce the most appropriate brand stretching strategy. Furthermore this paper defines the “old luxury” and the “new luxury” or democratization of luxury. This means that with the changes in demographic factors an income we notice a shift from the old luxury in the past years to the new luxury in most recent years which is based more in the experience of buying luxury product. Markets evolve so does the luxury industry. The perception of how people define luxury has forced the companies to adopt change, innovation and strategic thinking.

5. Literature Review

5.1. What is Luxury?

In Latin the term luxury refers to “extras of life” that comes from the Latin word “luxuria”. (Danziger, 2005) Isn’t it so true? How can we categorize anything as luxury if it is ordinary? Maybe consciously or subconsciously the word luxury increases expectations and we tend to expect the extraordinaire. However, it is also so true that when it comes to identify what is ordinary or luxury perception plays a critical role. As Kapferer, 1997, stated; “What is luxury for some is just ordinary for others”. Kapferer, 1997, also stressed that even to qualify brands as luxury or major brands the public opinion differs. Herman, 2007, also defines luxury similar to Kapferer, who believes luxury is a relative since somebody’s luxury can be another’s everyday routine.

That’s why the definition of luxury is quite subjective. It can be defined as “a highly personal and something the individual interprets and judges for him or herself. But while luxury is highly personal and separated from price and brand, luxury is expected to be something with a quality that sets it far above the ordinary product.” (Danziger, 2007)

On the other hand, for some who think like Suzy Menkes, “Luxury is art, craft and sensory pleasure. Art is something that we understand. It may be difficult and challenging but it is at the heart of luxury. Craftsmanship is the essential part of it all; it turns the idea into a product.”

According to Olorenshaw, 2009, luxury is not a sector it’s a trans-sectorial domain. While there are different views about the definition of luxury it is quite certain that, luxury is paradoxical. But why luxury is paradoxical?

From the history of luxury it was commemorated with pleasure and happiness which only a few could reach. For instance, even perfume helped to distinguish aristocrats from the common folk. (Kapferer, 1997) Luxury is the desired, the rare, and sometimes the unreachable that’s why it has the paradoxical nature. If that time perfume was reachable by the common folk it would loose the luxury value. According to Hirsch, 1977, “luxury goods are socially scarce in such a way that an increase in their availability changes their character so that they yield less satisfaction” as today perfume is quite accessible can we still assume that it has the same luxury value like in the past? Since the answer of this question is “no” Berry, 1994, defines luxury as out of reach by mass consumption.

However, Xenos, 1989, argues that view by stating that luxury “is not the scarcity of certain objects that determines their status as luxury items; it is their status as luxury items that renders them scarce objects”

Moreover, for some luxury can not be a necessity if we describe necessaries as whatever things are necessary to life so “luxury signifies the consumption of commodities which are not necessaries” (Urwick 1908). A close view to Urwick’s, defines luxury as, “anything which does not answer to our primary needs, and which since it cost much money to buy, and consequently much labor to produce, is only within the reach of few. ( Veleje, 1891)

While there are different views about luxury, there is something certain that, “luxury has been with us since the pharaohs in Egypt some 6000 years ago and probably even much earlier and it will continue to be here in one form or another in the future.” (Robin Lent, Genevieve Tour, 2009)

5.2 The luxury consumer

When it comes to determine the luxury customer, there are various views of some believes that it is very limited since the real customer restricted with the global elite or there are also opposite views to that which sees the world population as the luxury customer. As the luxury industry became more and more dynamic the luxury consumer changed characteristic as well. “Luxury is no longer reserved for the spoiled rich. Increasingly it is the domain of the global middle class on an ego trip – people from Indiana to India prepared to pay a premium for the thrill of owning something that makes them feel special.” (Gumbel, 2007) Today, purchasing luxury items or services is not necessarily proof of social status or elitism.

If we don’t limit the luxurious joy with certain goods or services, the total population of the world becomes the luxury consumer and some luxuries can not be purchased by financial exchange. “We all are luxury customers. We all have our own personal luxury. It could be the park bench we like to sit on and read the paper, the place we go to on Sunday mornings for coffee or the spot where we go to watch the sunset. We all have those little unique and special things that matter to us, a little luxury that make us feel special.” (Robin Lent, Genevieve Tour, 2009, pg 11-12) Supporting the same idea, Danziger, 2005, believes that nowadays everyone is part of the luxury market.

5.2.1 Consumer Trends

According to the findings of The Boston Consulting Group, 2002, the new luxury consumers have more disposable income, less children, wealthier parents, bigger houses and marrying later than the previous generations which support the players of the luxury industry.

As a result of the dynamic changes in the luxury industry, where the luxury goods down market rapidly, significant changes are occurring regarding the luxury consumer trends. To begin with, “rocketing” became a recent trend, which is a practice that the luxury consumer, “seek out less expensive products and services in categories that aren’t as important for them”. (The Boston Consulting Group, 2002)

Another relative trend is “trading down” which is “the practice of mixing the use of luxury items with fashion brands”. (Okonkwo, 2004) As a result of the “trading down” trend, it became common to combine luxury accessories with fashion outfits. Therefore, many luxury consumers don’t hesitate to carry a Chanel or Dior bag combined with an outfit from Zara or H&M.

5.3. Luxury Brands

The simplest definition of luxury brands emphasizes the strong relationship between the brand and the price which stresses that the luxury brands “have constantly been able to justify a high price, i.e. significantly higher than the price of products with comparable tangible functions” (Mc Kinsey at Kapferer, 1997)

In order to categorize a brand as “luxury” the core competences which are frequently associated with luxury brands such as; “creativity, exclusivity, craftsmanship, precision, high quality, innovation and premium pricing” (Khanna et al, 2005) that give consumers the extra-added psychological benefits like esteem, prestige and a sense of a high status need to be examined. It must be taken under consideration that, when a consumer purchase a luxury good or a luxury service, often they symbolize a key to a fantasy world that with only that luxury item or service they step into.

Other than the core competences, the identification between luxury, premium and fashion brands are also crucial. Khanna and Mansharamani, 2005, state that luxury brands not only represent the highest level of craftsmanship but also they create and set the seasonal trends but premium brands are differ from luxury brands in terms of their marketing mix strategies which are closer to mass market and finally fashion brands are always address the masses.

According to the Deeper Luxury Report, 2007, by Bendell and Kleanthous, luxury brands have strong impacts on consumer aspirations and actions by controlling their choices through marketing, distribution and product design. There are such powerful brands like Chanel, Dior, Prada or Cartier that, they influence billions with their creations. In order to understand how such brands are so influential globally, the core values and promises of those brands should be examined.

First of all, the social function of influencial luxury brands must be extremely strong. Their promises are not only restricted with an elite experience, high quality, fashion or prestige but also certain characteristics of those brands and the heritage that they pass though have significant effects on people.

The report also states some predictions in relation to the future of luxury brands. One of the most likely estimation states that “In future the luxury brands could represent the greatest positive contribution any product or service could make to people and planet.” (Bendell et al, 2007)

Since the luxury brands promote style, success, concept of quality and they have the powerful weapon of influence they need to be exceptionally careful in terms of reputation. That’s why “Luxury brands are more sensitive to reputational damage because a greater proportion of their brand value is derived from empathy and trust.” (Bendell et al, 2007)

5.4 Marketing Mix of Luxury

The classical marketing mix which consists of the 4P’s as product, place, price and promotion was introduced by E. Jerome McCarthy, in 1960. However, as Winsper, 2007, believed that marketing luxuries requires different strategies that marketing non luxuries and he presented the “6 P’s of Luxury Marketing” which are people, product, passion, pleasure, purpose and price.

To begin with analyzing the 6P’s of Winsper, who states that the value of “people” is critical in the buying process as the most successful luxury brands pay great attention to their brand ambassadors who have direct or indirect touch with the customer. (Winsper, 2007) However, the importance of “people” in luxury is not restricted only with brand ambassadors. Even more important than that is the creators or the designers of the luxury brands which are often highlighted intensively. Gabrielle Chanel, Roberto Cavalli and Marc Jacobs are only a few examples that show how one of the 6 P’s of luxury the “people” is critical for luxury brands.

According to Winsper, 2007, “product” has the central role with the “6 P’s of Luxury Marketing”. In order to fully absorb the importance of “product” in the luxury marketing mix, the characteristics of luxury products must be identified. One of the trustworthy studies “The Consumer Rapport to Luxury” analyzed the concept of luxury and consumer attitudes towards it. (Dubois et al., 2001) According to the respondents of the report we can state that the nature and characteristics of luxury are; “excellent quality, very high price, scarcity & uniqueness, aesthetics & poly sensuality, ancestral heritage & personal history and superfluousness”. Therefore, to categorize a product as luxury the above characteristics must be present.

Another important element of the luxury marketing mix is “passion” which is in the DNA of luxury. If the consumer is not passionate about the luxury item or the luxury service then the attractiveness will decrease which is extremely dangerous for the industry. As a good example, consumers such as collectors are highly passionate towards the items in their interest area.

According to a 39 years old, female respondent from “The Consumer Rapport to Luxury”; “Luxury items are things you buy for the pleasure they give you, things that you don’t need. Well you do need them to satisfy a passion.” (Respondent at Dubois et al., 2001) Not surprisingly the respondent addresses two of the 6 P’s of luxury marketing which are passion and pleasure. As marketing luxuries distinguishes from marketing regular products or services senses and emotions become critical as to achieve the stage of “pleasure”. Winsper, 2007, points out that, luxuries are experiential that’s why beyond the functional attributes; they need to provide a sensory fulfillment, an “extra” dimension which leads consumer to dream.

On the other hand, as all the 6P’s “purpose” is also fundamental in the luxury marketing. Consumers can become very demanding in terms of the actual function or additional features regarding luxury items or services. However, the priority between practically and pleasure vary in direct relation with the personal characteristics of the consumer. (Winsper, 2007)

Finally, “price” is the last P of Winsper’s luxury marketing mix. Even though, by nature luxury products and services requires premium pricing strategies with the democratization of luxury pricing strategies influenced as well. Even for the minor changes in their pricing strategies luxury brands must be very careful since may have dramatic affects on the brand image.

5.5. Brand Stretching

The brand stretching strategy is generally perceived as a marketing activity that “aims at using the same brand image for different products or services” (Jach, 2009) and to be able transfer a part of the brand identity to the new product or service range is the most significant aspect of brand stretching. (Jach, 2009) There are also some other definitions of brand stretching that limits the boarders of the strategy, as Jobber points out; brand stretching occurs only if an existing brand name is used for brands in unrelated markets or product categories. (Jobber, 2006) Meaning of which, if the new market is somehow related it can’t be identified as brand stretching.

Taylor, 2004, underlines six aspects of the ‘Brand Stretch workout’: strengthening the core brand, having a vision for the new brand, innovative ideas on elements of marketing mix delivery, being focused on particular product ranges (e.g. which product to ‘harvest’ and which to market for), method of delivery (e.g. distribution channel issues), and stretch architecture review.

(Why 1 in 2 Extensions Fail, David Taylor)

Finally, the definition that will be taken as guidance within this report identifies brand stretching as the ability of a brand to extend into new spaces and the applicability to other segments must be taken into consideration in order to determine the brand is susceptible for stretching or not. (Manzano, 2007)

According to Danziger, 2005, in the 21st century luxury industry acquires action. That’s why no matter where a brand starts, the strategic direction must be where the big opportunities are. Meaning, if a company is involved with the mass market, moving up market to the class where the product or service becomes more luxurious is the direction or if the company is marketing luxury to the classes then in order to capture the “luxury enabled” the direction is down market. There are several examples which are supporting Danziger’s view, both luxury and mass marketers exercise such practices. “Starting in the mid-1990s, CEO Lew Frankfort repositioned the stodgy leather-goods firm as a less expensive Louis Vuitton and watched its $300 bags fly off the shelves. Mass marketers are getting in on the act too. H&M first teamed up with Karl Lagerfeld in 2004 and now works regularly with big-name designers.” (Gumbel, 2007)

Additionally, as Manzano, 2007 points out that determining how far a brand can stretch is a difficult accomplishment. In relation to the fact that, brands should be extremely careful for any attempts regarding their brand stretching strategies and before any further movement the target market should be analyzed well in order to see if the idea will fit to that market.

That’s why the key processes involved in brand extension and stretching are crucial since, even minor mistakes which are easy to avoid can cause failures. Another critical point is realizing that in sometimes a new brand strategy might be essential as the micro or macroeconomic environment changes. (Jach, 2009)

5.5.1 Why Stretching is Tempting?

No matter how risky the brand stretching strategy is, there are many luxury or non luxury companies that mange this strategy quite well. A nice example is a global giant Virgin which is not usually referred as luxury. However, the Virgin brand is stretched so widely that there are some Virgin businesses which are pure luxury in many aspects like Virgin Galactic Flights and the brand achieved to become the brand stretching legend. (Jach, 2009)

Taylor, 2004 points out that there are three major advantages of brand stretching. First of all, “using an existing, strong brand to promote a new product or service means that there is less need to create awareness and imagery” Secondly, he indicates that “strong brands are trusted by consumers to deliver against a particular promise”. Thirdly, Taylor alleges that the brand stretching is cheaper than launching a completely new product.

5.6 Down Market Brand Stretching

Today, companies are taking rapid actions like turning commodities into luxuries or creating affordable versions of super premium goods. In fact, the new luxury features and technologies have usually enter to the market from the “high end” and have always tickled down by becoming more available and affordable as the new innovations arrived. However, nowadays with “the democratization of luxury” as the “producers are driving the trend more explicitly and consciously and consumers are embracing it more eagerly” (The Boston Consulting Group, 2002) luxury products are moving down market in terms of quality, taste and sophistication faster than ever before. (The Boston Consulting Group, 2002)

On the other hand, over stretching the brand is highly risky for any brand but especially for luxury brands. For instance, if we examine the Pierre Cardin case, which for most can not be pronounced as luxury any more. What Pierre Cardin was experienced showed that, the brand was not able to extend indefinitely; having the brand name on countless goods has the ability to destroy the brand. (Alvares et al, 2004)

It won’t be wrong to state that for the Pierre Cardin brand, 1960s was the beginning of the end. It was

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