Brand leverage is one of the most powerful value drivers in investing. Brand leverage is the extension of a strong established brand to a neighboring category, which if successful can expand the company’s overall TAM and Revenue base. Examples include Porsche’s extension of the Porsche brand from the sports coupe (911) to the SUV category (Cayenne, Macan); Apple’s extension of the Apple brand from laptops and desktops to cellphones and watches; Marriott’s extension of the Marriott brand in high-end hotels to the budget hotel category (Courtyard by Marriott).
Risks: Stretched too far a well-defined brand can break and mean nothing. When going downstream on price to expand the # customers who can afford a product, brand leverage can cause premium customers to abandon a product that now everyone can afford.The best opportunity for brand leverage I see now is $Rivian Automotive(RIVN.US) extending its brand from the premium SUV category (over $70K) to the mid-priced SUV category ($45K). RIVN built its brand for quality and reliability on its $80K R1 (SUV) and R1T (pickup) EVs. RIVN now going downstream with a smaller and cheaper ($45K) EV to significantly expand its TAM. This is analogous to $Tesla(TSLA.US) ‘s launch of Model 3 and Model Y in 2017-2019 following the establishment of Models X and S in the EV premium segments for sedans and SUVs respectively a decade earlier.
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