luxury brand extensions

I am a fan of classic watches. The product itself is a marvel of craftsmanship, precision engineering, and design. Add heritage to the mix and you have the perfect ingredients of a luxury brand.

Professionally, the watch industry offers valuable lessons in premium and luxury brand management.

As a casual industry observer, the launch of the new Baume watch brand by Swiss luxury conglomerate Richemont Group offered the opportunity to address an increasingly popular strategy: luxury brand extensions.

Has the Luxury Industry Lost Its Luster?

The strategy behind the new brand (almost) make sense. Penetrating a new segment in such a conservative category, requires bold moves, and Baume seems committed to tackle many of the challenges the luxury watchmaking industry is facing.

The primary product function (indicating time) has become irrelevant in the decision to buy a watch rather than using the smartphones and smart watches. According to Julien Tornare, CEO of Swiss luxury watchmaker Zenith, “Mechanical watches are not there anymore to have the primary function of indicating the time. Their role is to present part of our personality.

Luxury brands have long been criticised for their business practices, expanding from the materials used in their products, to supply chain management issues. Luxury brands such as Burberry came under intense consumer scrutiny for their practice of burning excess inventory to protect the brand from counterfeits, and the materials used in their products.

Luxury brands often lack transparency, and have become very profit oriented. The segment is dominated by 3 conglomerates that are publicly-traded companies, in a continuous pursuit to acquire independent luxury brands. Many feel these luxury brands have lost their luxury DNA, and have abandoned their artisan, family oriented roots.

Supporting the point above, production of many luxury products has been moved to low-cost manufacturing countries with questionable labour practices. Few luxury brands are openly admitting this practice, however consumers are starting to take notice. This practice goes against their brand’s DNA and certainly provides no justification for high prices.

The Brand Extension Temptation

Brand extensions are a very tempting growth strategy. Leveraging a name consumers are already familiar with lends instant credibility.

This Baume brand poses a strategic dilemma; while the brand name is an obvious offshoot of Baume & Mercier, its positioning and go-to-market strategy is the complete opposite of the traditional luxury model.

According to the company management, Baume aims to become relevant to an audience traditional luxury brands fail to capture: the environmentally –conscious, sustainable consumption consumer.

Baume watches are made using responsible-sourced, natural, recycled and upcycled material, without the use of any precious metals and stones, or animal materials.

The brand uses a direct-to-consumer distribution model via its own website, rather than the traditional brick and mortar, or company-owned stores.

There Is Only One Problem

The sustainable consumption trend is very popular, especially with the younger audience Baume is targeting, so the brand’s positioning makes perfect sense. With one exception: its name.

The Baume name creates an instant connection to the established Baume & Mercier and signals to consumers the watchmaking expertise.

However, the Baume name poses a great risk, of the luxury brand losing its cache. Why should luxury shoppers continue to buy into the Baume & Mercier story, when they can have almost the same name on their wrist, at a lesser cost?

Luxury brands, just like ordinary and premium brands, go through a period of transformation, adaptation and soul searching. Protecting the brand cache, and selling the dream, require carefully-planned and prudent strategic decisions.

Moreover, the eco-friendly, sustainable brand positioning, while great in theory, often fail to produce sales results. Since the Baume name comes with an existing “baggage”, and management should really question the brand’s ability to extend from the “luxury” to the “sustainable” space.

Nike “Considered”

Nike tried a similar strategy with the “Considered” line of products, in 2005. Despite the glowing press reviews and positive PR the brand received, the products fail to sell. It turns out the sustainability positioning was too drastic of a departure from the brand’s “performance” image.

Less Risky Strategic Alternatives to Luxury Brand Extensions

While the need for growth is understandable, there are a few less risky strategies a luxury brand can employ, to avoid alienating existing customers.

One strategy is to reposition a brand you currently own rather than launching a new one. This strategy works best for companies with a large brand portfolio, such us the Richemont Group, and its many watch brands: Vacheron Constantin, A. Lange & Söhne, Jaeger-LeCoultre, Roger Dubuis, Piaget, IWC Schaffhausen, Officine Panerai, Ralph Lauren, Baume & Mercier, Cartier, Van Cleef & Arpels, Montblanc, Dunhill.  Why not reposition one of these brands as a “sustainable” alternative, rather than creating an offshoot of a reputable, heritage brand?

Secondly, the company can make the parent brand slightly more accessible to new consumer groups. One option, commonly used by premium car manufacturers, is to offer entry-level models with fewer features but featuring the prestige badge in front. These lost leaders are meant to attract a younger audience who aspire to drive a premium vehicle. Going back to our case study, the price gap between Baume and the parent brand’s entry level models is a few hundred dollars. Why not launch a “sustainable” entry-level model under the parent brand, even if less profitable, and allow the customer to take pride in wearing a Baume & Mercier?

A third strategy is to focus on capturing market share with the existing brand. The luxury market is constantly evolving both geographically and demographically. Rather than investing in launching a new brand from scratch, companies might find it easier to adapt, extend and reinvent themselves for organic growth.

As the luxury industry becomes more polarised, we will witness more attempts to leverage established names into new territories, be it demographic, geographic, or simply a new mindset.

Baume has a lot of things going for it; however “borrowing” the name of established luxury brand comes with inherent risks. Only time will tell if the strategic bet will pay dividends and Baume will become the independent, self-sustaining brand it wants to be.

In the next article I will continue the journey into the watch industry. The focus will be on another brand introduction, in the same category, with the same positioning, and brilliant strategy and execution.

Image Credit: BaumeWatches.com