How Far Can Luxury Brands Travel Avoiding the Pitfalls of Luxury Brand Extension

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Business Horizons (2009) 52, 187—197

www.elsevier.com/locate/bushor

How far can luxury brands travel? Avoiding the pitfalls of luxury brand extension Mergen Reddy a, Nic Terblanche b, Leyland Pitt c,*, Michael Parent c a

Capgemini Consulting, P.O. Box 785827, Sandton, 2146, South Africa Stellenbosch University, Private Bag X1, Matieland, 7602, South Africa c Segal Graduate School of Business, Simon Fraser University, 500 Granville Street, Vancouver, BC V6C 1W6, Canada b

KEYWORDS
Luxury brands; Brand extensions; Degree of adjacency; Premium adjacency matrix

Abstract Brand extensions are always tempting to marketers, and in the case of luxury brands the allure is particularly strong. While the path to luxury brand success may be partly paved with extensions, there are even more examples of brand extension disasters that litter the way. Brand extensions continue to be among the most researched and studied phenomena in marketing. When it comes to luxury brands, however, the factors that lead to successful extension have received far less attention. In this article, we consider the notion of perceived premium degree of the brand as a function of its category, and what we term the degree of adjacency between its product categories. Building on our research, which found that a luxury brand’s perceived premium degree has a different impact on profitability depending on whether or not the brand is spread across adjacent product categories, we demonstrate when luxury brand extensions work–—and when they fail. Perhaps most importantly, we herein introduce the premium adjacency matrix as a tool for luxury brand managers to consider in formulating extension strategies. # 2008 Kelley School of Business, Indiana University. All rights reserved.

1. The temptation of luxury brand extension
While there are almost as many opinions on fine wines as there are wines and wine critics, most * Corresponding author. E-mail addresses: mereddy@deloitte.co.za (M. Reddy), nst@sun.ac.za (N. Terblanche), lpitt@sfu.ca (L. Pitt), mparent@sfu.ca (M. Parent).

would agree that Chateau Margaux, the famous ˆ Bordeaux first growth, is up there with the very best. It is a wine of which author William Styron (1992) wrote, in the novel Sophie’s Choice, ‘‘when you live a good life like a saint and die, that must be what they make you to drink in paradise’’ (p. 151). It would be a marketer’s dream to extend the Chateau ˆ Margaux brand. It could perhaps be broadened to less rare, more readily available early drinking wines. Or, partnerships with wineries in other countries

0007-6813/$ — see front matter # 2008 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2008.11.001

188 could be formed. It might even be extended to other beverages, or to a range of gourmet food products. It could even encompass hospitality offerings or a selection of durable luxury goods. So far, though, Chateau Margaux has resisted the ˆ temptation to extend the legendary brand to anything other than great wines–—and only three, at that (Deighton et al., 2006). In contrast, first growth competitors such as Chateau Haut-Brion and ˆ Chateau Mouton-Rothschild have extended their ˆ brands in a number of ways. Haut-Brion markets a wine called Clarendelle at around $20 a bottle. Mouton-Rothschild, through alliance with Mondavi in California, produces and markets Opus One for about $250 a bottle; partnered with Vina Concha y ˜ Toro in Chile, it produces and markets Almaviva for around $75 a bottle. While these are premium priced wines, they never reach the heady price levels of first growths; for example, a 2000 Chateau Margaux will ˆ sell for approximately $900 per bottle. MoutonRothschild also mass markets red and white wines, at a price point less than $20 per bottle, under the Mouton Cadet label. Even the legendary Chateau ˆ Petrus has a brand of merlot associated with it which ´ sells for under $20 a bottle. While estimates of its size...
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