A
striking part of this week's case was the class discussion on brand protection:
once you have built a brand, you need to maintain that part of your identity as
it is critical to your business. During class, we discussed a number of brands
who had established specific reputations that then tried to expand, whether it
was Starbucks trying to elevate to higher-end locations or Thomas Keller developing
the more affordable Bouchon restaurant. Executed well, these strategies can
help to expand a company’s audience but done incorrectly, it can hurt the
overall brand.
During my
summer internship at Target in 2012, I had the opportunity to see the execution
of Target’s collaboration with Neiman Marcus. The value proposition of this
initiative seemed so obvious. Place Christmas gifts designed by Neiman Marcus
quality designers (e.g., Marc Jacobs) in Target shops so that:
- Neiman Marcus could enjoy the scale of Target’s retail footprint and open itself to a different audience
- Target could bring higher-end products to its customers and differentiate itself from other retailers (e.g., Walmart)
What seemed
to be a homerun idea ended up being one of many financial disasters that
ultimately led to Target’s public layoffs in 2014. There were a number of key
mistakes that were made in this initiative:
- Quality vs. Price: Target and Neiman Marcus emphasized that the success of this initiative would be attributed to the cross-traffic that each retailer would receive from the others’ audiences. Both Target and Neiman Marcus placed the products in its stores to improve each other’s brand recognition but this ultimately ended in failure. Neiman Marcus customers reported seeing the products in-store and noticing the lower quality compared to other Neiman Marcus designer products. Target customers perused the gifts and noted the much higher prices compared to what they would typically allocate to a Target. The mismatch of quality and price resulted in high inventory levels that ended up having to be highly discounted.
- Consumer Needs: In internal discussions, Target and Neiman Marcus mentioned how their customers were similar in both wanting high-quality items. This was an incorrect assumption as even if customers shopped at both locations, the products they were purchasing at each were not the same. Customers shopping at Neiman Marcus for gifts were not also shopping for similar items at Target and this idea of a “common customer” was a key part of the initiative’s downfall.
In relating
this to our DBR case, it is critical to keep brand image in mind when executing
any type of initiative that is attempting to extend the brand or reach a
different target audience. Placing a brand on another product does not
translate to success. If the new product is not in the customer’s preferences,
this could lead to brand dilution and customer confusion. Although DBR's Collection line is bringing in high revenues for the overall company, this short-term success could come at the cost of a long-term strategy.
JZ - I really enjoyed the parallels to the retail industry (something I know as little about as wine!) I agree it is critical to keep brand image in mind when executing on new initiatives. However, to relate it back to DBR, I still am not completely convinced that their move into other markets was a bad idea. I understand how precious and rare it is to develop a luxury brand image and as Professor Rapp said "you need to protect it at all costs," but at the same time I think DBR was smart to diversify its revenue streams. Buying additional Bordeaux chateaus, leads to more reliance on one revenue stream. Who know where wine goes? As the global middle class continues to grow (especially in China and India), maybe the % of wine sold under $15 jumps to the mid-to-high 90s. In that case, DBR's ability to grow substantially decreases if most of their product is $1000 bottles. Sure, DBR puts their stamp on each bottle which diminishes the higher quality offerings, but by picking a new name for each regions wine brand, I do not see the risk as THAT high compared to the potential reward by diversifying assets and attracting a broader swath of wine enthusiasts globally. From your post, I see this did not work for Neiman/Target, but in my mind it is different when brand names are different in each country as it is hard to see the same demographic buying a $15 bottle of DBR wine from Portugal, and a $1000 French Bordeaux.
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