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In conglomerate structures, where multiple brands operate within the same product categories and target markets, understanding and differentiating each brand’s market position is vital for crafting effective growth strategies. From the outside it seems highly anti-competitive that a conglomerate like Richemont could own up to nine luxury fashion houses, eight watch maisons with multiple overlapping consumer groups and yet some of these brands have over a hundred stores worldwide. Last week we examined the various data sources which influence decision making in the luxury industry. In this article we will dissect the concepts of BDI and CDI, and why they are essential for crafting winning market strategies for hundreds of luxury brands in a market full of competition. Before we dive into these acronyms, let’s understand the foundational concepts of market share and market penetration.

Market Share is the portion of the total market sales that a brand or product controls. It’s a key indicator of a brand’s competitiveness and its success within an industry. For luxury start-ups, gaining a significant market share can be a long term challenge but a rewarding endeavor. On the other hand, Market Penetration measures the percentage of potential customers who have purchased a product or service within a specific market. It represents how well a brand is reaching and resonating with its target audience. Now we can move forward and understand the meaning behind BDI and CDI.

The Brand Development Index (BDI) is a metric that helps brands assess their performance within a specific market segment in comparison to the market’s national or regional average. It gauges the brand’s strength and popularity in a particular location. A high BDI indicates that your brand is thriving in that area, while a low BDI suggests room for improvement. For example, if a BDI calculation for a specific city results in 115%, it means that the brand in question is performing 15% better in that city than the regional or national average it is being compared to.

Category Development Index (CDI), on the other hand, focuses on the performance of a product category in a specific segment compared to its average performance on a national or regional scale. It measures the potential for category growth in that area. A high CDI signifies untapped potential for your product category in a particular location, while a low CDI may indicate market saturation. For example, if a CDI calculation for a specific city results in 90%, it means that the product or service category in question is performing 10% lower in that city than the regional or national average it is being compared to.

Now that we have established the key concepts, let’s examine how these metrics fit in the bigger picture of strategic decision making at large scale luxury conglomerates:

• Understanding both BDI and CDI helps in assessing each brand’s market share and penetration within the industry and the conglomerate. This is critical for making investment decisions, whether to boost a well-performing brand or to support a lagging one in a promising market segment. CDI complements BDI by shedding light on the broader category dynamics.
• These metrics aid in identifying synergies across brands and opportunities for diversification. For example, if certain brands underperform in a high CDI category, it might indicate a need for cross-brand synergies or diversification strategies.

• In a multi-brand scenario, share of voice (SOV) is not just about external competitors but also within the conglomerate’s brand portfolio. Balancing the share of voice across brands, especially in overlapping categories, becomes a strategic necessity so that each brand can survive and take center stage with the right audience. A high BDI might indicate that you have a strong SOV in a particular market, while a high CDI might imply an opportunity to increase your SOV in a category.
• Each brand may require unique strategies based on its BDI and CDI scores. For a brand with a high BDI but low CDI, the focus might be on category development, whereas for another with high CDI but low BDI, brand awareness and penetration strategies may be prioritized.

Unlike tech or automotive sectors where mergers often lead to a blending or phasing out of brands, luxury conglomerates tend to preserve the unique heritage and identity of each brand. This means that each brand has the responsibility to maintain its exclusive appeal and grow customer base over long periods of time. Metrics BDI and CDI help decision makers maintain brand relevance and longevity as they go beyond the simplistic indicators of market share and market penetration to identify category and brand specific strategic gaps and opportunities.

It is the continued and emphasized practice of decision makers in the luxury industry to closely study these metrics which makes the seeds of their decisions more resistant to unexpected failures. The commitment to this practice is evident through the famous words of Bernard Arnault, chairman and CEO of luxury conglomerate LVMH, “My work is to help innovators and designers understand that the success of their creativity is in large part based on the success of their products. Creativity – yes, but executed in a way that people like and can use.”

In summary, for luxury conglomerates with multiple brands in similar categories, the nuanced application of BDI and CDI is essential. These indices provide critical insights into each brand’s market position and category performance, allowing for more informed and strategic decision-making. This tailored approach ensures that each brand within the conglomerate can carve out its unique space in the market, leveraging its strengths and addressing its challenges effectively.