#22 Do not implement group synergies.
Implementing group synergies is one of the most obvious ways to improve the net financial result of a brand. But, as Ford discovered with Jaguar and GM with Saab, in luxury, it is the best way to destroy the dream of the brand. For some pennies saved, you lose your pricing power – one of the strongest points of a luxury strategy.
This is well known in the luxury market – as proven by the number of luxury brands that have been almost eliminated by group synergies implementation — where improving the net financial result is the ultimate goal.
Luxury brands face this threat each time one is acquired by an organization who does not understand luxury strategy. One example is Dell’s acquisition of Alienware in 2006. Founded in 1996 in Miami, Alienware was the success story of luxury gaming laptop and desktop computers. In 2005, Alienware had a net profit of $170 million. To improve on already strong profits, Dell decided to reduce production costs. This was counter to Alienware’s business strategy which had built its success on using the best elements among all suppliers – whatever the cost. A strategy which earned the brand thousands of passionate and loyal customers. Discounts were never offered nor needed. Willing to implement ‘group synergies’, Dell cancelled all of the agreements with top-end suppliers, relocated production to Poland, created new distribution agreements and offered discounts on the corporate website. The result: Alienware remains a premium brand, but has lost its aura – and its pricing power. This is why luxury groups such as LVMH maintain the independence of their brands as much as they can.
Contributed to Branding Strategy Insider by: JN Kapferer, excerpted from his book, The Luxury Strategy with permission from Kogan Page publishing.
See all of the Anti-laws of Luxury Marketing here.
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