1. Brand Equity: Background
The growing complexity of business across borders has made brand enhancement more necessary. Given how brands, local and global, are increasingly exposed to risks of manipulation, unlicensed extensions or unauthorized adoption (particularly abroad), safeguards against possible breaches are more and more adopted and implemented. The case for brand management cannot, in fact, be overemphasized. As products and/or services are becoming increasingly valued based not only on physical or concrete attributes but also, significantly, based on brand associations in consumer mind. If in conventional branding methods, physical or concrete attributes are comparatively easier in measurement (in light of quarter sales based on specific product and/or service benefits), less physical or concrete attributes (e.g. status) are harder and, increasingly, more significant in leveraging a brand's value. Moreover, a successful brand could be "extended" (explained in further detail later) into another product and/or service category in order to help leverage a new product and/or service. The case for brand equity cannot, accordingly, be overemphasized in current business practice. To better understand brand equity, management and extension, a closer look is required. This section aims, hence, to offer a brief conceptual presentation of brand equity. (The associated concepts of brand management and brand extension are discussed in further detail in subsequent sections.)
Brand equity is, primarily, about a product and/or service recognition by consumers leading up, in case of positive or favorable associations, to increasing sales volume (i.e. market share) and by repeat purchases, consumer loyalty ("Brand Equity"). Further, brands grow or decline in power as to be defining of products and/or services falling into a same or similar category ("Brand Equity"). For example, by referring to a mailing service as saying "FedEx" something, one may in fact be referring to a completely different mailing service. This power, if anything, is attributed to strong associations in consumer mind by virtue of product and/or service quality, for example. Conversely, a product and/or service is said to be of "bad" brand reputation because of a confirmed damage to consumers, for example. If anything, damages caused to consumers because of a bad brand can be attributed to an endless list of physical and non-physical product and/or service attributes. Notably, if a software has been proven of confirmed system glitch (leading to product recall), consumers usually stop using such product and, worse, share bad experiences, leading to further damage not only to one brand but also to company's brand image. Further, brand damage can be caused indirectly. For example, in sponsoring a celebrity athlete, a running shoes company may suffer serious brand image problems to her whole range of product offerings if sponsored athlete has proven to be charged in a case of drug abuse. The brand damage is, in fact, interpreted into direct financial loss, market share and, not least, brand oblivion ("Brand Equity"). Therefore, adopting proper safeguards against brand damage or to further enhance brand equity (i.e. value) has become mandatory in current business ecosystem. Unsurprisingly, brand management and brand extension has evolved as particularly significant areas in marketing methods and strategies. There remains one last note about brand extension before moving on to next section.
In recent years, managing online presence has become an area of growing significant from a brand management and extension perspectives. Mainly, companies are investing more in web platforms, including corporate websites and social media platforms ("Brand Equity"). The issues raised by brand equity in launching online platforms have, indeed, problematized brand management and extension. Mainly, companies face challenges in striking appropriate balance between offline and online brand equity ("Brand Equity"). Given multiplicity of channels and applications, corporate web presence has re-geared conventional branding methods into differentiated, web-oriented methods including, for example, instant customer feedback applications, RSS feeds on brand news and updates and live streaming.
1.1. Brand Equity: Management
In safeguarding against potential brand loss events and/or enhancing brand image, companies are pursuing different management methods. One brand management metric used in measuring a brand's performance in market is sales volume ("Brand Equity"). From a financial perspective, sales volumes show well in spreadsheets – but only in short range. However, a growing body of literature shows how a financial approach to a brand is not enough (Lassar, Mittal and Sharma). True, sales volumes (and forecasting) can be an indicator for brand performance as sales shore up or plummet ("Brand Equity"). However, by investing in brand equity, a company is on a right path of solid brand performance, even if profits are not instant ("Brand Equity"). Thus, performance, value, social image, trustworthiness and commitment represent more effective brand management metrics (Lassar, Mittal and Sharma). Moreover, by being customer-oriented, such metrics become centrally engaged to customer needs and are, accordingly, higher in value (and price) (Lassar, Mittal and Sharma).
The question of brand management becomes particularly more significant in cases of multiple product portfolios (as is shown in more detail shortly). Put more specifically, for companies running different products and/or services across different industries, managing "parent brand" becomes not only a routine marketing effort but a critical, strategic pursuit by which a company's reputation becomes at stake. As is shown in Giorgio Armani's case shortly, opting for more diversified product portfolio could be a bold brand extension step but is, equally, an extremely risky one given strategic stakes involved across different brand categories.
1.2. Brand Equity: Extension
Integral to brand equity concept is brand extension. As a brand grows more in market power, incentives grow in expanding on garnered gains. These incentives assume different forms. However, for current purposes, main focus is on brand extension. Specifically, by confirming market positioning, companies usually seek to extend brand equity into new brand offerings under company's parent brand. Driven by positive financial performance, companies usually expand, prematurely, into new product categories and, often, into completely new business lines. This undeveloped approach to brand extension usually leads to declines in brand equity, if not irreversible damage. The case against premature or inappropriate business match in licensing out brands finds numerous examples in many industries. If anything, Pierre Cardin, Yves St Laurent and Christian Dior – established fashion powerhouses as are – have steadily lost brand equity over years not least because of inadequate brand licenses to companies unable to deliver up to standards expected of respective customers ("Brand extension, with Jacuzzi").
Accordingly, companies are recommended to carefully examine brand extension well before actual decision in order to buffer against potential brand equity damage across different categories and/or business lines. Notably, in extending brands, companies need to predict, initially, how extension would play out upon a new product and/or service launch (Rangaswamy, Burke and Oliva). Specifically, companies need to weigh potential interactions between a parent brand name and a new brand (Rangaswamy, Burke and Oliva). If a new brand, compared to an older one, is shown to be equally preferred by customers, but newer brand is found to be "useful" because of original brand's association in consumer mind as being useful, newer brand is projected for lower value in longer range (Rangaswamy, Burke and Oliva). This finding emphasizes, if anything, how important brand identity is. That is, in extending a brand, affiliate brands need to develop independent brand identity in order to sustain image more enduringly. Moreover, in being independent, a newly extended brand spreads risks of overall damage if directly associated to a parent brand. This aspect of brand extension – i.e. opportunities and challenges in brand extendibility – is examined in more detail in next section.
2. Two Organizations: Apple & Giorgio Armani
The case for brand equity is now an established issue in marketing efforts and branding methods practices and literature. Indeed, increasing reliance on brand power in current business ecosystem as business driver – particularly across web platforms (specifically social media) – cannot be overemphasized. The examples of successful (or disastrous) brand equity management and extension across different product and/or service categories and/or business lines are countless. For current purposes, however, Apple and Giorgio Armani are selected for concept application and examination.
The selection of Apple is justified by numerous reasons. First, Apple is a global brand whose brand equity is one of world's most valuable. Second, Apple enjoys a remarkable brand status in being able to differentiate her different product offerings – at premium prices. Indeed, few companies can afford to balance out quality and price as Apple does, a strategy usually referred to as "dual strategy" in management literature. Third, Apple has a broad range of product categories, each is associated to parent brand but remains uniquely independent as a brand. Fourth, Apple has a solid loyal customer base as to render brand equity a more powerful case for Apple. For current purposes Apple Watch ("Apple Watch") is selected as brand of choice. This is justified, as well, by comparative recentness of Apple Watch, brand's apparent dependency on parent brand's power and, not least, potentials and challenges of Apple's new market offering.
The selection of Giorgio Armani is, meanwhile based on reasons specific to fashion industry. First, Giorgio Armani is an established fashion powerhouse. To be branded – let alone being iconically so – in an industry defined by brands is, if anything, a proof of brand's lasting power. Second, Giorgio Armani has diversified extensively into product categories and business lines outside brand's core fashion offerings and business. Third, Giorgio Armani represents a fashion business pattern in diversifying into product categories and business lines (as noted above) as to merit further examination of potentials and challenges in a fashion brand extension. Fourth, Giorgio Armani is a case in point of a powerful brand which has, so far, been able to sustain consumer loyalty across different product and/or service categories. For current purposes, Armani Hotel Dubai ("Armani Hotel Dubai") is selected as brand of choice. This choice is justified by brand's ambitious extension outside Giorgio Armani's core fashion product categories and/or business lines, brand's comparative recentness, brand's positioning in a location (i.e. Dubai) beyond Giorgio Armani's conventional European and/or North American metropolitan locations and, not least, competitiveness of hospitality industry in a city (Dubai) becoming increasingly a global hub of hospitality business.
2.1. Apple Watch
The introduction of Apple Watch has generated splash in smartwatch industry. Backed by Apple's superior brand power and much hyped pre-launch marketing, Apple Watch has entered smartwatch market as a new offering in Apple's long list of well branded – and pricy – products. Touted as a "revolutionary" mobile device integrating different day-to-day activity monitoring functionalities, Apple Watch has been branded (pre-launch) as a must-have gadget. If anything, Apple Watch has functional benefits as to render acquisition an investment in value.
However, Apple Watch – similar to most, if not all, smartwatches in market particularly ones offered by Samsung – has, if anything, a brand identity crisis. This crisis is rooted in device's positioning in mobile device market, particularly as compared to smartphones. If smartphones now increasingly include functionalities and applications of daily activity monitoring – smartwatch most fundamental differentiated value offering – acquiring a smartwatch becomes, accordingly a cost redundancy.
Given current market landscape, Apple and Samsung exchange market dominance. As smartwatch sales fluctuate between "soaring" and "plummeting", smartwatch market appears to be volatile as to render smartwatch an inadequately branded product. Interestingly, where smartwatch sales are sustained by consumer loyalty for Apple, lower pricing (compared to Apple's premium price) sustains Samsung's sales. However, as pointed out above, brand equity is only sustained initially by a parent brand. If an independent brand identity is not properly developed, a product and/or service is on fast lane of losing appeal to customers, if not causing damage to parent brand. Moreover, in not being positioned, if not branded, as an independent Apple product, competitors would have more concrete proof of early criticisms of Apple's declining capacity for innovation after introducing game changers as iPod, iPhone and iPad.
In balance, Apple Watch has substantial potentials but also uphill challenges. For potentials, Apple Watch – if properly branded in consumer mind as an independent product not only from parent brand bust also from Apple's brand family – is set to introduce differentiated offerings in areas as healthcare management. On flipside, Apple Watch is set for a bumpy ride (downwards) if product identity is not well branded in consumer mind, probably causing damage to Apple's existing brand family, if not future ones.
2.2. Armani Hotel Dubai
The case for hospitality for a fashion powerhouse as Giorgio Armani is particularly interesting. As noted above, brand extension is a strategy companies usually pursue, usually encouraged by recent "solid" financial gains. This expansion in market and extension in brand is equally rewarding and risky, particularly if brand extension is well beyond an original (parent) brand's main product and/or service and/or business line. The decision by Giorgio Armani to expand into hospitality business by launching Armani Hotel Dubai ("Brand extension, with Jacuzzi") is, accordingly, a brand extension decision par excellence.
Giorgio Armani is already a multiple and diversified brand in many (affiliated) product category and business lines including, for example, scent, cosmetics, spectacles, watches and accessories in addition to less affiliated products and/or services including, for example, Casa Armani (for furniture), Armani dolce (for confectionaries) and cafes in major metropolitan areas as Paris, New York and London ("Brand extension, with Jacuzzi"). Falling into a powerful parent brand, all mentioned products and/or services are properly branded but also sustained by Giorgio Armani's brand power.
The business case for Armani Hotel Dubai is, however, less clear, particularly from a brand equity perspective. True, Giorgio Armani has enduring equity as an upscale brand, particularly in luxury (clothing) offerings. To opt for hospitality in Dubai – a city becoming increasingly crowded by hospitality brands – is, however, risky. If anything, hospitality business is far broader in scope and vertical specialization compared to fashion industry. Moreover, established players have already set a foothold in Dubai hospitality landscape. True, Giorgio Armani has made a case of being catering for an ultra luxurious niche market ("Brand extension, with Jacuzzi"). For Giorgio Armani parent brand, however, few appear to develop an independent brand identity for Armani Hotel Dubai – unless hotel experience is associated (again) with parent brand.
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