Brand extension can be tricky. If done well, it can strengthen the meaning of the brand. If done poorly, it can dilute the meaning of the brand. It is particularly tricky to extend the brand down from a premium or luxury segment to a more mid-market segment. It is tricky because much of the brand's cache is in the status it confers based on its high price point and exclusivity. By definition, extending the brand down into a more moderate price point decreases the brand's exclusivity and status among its original customer base.
The other trick is how to offer the brand at lower price points without cutting corners on the brand's product or service quality. Can one create a "brand lite" without harming the original brand?
Often, this brand extension decision becomes irreversible.
Frequently, there is customer pressure to offer a lower priced version of the brand, especially among aspirational consumers. Retail chains, especially discount chains, would love to offer luxury brands at a lower price point, promising the brand owner significant unit volume.
Imagine offering a $34,000 version of a $120,000 luxury car. Would it be the same car? How would the lower price point version of the car affect perceptions of the brand? Imagine offering Hermès scarves at a significantly lower price at Kmart. Columbia sportswear took its brand out to the mass channel, creating significant incremental sales volume, but at the cost of not being perceived as being comparable to North Face or Patagonia in quality.
Some brands approach this as a consumer entry strategy. Capture the Millennials with the lower price point, get them hooked on the brand and then lead them up to the higher price points as their incomes rise.
How often have you heard someone say, "That brand used to be good. Now they have watered it down to appeal to the mass market."?
Think about this when you are considering extending a luxury or premium brand down to a more mid-market segment:
- Is it acceptable to us that this might be an irreversible decision?
- Is the incremental sales volume and total profit worth the possible decrease in brand cache?
- If we decide to do this, in what ways can we approach this to minimize the negative impact on our current customers?
- If we do this, how will our brand's products and services vary across the price segments?
- Could using a sub-brand help us achieve this?
- At the same time we are making our brand more accessible to more people, can we also create an even more exclusive version of the brand for our historically loyal customers?