The case presents an interesting and challenging dilemma that premium brands face the world over as they seek growth opportunities. A brand may seek growth in two ways — through an upward or a downward stretch. An upward stretch is aimed at moving towards a higher premium position while a downward stretch looks at moving towards lower price points. Each approach has its own risks and opportunities.
For Hidesign, which has a good market presence in its home country, the issue is one of achieving growth by expanding its portfolio of products. It has set itself a daunting challenge of growing by 25 per cent through a combination of national and international strategies, and must evaluate the consequences of a revised positioning strategy, choosing between two alternatives — use the same brand name to launch new products or use a flanker brand strategy.
Understanding customer behaviour is key to success for brands like Hidesign. In India, women form the major customer base, and many of them prefer shopping at exclusive brand outlets (EBOs). For Hidesign, e-commerce is becoming a major channel, through which it can offer customers a wide variety, convenience of shopping and different price points.
Flanker brand approach
Successful positioning of brands is not an easy task. It takes years before a brand reaches critical mass and starts making money. How can Hidesign grow in such a backdrop? It can extend the brand and stretch upwards or use a flanker / sub-brand approach and stretch downwards while retaining the core values of Hidesign.
The second approach sends conflicting signals to customers about the brands quality — how can a premium brand also sell average quality products carrying the same name. A flanker approach, on the other hand, is less risky but requires enormous investments to grow all on its own. Having said this, many premium brands face challenges and do not always enjoy a free run. Some of these hurdles are:
a. Sustaining brand differences profitably and commanding a price premium
b. Building an emotional bond with customers in the long term
c. Running the risk of positioning confusion, and
d. Presence of copies, counterfeits, cheaper imports and a large unorganised market
Hidesign too faces similar challenges in its quest for growth.
Here are the responses to the three questions presented at the end of the case study.
1. What are your recommendations to make the brand grow at 25 per cent in India?
Hidesign has a multi layered product mix – from the very expensive range where it sells the Atelier collection to the lower price points where it sells the Holii brand. In the mid-tier, the brands collection retails at ₹7,000, on an average. The channels, too, complement the price-points and positioning. The expensive varieties retail through EBOs, while the lower end collection is sold through MBOs — both traditional and e-commerce channels. In the ₹3,000-crore-a-year market, the company has enough leg room for growth but needs to chalk out a concrete plan. Some short-term strategies that it can pursue are listed below:
a. Increase the number of EBOs in tier B and C cities, which are growing at a fairly rapid pace compared to metros. Plan for integrated marketing campaigns in such cities.
b. Widen the product portfolio and design range
c. Expand the presence in airports and five-star hotel properties, where premium brands such as Mont Blanc, Harmon Kardon and Rolex have stores.
d. Tie up with other premium brands (eg., in premium fountain pens — Mont Blanc, in the mid-priced range with Sheaffer, and at the lower end with Parker)
e. Co-brand with travel companies — enter into leather luggage with higher investments.
f. Expand presence in malls / premium outlets – shop-in-shop model
g. Be the preferred corporate gifting idea through formal institutional tie-ups
h. Tie up with premium auto companies for leather upholstery
In the long term, though, the company needs to strengthen its position by introducing an ultra premium range if it wants to compete with the likes of Hermes, Louis Vuitton, Fendi and Marc Jacobs, to name a few. It has to build global credibility through quality, understand local differences in customer preferences, and customise products to suit local tastes. Hidesign will need to communicate to such audiences through digital platforms and maintain strong customer equity through periodic research.
Brands like Gucci and Chanel are today known to a worldwide audience due to their unique positioning and careful management of brand image. Of course, Hidesign must increase its presence in international transit retail in the long run. Employee training in EBOs and transit retail will be an important marketing investment.
2. If Hidesign decides to expand its market share by entering the lower-priced market, what should its positioning strategy be? Should it make synthetic leather bags?
Hidesign is considered to be a pioneer in selling genuine leather products that are eco-friendly. The premium pricing it commands stems from its focus on quality material, direct involvement of the brand-owners in design and manufacturing, availability in the right channels, such as EBOs, and having multiple price-points with distinctive products for men and women.
However, all this will change if the brand were to consider entering the lower priced market. If the brand wishes to expand share it must not use the name Hidesign. It needs to have a different branding strategy for lower-priced products, create a sub-brand. It already sells the Holii range. In doing so, the company caters to tastes of different customer segments. For example, younger consumers in the 15-25 age group would prefer owning multiple coloured bags and accessories. They’re not keen on investing in expensive leather bags and are not looking for any long association with the product. For such segments the company should have a different marketing effort and maybe an independent sales team.
The company must refrain from making synthetic leather bags for the Hidesign brand. It dilutes the equity of the brand known for genuine natural leather that is vegetable tanned and hand-crafted. It is these small details that matter to customers.
3. Should Hidesign have a flanking brand strategy, with different brands for various markets, or attack different markets with the same Hidesign brand?
Hidesign can follow a ‘house of brands’ brand architecture strategy but use brand elements wisely to communicate the value proposition that it is locally known for in India. This must be the initial strategy. With the passage of time and after achieving critical mass in important international markets, the company can use the ‘branded house’ strategy, where the master brand will communicate the value proposition for the entire range of merchandise.
Each approach has its own advantages and disadvantages. Using the same brand name in different markets is difficult in the short term, as brand awareness is expected to be low and needs to be established. Second, in purchasing power parity, Hidesign would not be comparable to such leading brands as Louis Vuitton, Chanel and Hermes. To be sold in the company of such brands requires Hidesign to enhance its product quality substantially. This cannot be done in the short run. On the other hand, using the ‘house of brands’ strategy helps it cover the flanks, ramp up revenues and then launch efforts at an upward stretch.
The movement from the ‘house of brands’ to ‘branded house’ must be accompanied with substantial investments in improving quality, benchmarking with the best, and learning from mature markets such as US, France and Italy.