Success Drivers for Vertical Brand Extensions in the Luxury Sector

Abstract: In today's competitive environment, the ability to successfully launch new products at reasonably costs is considered a key success factor for leading brand manufacturers, which is why vertically leveraging existing brands becomes more significant. This is particularly exhibited by the luxury sector, which is increasingly attempting to launch new accessible product lines under an existing brand name in order to reach a larger consumer base and consequently increase profits and sales. Even though the importance of vertical brand extensions is increasing, the high amount of failed extensions highlights the importance to understand what determines a successful brand extension. In order to address this issue, the purpose of this study is to describe success drivers for vertical brand extensions in the luxury sector and to further craft a model depicting the relationship between success drivers and effects of vertical brand extensions. In this context, a theoretical framework combining positive and negative effects as well as internal and external success drivers for vertical brand extensions in the luxury sector is developed. A qualitative case study incorporating eleven interviews in four luxury goods companies is built upon a pre-study with a leading strategic management consultancy. The findings from the case study are compared and contrasted within the theoretical framework in a combination of within- and cross-case analysis making it possible to identify and complement the major elements of the theoretical framework in practice. In this regard, the positive effects are composed of financial contribution, increase of brand awareness, reinforcement of brand image, revitalisation/repositioning and consumer development, while the negative effects consist of brand cannibalisation, tarnishing of brand prestige, dilution of brand image and negative feedback effects among existing consumers. Building up on these effects, the internal success drivers defined are legitimacy, strategic marketing abilities and operative marketing abilities, while the external success drivers are parent brand strength, conceptual fit, brand concept consistency and risk evaluation. With regard to the relationship between success drivers and effects of vertical brand extensions, a bilateral connection between both domains is observed, since success drivers are not only derived from the effects, but in turn also shape the effects. Furthermore, empirical evidence suggests that the newly developed domain of framework conditions, including company-, industry- and country-specific characteristics, takes high influence on both effects and success drivers. These findings are eventually depicted by a theoretically anchored and empirically guided model, which allows the authors to describe success drivers of vertical brand extensions in the luxury sector in detail and to visualise the relationship between success drivers and effects.