Consumers face rising prices from many favorite brands. Insurance costs, fast food costs, transportation costs and the cost of stamps have all increased. The pushback from rising prices is now seriously affecting package goods, especially grocery-purchased brands. Package goods volumes are declining. Consumers are finding all sorts of workarounds by which to manage their stressed budgets. Consumers are balking at the cost of goods. Even Target, a brand-business based on affordability is experiencing revenue issues. Dollar Tree and Ross Stores executives told the press ahead of reporting results that its shoppers feel the effects of inflation, which in turn affects discretionary spending.
Most strapped consumers are looking to stay above water rather than looking to snare an expensive handbag with prices well above $4,000, such as Hermès’ Birkin bag. Hermès recently raised the price of its iconic Birkin handbag by 10%, according to The Wall Street Journal. The basic, 25-centimeter (approximately 9.8”) Birkin handbag now sells for $11,400. Birkin’s closest competitor, the Chanel Medium Flap handbag, sells for somewhat over $10,000. For other high-end spenders, Prada’s Galleria handbag sells for $4,600.
While many of us are avoiding tapping into savings just to put food and beverages on the table, there is high-end purchasing that exists in a nether world of beauty, status, glamorous image perceptions, luxury, and prestige.
But, even the brand-businesses in this world of luxury and prestige face a price-value conundrum of their own making. Their paradoxical conundrum is how to maintain exclusivity while being available everywhere around the globe. Or, as The Wall Street Journal stated: how to maintain an aura of exclusivity at the same time as growing strong sales from global availability.
The French branding expert, Jean-Noël Kapferer, writes extensively about luxury. He defines the traditional concept of luxury as something exclusive and rare. He says that a luxury brand-business in its classic sense is “an inessential, desirable item that is expensive or difficult to obtain.”
In a seminal article, M. Kapferer described the current situation that many luxury brand-business owners face: can a luxury brand-business be both widely available and exclusive? M. Kapferer labels this phenomenon “abundant rarity.” And, because of extraordinary availability, some luxury brand-businesses, are struggling to maintain exclusivity.
Why? Because many believe that wide availability erodes rarity. If a brand-business remains highly exclusive with limited production units and waiting lists, it is a smaller, coveted, exclusive brand-business of rare items than if it had wide distribution. But, to satisfy the desires of people around the globe, some luxury brand-businesses are not difficult to obtain. A customer no longer has to travel to Paris to find Louis Vuitton, Chanel, Gucci, Prada or Hermès. In many cases, such as London’s Heathrow Airport, you do not have to leave the airport to purchase items from luxury brand-businesses. So do I really want to part with $4,600 or $10,000 for a handbag when anyone, anywhere can have one?
Kapferer says that some luxury brands will have to figure out how to maintain their high-class aura while being available to many. An article on washingtonpost.com once asked, “How can you sell enough on a quarterly basis to make Wall Street happy while at the same time maintaining the aura of exclusivity that got you where you were in the first place?” The writer questioned whether a luxury brand-business can manage to maintain a high level of exclusivity while available everywhere and still be profitable. This is today’s luxury brand-business paradox.
Many observers think this is a discussion that is not worth having; they simply do not believe that luxury can be both restricted and available. These experts believe that too much exposure saps the luxury out of a product or service. Once a luxury brand-business is widely available, it becomes less exclusive, even if it maintains its price premium. Some luxury brand-businesses may run the risk of losing their hard-won cachet.
For example, Coach.
The history of Coach is interesting. Coach tried extensive availability growth and harmed the exclusivity of the brand-business. Coach succumbed to short-term financial engineering, greater ubiquity and the opening of discount stores. Coach’s history demonstrates the pitfalls that a luxury brand may face when becoming more available. A few years ago, Motley Fool wrote, “If you’re a luxury brand with outlet stores, maybe you’re not a luxury brand.” Coach addressed the tension of ubiquity and exclusivity. The brand-business managed to revitalize its high-end aura while remaining affordable. The Coach brand-business changed strategies in order to find its way again.
Sonja Prokopec, a marketing professor, has written about the “fine line” a luxury brand-business must walk when maximizing rarity and availability. She posits that there is an ongoing “democratization” of luxury based on elite brands going after a wider audience using creative approaches that may be blurring the line between mass and class.
Some luxury brand-businesses, wishing to attract more customers, use brand-business extensions, entry-level items and licensing. Prada has its lower-priced Miu Miu line, for example. Prada just reported retail sales of Prada and Miu Miu increased 17% versus 2022. Prada added nearly $3 billion in market value.
When it comes to licensing, it is possible to take it to extremes. The luxury brand-business that licensed itself to demise is considered to be Pierre Cardin. Originally, a high-fashion icon, the designer of the era-defining bubble dress, the Pierre Cardin brand was extensively licensed across all sorts of items such as cosmetics, fragrance and then across non-adjacent categories such as pens, key chains, baseball hats, the AMC Javelin automobile and, sigh, toilet paper. This mania for exuberant extension eroded the Pierre Cardin luxury reputation.
Problems occur when wide-availability strategies go beyond growth generation to brand-business-status harm. The hope is always that sibling or sub-brand-business buyers will attract customers to trade-up within the brand-business portfolio, buying the iconic, expensive items.
The Wall Street Journal writes that “… one way to avoid overexposure is to sell fewer items at much higher prices,” which is happening now. Data cited indicate that even though luxury brand-businesses limit volume growth by raising prices, apparently selling only 1% to 2% more items, if the brand-business is popular, and can still be paid for, customers – most likely loyal customers – will remain with the brand-business and not defect to other brands. For example, Johnny Walker Scotch identifies tiers by label color: Red, Black Double Black Green and Blue Gentleman’s Wager. American Express credit card has an original Green card and Gold, Platinum, and Black Centurion, not counting the various business cards and cards that let you pay off less than the actual amount, like MasterCard and VISA.
There are noticeable luxury brand-businesses shifts in shopping behaviors. Certain luxury brand-businesses have raised prices too much relative to the customer-perceived value of the item. The Wall Street Journal points out that Burberry’s small Lola handbag, more than 40% higher-priced today than a few years ago, is seen as a lesser value than the vastly more expensive Louis Vuitton Neverfull bag. The Neverfull bag is more expensive but its customer-perceived value is stronger and its resale value is better. The status of Louis Vuitton seems to stay steadfast.
Furthermore, consignment/resale shops are doing well. If a customer is amenable to barely- or never-used items, secondhand options are a compelling purchase. Again, The Wall Street Journal writes that a barely-used Prada Galleria handbag has been available on a resale website for $1,500. In Palm Beach, Florida, the consignment-resale shops have an entire section of US 1 all to themselves. Many items, such as Armani jackets, may still have their original price tags and were never worn.
The RealReal, a luxury online reseller, is now opening new brick-and-mortar stores. The RealReal’s goal is to “build an inventory of luxury goods at higher values,” according to The Wall Street Journal. This inventory will attract customers and sellers of high-end goods such as brand-businesses from LVMH and Kering. Based on a 2023 strategic shift, The RealReal is asking its luxury managers to be less accepting of merchandise that is under $100. Current order value grew to $500 or more.
Regardless of the availability, The Wall Street Journal indicates that luxury brand-businesses affected by the abundant rarity paradox are retaining and reinforcing their exclusivity via higher prices. Years of data, including sociological, behavioral data, indicate that price is associated with customer-perceived quality. Although not always the case, higher price seems to be perceived as a marker of higher quality. Range Rover tends to be at the bottom of J.D. Power’s automotive quality surveys.
Solving for a paradox problem is one of the best ways in which to attract and maintain customers for enduring profitable growth. Finding the solution for rarity and availability is the holy grail.
However, as with any strategy, care must be taken that the solutions do not damage the trustworthy value of the brand-business. This means that price must not be the only component of the brand-business that rises. Exclusivity is not just about high price. Uniqueness matters as do restrictions other than price such as limited manufacturing, limited editions, one of a kind fabrics, leathers and fewer venues for purchase. Figuring out how to deliver rarity to a wider world while creating endurable profitable growth remains to be solved.
Contributed to Branding Strategy Insider by: Larry Light, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I
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