LVMH brand extensions into hotels made me do a double take

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LVMH just announced a partnership deal with Orascom Development hotels in the Middle East to develop two 5 star resorts in Egypt and Oman based on their Cheval Blanc brand. You can read more about the specifics of the deal here.

When I first read the headline, my initial thought was that this was a pure revenue play and not a well thought out brand extension, which would result in a #fail (think Bic underwear or Harley Davidson perfume). I thought this was going to be a brand of hotel chains across the country that would be grossly overpriced without any scalable membership benefits.

Typically, brand extensions are done for a couple of reasons:
1) To increase your brand’s fans/consumers by introducing your brand in new, non-core categories of business where there is a logical connection (i.e. Clorox bleach and Clorox cleaning supplies)
2) To evolve you brand offering so that is playing a part in other parts of their consumer’s lives (Nike shoes and Nike clothes, sports equipment, etc..(
3) To monetize the brand equity that was created by your successful core business (Britney Spears and Britney Spears’ perfume)

The worst thing you could do is license your brand purely for a revenue play, which has been a common trend with a lot of companies who don’t sit down and think clearly about the objectives of their licensing program. After reading specifics about the deal, I have come to realize that it is going to be a great brand extension for the LVMH brand for a few reasons.
1) The Cheval Blanc brand is a well known brand amongst elite circles as a high end resort in France -> brand with considerable and transferable brand equity
2) The rich people of the Middle East are almost as fanatic of high end brands as the Japanese -> introducing the brand to new brand fans
3) LVMH will stand to make a nice chunk of change in off-balance sheet revenue with the minimum guarantees and royalty rates put into place -> monetizing their core brand Cheval Blanc in a new hospitality category, but one that is a logical extension

I am looking forward to follow this development.

Written by Sid Shah

April 13, 2010 at 3:51 pm

Posted in Business

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