‘Purse’uing New Pricing Strategies
July 30th, 2009 - 20 Comments
A recent article in The Wall Street Journal looks at handbag retailer, Coach Inc., and its efforts to maintain its luxury image while lowering prices to meet weakening consumer spending. Chief Executive Lew Frankfort says he doesn’t believe consumer spending will return to prerecession levels, so he wants to keep Coach within the “sweet spot where we believe the market will settle.”
Smeal’s Lisa Bolton studies pricing and consumer spending and offers additional strategies for marketers to position luxury brands:
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Coach and other luxury brands face a dilemma in the present economic situation: how to accommodate more frugal consumers while defending the luxury image of the brand? One approach is to use price promotions but such promotions can cheapen the brand image and “train” consumers to expect price discounts in future. (It doesn’t do profit margins any favors either!)
Another approach is to extend the brand into lower priced offerings, as Coach has done with its new Poppy line, for example. Although doing so also runs the risk of undermining the brand image, Coach is moving in this direction because the company believes that the changes in consumer spending will be long-lasting. Indeed, why are consumers willing to pay hundreds of dollars for a handbag? Understanding that question is more critical than ever in today’s marketplace. Research suggests that consumers purchase luxury brands for a variety of reasons—including a belief in the superior quality and workmanship of the products, the desire to reward oneself and self-indulge, and of course, the status and exclusive image of the brand.
For consumers, a lower-priced luxury brand offers a reference point for evaluating whether a higher-priced brand offers sufficient luxury to offset the price. The risk, of course, is that consumers will simply see the lower-priced brand as luxury for less, undermining the higher-priced brands. Hence the need to offer unique associations to differentiate the luxury brands further and justify the price differences—as Coach has tried to do with the “youthful energy” and “playfulness” of Poppy.
To manage the impact of extending the brand downward, marketers will need to carefully position luxury tiers and communicate that positioning to consumers, while at the same time watching out for the bottom line.
Looking for an upside to all of this? Well, the price of a nice handbag is now cheaper … if you can afford it to begin with, that is.