Hermès MiniCase

A Case-study in Success
Thierry Hermès in Paris, France founded the Hermès Company in 1837. Its first product was a horse bridle. Today (early 2012), its annual business is nearly 3 billion euros.

How did Hermès accomplish this remarkable feat?

They did it via brand extension, strictly following the strategy he had established in 1837.

What Hermès Did
Let’s look more carefully at Hermès – our favourite brand in terms of strategic discipline resulting in incredible success that results from unfailing adherence to strategic principles.

Immediately after its founding, Thierry Hermès established a strategy (whether he knew it or not) based on targeting noblemen using the simple but powerful position of MCCS:

  • Highest quality MATERIALS
  • Best-in-the-world CRAFTSMANSHIP
  • Consistent CREATIVITY
  • Superb timeless STYLE

From its first horse bridle, Hermès quickly became known for MCCS among Paris elites. Demand increased dramatically along with requests for other products.

While Hermès sought to expand, it did so in a manner that never compromised MCCS, nor did it ever lose sight of its target. By around 1880, the brand had extended “all the way” to saddles. Then a Hermès retail shop opened near Palais de l’Elysée, and geographic expansion extended into Russia and Asia.

In 1922, Hermès’ first handbag was introduced; in 1924, it first ventured into the United States; in 1929, its first collection of women’s apparel appeared. In the ‘30s came its now famous silk scarves, in ‘46 its silk ties, and in ‘49 its fragrances.

Today Hermès has over 50 product lines and about three billion euros in annual revenue. In 175, years the company has not deviated from its target except to extend it to include wealthy women, or from its MCCS position!

Hermès products today include:

Women’s Ready to Wear Fragrances Baby Gifts
Women’s Scarves Bath and Shaving BABY GIFTS
Women’s Silk Accessories Protective Travel Cases Tableware gift sets
Women’s Stoles & Shawls Fragrance Gifts Porcelain & Earthenware
Women’s Belts Herbal Essences Crystal
Women’s Shoes Men’s shirts Cutlery
Women’s Accessories Men’s active wear Ashtrays
Bags and Luggage Men’s knitwear Candles
Small Leather Goods Men’s under garments Change trays
Agendas Men’s swim wear Scented drawer liners
Notebooks Men’s TIES Leather photo frames
Leather Accessories Men’s Belts Serving trays
Silver Jewellery Men’s Shoes Beach Accessories
Gold Jewellery Men’s Accessories Riding Accessories
Enamel Jewellery Bed Linens Games
Leather Jewellery Bath Linens Bicycle
Horn & Lacquered Jewellery Blankets and Pillows
Watches Furniture

How They Did It
As mentioned in EXTENSION RISKS the most common extension methods may be some combination of approaches shown below:

Assigned Risk Values
Position Target Offer
Existing x x x
Extended x x x
New x x x

As previously covered, with each of the three methods (position, target, offer) having three approaches (existing, extended, new) there are 27 common ways for companies to extend brands, and each carries its own level of risk.

Of the 27 possible ways for Hermès to extend, they used only five:

Offer | Existing Conventional capacity expansion
Offer | Extended For example into saddles
Offer | New Handbags, women’s apparel
Target | Existing Conventional capacity expansion
Target | Extended From wealthy men to include wealthy women

What level of risk did Hermès face with these five means of extension?

Their extension approach has been extremely low risk and incredibly successful.

And that, in our view, is pretty smart!

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