Brand Extensions: Luxury Cars & Handbags

Brand Extensions: Luxury Cars & Handbags

The allure of brand extensions has always been strong, especially for the luxury sector, which operates on high gross margins. Luxury is relative — what is luxurious for someone (depending on their income) may be rather standard to someone else, so there are logically degrees of luxury. Many luxury brands have made downward extensions of their brands by developing secondary products and thus making certain items available more easily for the average consumer. A person, for example, who aspires to be able to afford a Ferrari sports car (Ferrari’s primary product), could buy a Ferrari wallet instead (secondary product) or someone who admires Gucci luggage could substitute through having a Gucci key ring.

Such extensions have not by and large negatively affected the public’s perception of luxury brands — indeed quite the opposite seems to be the case. Even Maserati has collaborated with Zenga in developing exclusive items of menswear. The latter is really more a case of collaboration than brand extension per se, but nonetheless it highlights the growing and successful trend of luxury brands to extend and collaborate in an attempt to grow their brand equity and create new revenue streams through a long tail of new customers, attracted by the perception and association of a luxury lifestyle.
Given that luxury branding is as much about innovation as it is about tradition, brand managers take considerable risks when creating extensions, which if they go wrong can significantly damage core brand reputation. But how far should a brand extend itself from its core principles?

The Lamborghini Model

Italian supercar brand Lamborghini sell a range of accessories with three separate target customer groups in mind:

  1. High wealth individuals who have the means to purchase one of their cars (and consequently reinforcing their brand status).
  2. Aspiring car owners — those who may not have the finances to buy a Lamborghini but would like to project the appearance that they do.
  3. Fans – simply fans of the brand.

Lamborghini has developed its accessories product lines to match these target groups:

  1. High end accessories — €10,000 fountain pens, €5,000 bracelets (for men), €5,000 carbon fibre bags, personalised computers with the Lamborghini logo and made in carbon fibre, personalised baggage sets, etc., crystal car models, one-off car drawings — all extremely costly and only accessible to the very wealthy.

  2. Mid-end accessories — slightly cheaper bags and briefcases, clothing — shirts, trousers, shoes, t-shirts, jackets, scarves, leather driving gloves, beachwear, silver/gold key-rings

  3. Low-end accessories — post-cards, pens, iPad and iPhone covers, baseball caps, exercise books, key-rings, mass-produced car models, car toys (Lamborghini LEGO), calendars, etc.
    In addition to the above, Lamborghini also grants licensing deals with companies like LEGO, toy car manufacturers, video games developers (etc.) which provide a healthy income stream to the brand whilst also building brand recognition and winning new brand devotees (who may later have the means to purchase their primary products).
    [note: High end car brands do not suffer from the faking of their products in the way that Handbag, Fashion Accessories or Watch brands do — it is simply too expensive and difficult to produce a fake car. This stops them from having to worry about a watering-down of their brand.]

A Risky Strategy

Brands such as Pierre Cardin suffered from over-extending themselves, while more recently Pringle’s rather ill-fated attempts to move into the luxury goods market have been a lesson for many that brand extensions do not always go to plan. My own opinion, however, of the luxury brand extension strategies is that they have largely been well thought through, with few failures recorded.
Although brand extensions have risks, these are highly dependent on critical factors such as the brand heritage, the prevailing market, prevailing reputation and the core brand strength. For example, Prada made the transition from selling shoes to handbags and Gucci has no problems in extending their brand lines. What seems important in any brand extension is that the brand must give a credible reason or justification of why the new product line is appropriate to the brand and its values.

The primacy of design is fundamental to any new luxury product or service, which is well illustrated by Bentley’s own brand extension. In August 2013 the German-owned British luxury car maker launched a range of luxury leather handbags retailing between $5-7,000. The Barnato and Continental handbags very much reflect the style and design of the car manufacturer, creating powerful congruence. But true to luxury strategy, Bentley has restricted both access and sales, only allowing customers to acquire the bags via their car showrooms.

Mercedes has also joined in the handbags market by offering its so-called Burn Out bags, which are bags that have been driven over by a Mercedes and have a unique tyre pattern imprinted on each bag. Porsche and Bugatti have their own bag designs, reinforcing the importance that many luxury car manufacturers place on extensions as a way of increasing market share and growing brand awareness.

Various luxury brands are extending themselves further into brand lifestyle and experience. The hotel market has seen names such as Baccarat, Bulgari and Armani develop their own hotels, which attempt to project the values, ethos and elegance that the core brands convey.
Arguably, those luxury brands that connote a more symbolic rather than functional value are more likely to succeed. When shifting a luxury brand into a non-adjacent category, it is vital that the brand in question has the symbolic attributes that can be transferred to the new category, which reinforces the credibility behind the move in customers’ estimation. Brand extensions must never negate the brand narrative and the brand’s legacy through an extension, and in so doing, deny its values and historic roots.

Hublot, the Swiss luxury watch maker, has made some very distinctive extensions of its core watch brand. Hublot now offer bicycles, skies, sleds, spectacles, key rings, pens, cufflinks and even loudspeakers. The credible thread in these new categories is Hublot’s affinity with the future and technology as epitomised in their watches. Hublot are in my opinion a very good example of a luxury brand that is extending itself in a manner that does not deny its core values or dilute its principal brand offering.

Given that we live in an age of access, luxury and premium goods are becoming available to a much younger, often better informed and educated population who are not only interested in products, but equally aspire to a luxury lifestyle and luxury experience. Whatever the trends, the luxury sector seems largely immune from economic cycles and market fluctuations, reinforcing the resilience of luxury, which is further reinforced by the growth of the luxury sector in the Middle East and BRIC countries.

Brands such as Burberry have helped to “democratise luxury” while in a similar vein, Louis Vuitton along with others have been accused of “mass-produced luxury”, which despite being a contradiction in terms, is also to some extent a reality, allowing luxury to be accessed by many through mass production and availability. In November 2013, Forbes estimated that the LV’s brand was worth $28 billion. With sales of $9.4 billion, this makes Louis Vuitton the world’s tenth most powerful brand in 2013.

China is undoubtedly a principal catalyst behind this shift as are customers’ raised awareness, education and higher disposable incomes. That said, luxury should never lose sight of its mystique, aura and above all, meaningful difference. The luxury global market is not only resilient, but growing – despite the effects of the global recession. Sales in Europe have indeed fallen, but this has been offset by the swathes of new middle class customers in the emerging economies, all keen to buy into the cachet offered by these luxury brands.

Is the term luxury losing its original meaning and becoming a postmodern victim? Time will tell.

John Dalton, Director of LSPR
Rhys Webber, Lecturer/Consultant LSPR

26/09/2014

Read More from LSPR:

Leave a Reply