June 20, 2013

Are Step-Down Line Extensions a Good Idea?

A brand extension in its simplest form is a strategy in which a well-established brand name is extended to a new product in a different product category. Sometimes brand extensions work, and sometimes they don’t, but for the purpose of this post we’re going to look at a specific niche of brand extensions: step-down line extensions (also called downscale extensions) for luxury brands.


A step-down line extension is when a brand introduces a new product that is perceived to be or marketed as lower quality than other products it currently sells. Implementing a strategy like this has clear pros and cons. The pros of step-down line extensions very heavily favor financial and awareness growth, but on the flipside, the cons most revolve around diluting the brand’s equity and reputation.


More and more brands are testing out this strategy. From Polo Ralph Lauren, Armani and most recently Whole Foods, brands are constantly trying to redefine messages and come up with new ways to reach customers and step-down line extensions is one of those ways. While I tend to see more merit in why you shouldn’t introduce a step-down line extension, the strategy isn’t completely flawed.


Luxury brands have an interesting dilemma when it comes to their brands and profitability. Even though there is a strong desire for their brands and each product has a high margin, purchasing happens in low volumes. Maintaining a healthy cash flow into the brand can be tough. By departing from a strictly luxury market, luxury brands are given the ability to grow more quickly and reach certain financial goals. Stretching past luxury markets builds mass-market awareness, expands advertising opportunities, and ultimately gets the brand/products into the hands of more consumers, and, in turn, creates steady revenue for the brand.


Steady revenue, sounds great doesn’t it? But, from a branding perspective, is it really that great for a luxury brand to introduce a step-down line extension?


When a luxury brand introduces a lower quality product, the brand is doing so at great risk to the equity of its original brand. The greatest risk, of course, is the chance that the luxury brand will lose its status by being associated to the new product, therefore changing the course of the brand altogether. Consumers who once trusted the quality of a brand may change their opinion if they feel the luxury brand is no longer highly focused on making the best version of a product, but rather spreading itself thin by introducing additional products. Aside from the quality of a luxury brand, the worst thing it could lose is its own exclusivity, or the very thing that made it desirable in the first place. To maintain control of where the brand is sold, requires a lot of effort, but is time well spent if it prevents dilution to the brand’s value.


The debate that a step-down line extension brings up is, what’s more important: generating a healthy, steady revenue stream or maintaining the value, meaning and promise of your brand? The side you’ll take can probably be answered by asking one question – when you first started your company/brand, were you hoping to reach a mass market or did you seek to create a high-end, best-in-class product that has a more of an exclusive audience?

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