Pricing in a Downturn: The Noah's Ark of Brands

Contributor:  Martin Lindstrom
Posted:  08/09/2010  12:00:00 AM EDT
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The store was nearly empty, though a handful of tourists were seen milling around the entrance, looking around in awe and taking photographs. They smiled politely but shuttled off when one of the well-groomed members of the Armani staff approached them. The 12-story Armani house, so perfectly situated in the center of the Ginza district in the heart of Tokyo, reflected the current state of almost every luxury brand you can think of: sleek, stylish...and silent.

Welcome to the epicenter of brand heaven in the aftermath of the global financial meltdown.

Consumption of luxury brands—Gucci, Prada and Louis Vuitton—counts for an astounding 12 percent of all sales worldwide. Tokyo is the place where Louis Vuitton’s fortunes catapulted into the stratosphere. It’s also the city where Gucci decided to open the first Gucci café and Prada invested in creating their biggest store.

A couple of buildings further down the street, a long queue snaked its way into a store that, until recently, would have been completely unacceptable in the Luxury Mecca—a plain, simple H&M store. Next door to that, Zara, and across the road, UniGlo—well known for shamelessly ripping off its wealthy neighbors moments after their latest collections hit the runways in Paris or Milan. A fact that doesn't seem to be bothering UniGlo one bit. Why should it? Their revenue is soaring upwards of 32 percent, compared to their wealthy neighbors who are still trying to make sense of their own disappointing 7 percent decrease.

Years ago, when living in Paris, I never failed to be amused as I strolled down the Champs Élysées on my way to work every day. At just 8 in the morning, local Parisian customers would be carrying packed shopping bags emblazoned with logos of every luxury brand from D&G to Chanel, shops that wouldn’t open their doors for business much before 10 a.m.

Things have changed. I recently made a small purchase at Hermès, and I was asked if I would prefer to carry it in a plain brown bag without the famous logo. I was somewhat taken aback. On further inquiry, the assistant replied that I would perhaps feel more comfortable with anonymity. Something as simple as a bag, that only six months ago was the essence of status, now might be considered a liability. Or could it be that the brands themselves were a little reticent about selling their desired products at a discount?

Pricing in a Downturn

Almost without exception, pricing is the toughest challenge facing retailers today.

The most exclusive brands are slashing prices to keep their turnover ticking. Previously unthinkable, a customer can now purchase handbags, scarves, clothing and shoes at discounts ranging as high as 50 percent. Retail is not alone. Hotels rooms in the best district in town are now discounted by 30 percent. We see these trends with cars, hi-fi, cosmetics and washing machines.

Is this the end of brands as we know them? Or could brand owners be simply reacting to the economic crisis? They are approaching pricing in a knee-jerk, wrong way, which in the end will hurt their customer satisfaction.

Studies show that it takes seven years for a brand to recover its value once it’s been discounted. If you've seen the Louis Vuitton you bought two years ago now for half price, would you ever consider buying another at full price? Market cycles are a fact of life—what goes up must come down. The world’s economy will eventually recover, even if it takes a few years.

Perhaps it’s necessary to take time out and consider another path. It might be time to consider a pricing strategy where you don’t cannibalize your brand, but rather you offer added value. Take for example, the Louis Vuitton bag. Instead of discounting it, you could throw in a Louis Vuitton key ring. Call it a special collector’s item. If a customer loves the brand, I'm sure he or she will want one of those key rings, too. This might save your pricing strategy.

The Customer Demands Practicality

Don't be afraid of pushing the practical side. Did you know that in the past few months, Willie’s, the basic Canadian boot, has increased its sales by 70 percent? S-e-v-e-n-t-y percent! The company has promoted the practical aspects of their brand increasing customer engagement. Willie’s isn't the flavor of the month, either. The brand has been around forever, but a pair of Willie’s boots is considered an investment by the customer rather than an expense. The boots are useful and robust, and they’re a good value for the money.

What practical features does your brand offer? If you're a purse company, can I turn your bag inside out, reveal a different color, and have it perform another function? One good for work, another good for evening wear? Two bags for the price of one?

Partner with Matching Brands for Customer Engagement

Recently Campbell's announced a strategic partnership with Kraft Foods. They offered a can of Campbell's soup along with a Kraft salad dressing at a 20 percent discount. Both brands advertised the offer, and the customer lapped it up. Campbell's is among the few producers that are experiencing an increase in share price.

Let's imagine you're a florist who is located on the same block as a jeweler. It could be a profitable fit. If, for example, a couple comes to the jeweler to buy an engagement ring, the florist could supply a congratulatory bunch of red roses. The florist is then well-placed to supply flowers for the wedding. Both stores have doubled their reach and capitalized on marketing for half the price!

Today's Customer is Like a Chicken Under Stress

A while back I visited a chicken farm in Saudi Arabia. The air-conditioner was faulty and the desert-high temperatures were soaring beyond normal. The owner turned to me, asking if I’d noticed anything unusual about the chickens. Without waiting for an answer he pointed out that his chickens were under stress. I was baffled. How on earth did he know that? He advised me to watch them carefully, and he explained that they kept repeating their movements. He used the word "ritual" to describe their behavior. They pecked twice before pecking at the corn and then performed two small rotations before they dipped their heads to drink.

Well, we humans don’t act that differently when we are uncertain or anxious. We knock on wood, avoid ladders and spit three times when a black cat crosses our path. Our anxiety levels increase if we suspect that we’ve somehow failed to ward off the evil eye.

The more financial pressure the customer is under, the more the customer is prone to superstitious ritualized behavior. The average customer is knocking away, spitting all over the show and making bargains with the universe just to stay on the right side of good fortune. The customer is wired for rituals. As such, brands should develop, own and celebrate their rituals with their customer base.

In hard economic times the customer learns that the past is infinitely more appealing. The customer longs for the good old days when the world seemed a more certain place. In the same way, brands should celebrate their past. It’s comforting for the customer to know his or her brand of choice is rock solid—it’s been around for years. It gives them security. Rituals and reminiscing about the good old days lead to feelings of security for the customer. No wonder a recent Louis Vuitton ad features Sean Connery and Catherine Deneuve and is shown in a '30s setting.

This might seem outrageous, but the economic crisis that we’re currently experiencing may very well be the best opportunity you'll have to capture a serious chunk of the market.

All Aboard Noah’s Ark

As every business goes about cutting their marketing budgets, slashing development costs and sticking their heads underground, experience shows that companies that take a chance on doing the opposite will emerge on the other side of the recession with the brand fresh in the customer’s mind.

A brand is first and foremost an investment, so why jeopardize the many years and millions of dollars spent building emotional connections with the customer base? Now is the time to show the world that your brand is a survivor, and when Noah is calling, you’ll make it onto the Ark. There are only few spaces left.

First published on Call Center IQ.

Martin Lindstrom Contributor:   Martin Lindstrom


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