Dr Nermeen Mustafa is the Global Director of the Business Administration programme at the Edinburgh Business School. Dr Mustafa is an experienced strategy consultant and speaker who specialises in topics related to innovation and new product development, particularly those related to luxury and creative industries. Her research studies examined competitive strategies in the perfume industry and the fashion industry.
Brand diversification is one of the most critical decision processes for organisations. While diversification can offer significant rewards, it also comes with inherent risks. The decision process and its execution are particularly nuanced in the context of luxury brands, and each decision must uphold the brand’s status-driven image and resonate with its discerning clientele.
Luxury brands, renowned for their exclusivity and allure, are venturing into diverse industries such as hospitality, gastronomy, and beyond, thus leveraging their brand names through diversification. Examples include luxury fashion house Dior, which expanded into gastronomy through the launch of Monsieur Dior restaurant and channels the designer’s culinary preferences. Similarly, Breitling, a leading luxury watchmaker, has ventured into gastronomy with its café in Seoul and restaurant in Geneva. Collaborations with other organisations are also paving the way for luxury brands to enter new markets and offer novel services. For instance, the Clarins brand, synonymous with skincare and well-being, has merged with the Evok Collection hotel group, creating a synergy that enhances the growth of Clarins spas. Moreover, luxury fashion houses such as Elie Saab and Fendi have expanded into real estate, cosmetics, and furniture design. Armani and Bulgari have diversified into hospitality, broadening their scope beyond fashion and accessories.
While diversification into gastronomy, real estate, and other sectors allows luxury brands to engage consumers in innovative ways, it also presents a number of risks. Dilution of the brand’s essence is a considerable risk, particularly if the brand is not fully in control of the pricing, distribution, and product design. Maintaining consistency with the brand’s DNA across diversification projects is crucial yet challenging. This is due to the fact that translating intangible brand values into tangible products or across the marketing mix of services requires a deep understanding and clarity of the brand’s values and positioning; it also requires precision in executing those values and meanings into different realms.
Translating the essence of a luxury brand into gastronomic delights or other ventures demands a deep understanding of the brand’s DNA. Technological advancements, including AI and Web5, may facilitate this process by enabling the conversion of sensory elements across different mediums. This transformation could see poems transformed into paintings, fragrances into songs, and songs into architectural designs, offering endless possibilities for luxury brands to expand their sensory experiences.
Managerial Implications of Luxury Brand Diversification
Luxury brand diversification, once a rarity, has become increasingly prevalent in today’s competitive marketplace. At its core, luxury brand diversification involves extending a brand’s offerings beyond its traditional product lines into new industries or market segments and potentially serving a new client segment. This strategic move is driven by various factors, including the pursuit of growth opportunities, the desire to attract new customer segments, and the need to mitigate risks associated with market fluctuations, particularly as witnessed by recent global economies. For most luxury brands, one of the primary motivations behind diversification is the quest for sustained growth. Diversification allows luxury brands to tap into new revenue streams and capitalise on emerging market trends while leveraging brand equity to command premium prices in these new markets.
Knowledge and clarity of the brand’s DNA and essence is a crucial pre-requisite for a successful diversification strategy. This must be clearly audited, clarified, and focussed before venturing into such projects. Once this is clearly identified, all stakeholders involved in such ventures are better equipped and further aligned. This also facilitates the alignment of the unique brand values across multiple sensory experiences such as taste, touch, smell, visual, and sound.
Moreover, it is crucial that such brands maintain consistency and coherence across diversified products or services. Luxury brands must ensure that the quality, design, and customer experience are aligned with their brand ethos, regardless of the industry or market segment. This requires careful oversight and coordination to uphold the brand’s reputation for excellence, refinement, quality, and innovation. Furthermore, successfully entering new markets requires an in-depth understanding of consumer preferences, market dynamics, and competitive landscapes. Luxury brands must be prepared to allocate resources and expertise to support their diversification efforts effectively. Organisations will need to ensure that diversification plans align closely with the organisation’s intent, as well as the availability of resources and capabilities. Secondly, it is important to thoroughly scan the environment before undertaking such decisions.
Navigating the path to luxury brand diversification requires a delicate balance between innovation and brand integrity. By embracing strategic diversification initiatives and leveraging technological advancements, luxury brands can unlock new avenues for growth and innovation while safeguarding their brand DNA.
Despite these challenges, luxury brand diversification offers compelling opportunities for growth and innovation. By expanding their offerings strategically and thoughtfully, luxury brands can strengthen their competitive position, enhance customer engagement, and drive sustainable long-term value creation. While the journey may be fraught with challenges, the potential rewards are significant for those brands that embrace diversification with vision, discipline, and creativity. Luxury brands are built on a foundation of heritage, craftsmanship, and exclusivity, and any diversification efforts must be consistent with those unique associations synonymous with the brand.