Dolce & Gabbana, Branding Strategy, and Toys R Us Growth

Dolce & Gabbana's China Store Expansion

Dolce & Gabbana's decision to launch 15 new stores in China is a sound one. First, the U.S. visa process is making it increasingly difficult for Chinese tourists to shop in the United States, so D&G must take its business to China in order to reach those consumers who cannot purchase goods here. Second, sales of luxury goods in mainland China were expected to reach $16.9 billion in 2011, representing an enormous market opportunity. Third, D&G already operates 26 stores in China, meaning the brand is already recognized there and has demonstrated it can sell successfully in that market. Fourth, D&G can sell a complete lifestyle — much as Ralph Lauren has done — so that consumers will purchase new products that support that aspirational way of living.

There are some risks to consider as well. D&G already maintains 26 stores in China, and adding 15 more could create more locations than the market can comfortably support. The brand also faces competition from rivals who may understand the Chinese market even better. Nevertheless, the potential benefits of further expanding into mainland China appear to outweigh these risks.

Marketing Strategies for D&G in China

D&G should emphasize that it is bringing its stores directly to Chinese consumers partly in recognition of the difficulties those consumers face with the U.S. visa process. The brand should also highlight that it already has 26 established stores in China, reinforcing its commitment to and familiarity with the market. Third, D&G should continue to study and genuinely honor Chinese culture in order to attract Chinese consumers and build lasting loyalty. Fourth, D&G should hire Chinese nationals for every aspect — or nearly every aspect — of its business operations in China, so that the company cultivates an authentically Chinese culture within its Chinese operations.

D&G can leverage the growing trend of wealthy Chinese travelers shopping for luxury goods in Europe and the United States in several ways. First, the company can open additional stores in Europe and the U.S. to capitalize on that trend directly. Second, D&G can apply the expertise it has developed from selling to Chinese consumers across its 26 mainland China stores to market its products to Chinese shoppers worldwide, including those traveling abroad. Third, D&G can market to these travelers by communicating that it already sells a significant volume of merchandise in China — a message that reassures Chinese travelers they are dealing with a major brand that already knows and serves their market.

Leveraging Wealthy Chinese Travelers and the P&G Partnership

D&G's partnership with Procter & Gamble to launch a high-end cosmetics line in the Chinese market is a strong strategic move for several reasons. D&G is already associated with luxury, so the partnership is a logical one and consumers will recognize the connection. Additionally, with luxury goods sales in mainland China expected to reach $16.9 billion in 2011, there is ample revenue to pursue. P&G brings deep expertise and a long-standing reputation in cosmetics, meaning D&G can leverage that knowledge and credibility to develop and market a compelling high-end cosmetics line.

The benefits of luxury brands pursuing brand extensions include the ability to generate additional revenue by using a powerful brand name to attract buyers to new product categories. When the extension is a logical outgrowth of the original brand, consumers are more likely to purchase extension products. Furthermore, if a luxury brand can successfully sell a complete lifestyle — as Ralph Lauren has done — consumers will buy a wide array of products that support that imagined way of living.

The risks are equally significant. An extension may be too much of a "stretch" for the brand's identity. A slowing economy may reduce consumers' willingness to spend on non-core luxury items. Attaching a brand name to too many products can dilute the brand's meaning, and associating it with lower-quality goods can tarnish its image. If consumers do not perceive a logical connection between the original brand and the new product, they may doubt the brand's expertise in that area and decline to purchase. Finally, the brand must now compete against established players who already manufacture and market the extension product.

Luxury Brand Extensions: Benefits and Risks

Several specific brand extension examples illustrate these risks. Ferragamo is known for leather goods, not for quality timepieces. An expensive watch from Ferragamo may struggle in a slow economy, and consumers may not make the logical connection between the brand and watchmaking — leading them to question whether Ferragamo has the expertise to produce a high-quality watch. Ferragamo would also be competing against established watchmakers with deep category credibility.

Cavalli faces similar challenges. The brand is recognized for women's clothing, not for vodka. An $85 bottle of vodka may not sell well in a difficult economic environment, and the connection between a fashion house and a spirits product is not obvious. Consumers may perceive no logical link and question Cavalli's expertise in the category, while the brand must simultaneously compete against long-established vodka brands.

Armani's LCD televisions present the same risks. Armani is synonymous with luxury clothing and accessories, not consumer electronics. A television carrying the Armani name would likely be expensive and may not sell well in a weak economy. The association with televisions could confuse or dilute the brand image, consumers would likely question Armani's expertise in TV manufacturing, and the brand would be entering a market already crowded with well-established electronics manufacturers.

A pizza brand extending into clothing could potentially work, depending on the type of apparel. The risk arises if the pizza brand attempts to sell items such as formal wear or lingerie that carry no logical connection to the brand's identity — in that case, it would face the same range of risks that Ferragamo, Cavalli, and Armani must navigate.