Joaquim Oliveira

We don't need to go all the way back to Greek mythology to find a way to turn objects into gold.

The new version of the Midas Touch seems to be premium brand's value as shown by the evolution of consumer's behaviour and also through a recent study by the American Journal of Consumer Psychology that seems to be the proof that the human mind perception is highly susceptible to marketing messages. In a nutshell: two groups of people were given two identical products to compare; Group I was told one was from a premium luxury manufacturer and Group II was left to judge without any information. The result was crystal clear: the group that did not know the origin of the products rated the two products at a much more even level.

The osmosis-like process through which a brand's value is perceived is similar in most industries and has been exploited by luxury jewellery brands like Bulgari or Cartier, among others, with very positive results. Today we witness a growing trend in automotive brands to follow this same path well beyond merchandising (which is a relatively new income source which sports and luxury manufacturers are already exploiting: think about Ferrari, Lamborghini or Bentley clothing and accessory stores around the world).

A good example is the web based Business Innovation Community created by Mercedes six years ago which had a number of merits since day one. No less than 58 business ideas and 11 pilot projects were initiated in the first two years (Car2Go, Car2gether, Driving Academy are just a few examples) but also other parallel thinking outside the realm of cars generated a new movement inside the company that is seeking to use the Mercedes brand value to promote other products (houses, furniture, etc).

However, this Midas touch should not be overdone as it may not only jeopardise the success of the new product but also the value of the established brand itself. If Audi or Jaguar decide to brand a cheese it had better be a damn good cheese and it must be distributed as such, through exclusive upscale stores or even being served at home to selected customers by a thoughtful garçon with a residual French accent.

There are several examples of how delicate brand expansion is. Pierre Cardin got greedy in the mid-80s when it decided to grant over 800 licenses for different goods in almost 100 countries globally. Yes, at first profits went sky high (over $1 billion annual revenue) but a collateral effect dangerously harmed the brand's value shortly after the odd Pierre Cardin logo appearances on baseball caps and cigarettes. And many would argue that it hasn't fully recovered to its original high status ever since. A similar phenomena led Diane Von Fursterberg from being "the most marketable woman since Coco Chanel" (as defined by Newsweek in 1976) as it moved from designing dresses to creating fragrances, luggage, eyewear, jeans and books to having to sell the design and cosmetic houses to pay off debts a decade later.

A Harvard Business Review´s study in the beginning of this century helps to understand what happened. After x—raying 150 luxury brands, interviewing 300 executives and dissecting a decade of financial results for each of those brands the study concluded that the brand extension is successful (i.e, profitable on the long run) if the new businesses are done in product categories adjacent to the core brand.

Affluent luxury customers tend to stick to their long-established preferred premium brands and they will inspire younger wealthy consumers to follow them. But they will not, however, forgive treason.

Joaquim Oliveira

Joaquim Oliveira

European Car of the Year Jury Member

Aug. 19, 2016 Columns › Joaquim Oliveira

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