Brand extensions, fit issues and dilution
Remember Pierre Cardin? When reading the case on Burberry, one thing the then CEO said really stuck out for me. Rose Marie Bravo said of the brand when she first took over: "The company not only lack ed a cohesive vision, it lacked the discipline necessary for a luxury goods retailer."
Luxury goods have to manage the twin tension of wanting to sell more products (volume drives down production costs and also brings in more sales revenue), while wanting to remain exclusive and desirable. Take it too far down the volume route and you get "brand dilution", the textbook example being Pierre Cardin. Back in Asia, Pierre Cardin is associated with value-for-money, mid-priced underwear, random things like a non-high-end range of leather goods (handbags, small pouches), t-shirts for older men, and cheap perfume. All things middling and certainly not luxury status. Pierre Cardin items are even available on Amazon! I was surprised to google the name and find the designer had a haute couture line!
I like what a HBR article had to say about Pierre Cardin's mistake:
"By 1988, it had granted more than 800 licenses in 94 countries, generating a $1 billion annual revenue stream—and profits plummeted. It wasn’t until the Pierre Cardin name started appearing on wildly nonadjacent products such as baseball caps and cigarettes that margins collapsed. Initially, the brand extensions into the perfumes and cosmetics categories were successful because the premium degree of the Pierre Cardin brand transferred undiminished into the new, adjacent categories. The owners of Pierre Cardin, unfortunately, attributed this to the strength of the brand rather than to the brand’s fit with the new product categories." ~How not to extend your luxury brand, Mergen Reddy and Nic Terblanche
Why do some brands make the transition to non-adjacent product lines, while some don't? The same article mentions that the difference is understanding whether the core brand's value is primarily symbolic or functional in the eyes of consumers. Symbolic valued brands can make the leap more easily into non-adjacent product lines because the symbolic power allows for more flexible fit with a wide range of products. For example, Bulgari is a symbol of luxury, so a Bulgari range of hotel furnishings makes sense. Whereas a Porsche (functional value) range of hotel furnishings does not.
Theories aside, I say greed plays a role as well, and I would focus on the core of the brand's products rather than play the dangerous extension or licensing game. In the short term, brand extensions can see like easy money, but in the long, they can damage the equity of the brand irreparably, like in the case of Pierre Cardin.
