new luxury positioning

Coach finally comes to Europe

Snapshot of the Coach web site

Coach and Affordable Luxury brand strategy

Coach -- a brand of hand bags from the US -- has frequently featured in class discussions during my marketing courses.  One could argue that its phenomenal brand success story can be attributed to a carefully orchestrated strategy of affordable luxury -- selling high quality bags at high prices, and at high volumes. In fact, its success has been so big that it has posted sales of $ 3.5 billion in the United States in the last financial year.

I knew about Coach not only from my nerdy MBA books.  I visited a Coach shop for the first time during my first visit to the US, back in 1994.  I went to a Coach shop again in 2000, when I was studying in Boston.

Both times, I was almost mesmerized by the almost magical effect that this brand seemed to have on those who visited its stores.  American women looked happy and proud to leave with a new status symbol in their hands.

But to the Europeans, spoiled by  a massive choice of high quality brands of hand bags, Coach has been literally unknown. With the competition so fierce, no wonder Coach waited for so long before entering Europe.

Coach in Europe -- lessons for other American brands

And finally, here it is. It chose to open its first European shop-in-shop in Paris -- a logical choice of the iconic capital of European fashion and style. The grand opening took place at Printemps on August 31st.

The distribution strategy that Coach will adopt will play an extremely important role for the degree of its brand success in Europe.  Provided it is able to compete with many European brands in the same product category, it will establish a good pathway for other American affordable luxury brands in Europe.

A specific US brand with a successful affordable luxury positioning is Victoria's Secret.  A sure winner on the US market, Victoria's Secret is likely to face a challenge of many established lingerie brands on the European market. It should closely watch Coach and learn lessons from its brand strategy in Europe.

Diffusion brands vs parent brands

A significant advantage that successful luxury brands have, is that they have a good chance to launch diffision brands. Diffusion brands are a form of a line extension, discussed before.  They are “step-down line extensions of existing  luxury brands, normally less expensive than the  main-line merchandise.” ((How Young Adult Consumers Evaluate Diffusion Brands: Effects of Brand Loyalty and Status Consumption, Ian Phau Edith Cheong , Journal of International Consumer Marketing, 21:109–123, 2009))  They are often called second lines, subbrands and endorsed brands. Think of them as “children” of their more established “parent brands”.

Armani dot com screenshot

Examples of diffusion brands abound in the fashion world, for instance. Armani launched  Armani Exchange, Calvin Klein introduced CK, and Prada started a diffusion brand with a whole new name: Miu Miu. In all of these cases, the important condition for introducing diffusion brands was very high brand loyalty and brand recognition of parent brands. In other words, unless the brand equity of your parent brand is high, it might not be even a good idea to start considering diffusion brand launches.

There are several observations that I want to make in relations to diffusion brands:

  1. By launching a diffusion brand, a parent luxury brand de facto enters a whole new world of new luxury (also referred to as mass luxury and affordable luxury). I wrote on this subject before. New luxury is where many funky or funky-to-be brands develop.  If done properly, the new luxury positioning can bring enormous benefits to both: a child brand and the parent.
  2. Diffusion brands are a good way to target consumers who are usually much younger than the main target market of parent brands. They can tap well into the trend of status consumption, “The motivational process by which individuals strive to improve their status through the conspicuous consumption of consumer products that confer and symbolize status both for the individual and surrounding significant others.” ((Status consumption in consumer behavior: scale development and validation, Eastman, J. K., Goldsmith, R. E., and Flynn, L. R.  Journal of Marketing Theory and Practice. Summer 1999, 41–52.))
  3. Empirical research demonstrates ((Phau, Cheung, Journal of International Consumer Marketing, 21:109–123, 2009)) that diffusion brands have the same quality and status perception among younger target market as parent brands. This is a great way to appeal to a younger audience, and chances are that it will later on develop preferences for the parent brand as well.
  4. Importantly, the success of diffusion brands is often determined by a brand naming strategy. To put it simply, if a child brand bears the name of the parent (like Armani Exchange has a name of the parent brand, Armani), the benefits reaped from the existing status of a parent brand are almost immediate. If, however, a child brand is given a totally new name (Miu Miu vs Prada), such benefits are much less apparent. ((ibid.))

Armani Exchange screenshot

Diffusion brands are not a phenomenon characteristic exclusively for luxury products and services. On the contrary, they frequently occur in a very vast and complex area of brand architecture.