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Is ferrari over-extending its brand?

March 28, 2007

Ferrari used to be an elusive brand; the only time you used to see it was in car magazine reviews, on television winning Formula One championships and if you were lucky, you might a glimpse of a red one zooming down a city street.

In the last couple of years, Ferrari seems desperate to stick its brand name as many places as possible, the inevitable culmination of these decisions is opening up retail stores, the latest in Beverly Hills, Los Angeles.

It’s reported the store will sell Ferrari clothing, accessories, shoes, toys and key chains.

Perhaps even the laptop?

Ferrari seems to be heading down the familiar path taken by a number of luxury brands.

1.    Financial management as the company orders increased revenue generation.

2.    Executives appear reluctant to devalue core product lines by making cheaper versions and instead opt for licensing deals.

3.    Licensing deals require no investment and are money in return for the use of the brand name.

4.    Financial management gets hooked on “licensing crack” and orders more.

5.    Several years later, researchers in the brand’s marketing team find tracking studies that show significant declines in the brand’s premium and exclusivity image perceptions.

6.    New management arrives at the company and is concerned about the brand’s fall demanding that all unnecessary licensing deals and stopped and order the brand to retrench.

While it might be premature and unfair to label Ferrari as another casualty of over licensing, the brand must seemingly have good reasons to do this, brand development activities contributed 23% of annual revenues in 2006.

Gucci made the mistake of over-expanding through extensive licensing in the early 80s and almost killed their brand.This happened because most of the licenses were too closely related to their core fashion product and the knock-on devaluation effect was faster.

Ferrari likely feels its brand expansion is controlled and in categories that have very little connection to the brand’s core product, luxury sports cars.

In addition, there’s a lot of financial pressure to cash in on the brand’s massive fan base, many can only dream of owning the real thing, but a key chain is well within reach.

However, when does it stop and what selection criteria is used to decide what licenses are right for Ferrari brand and what’s not?

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