BW Confidential - Issue #3 - September 2010 - (Page 28)

Insight: Luxury Pricing What’s the damage? How will the pricing of luxury beauty products evolve? W ith the financial crisis came a new debate on pricing in luxury goods. Should the industry lower its prices? Had prices gotten out of control in the first place and was this a time for a rethink? Most agree the consumer has become more price sensitive and that she is buying fewer products. She is now also comparing prices more (especially online), is looking for more value and is not as willing to spend as much on a high-end name brands when she can’t see much of a difference from some lower-priced products on the mass market. “Brands definitely need to think twice about the pricing of their products. There are more affluent consumers buying mass brands than prestige; they are looking for maximum results for the least amount of money and the mass brands have really upped their game,” says US-based Unity Marketing ceo Pamela Danziger. Mass inspiration This has been fueled by mass brands comparing their product benefits in advertising directly with those of their prestige counterparts. P&G’s Olay website even suggests cheaper Olay equivalents to consumers’ favorite prestige beauty brands. Mass brands have also taken on luxury’s codes and exploited them to great effect, whether in terms of similar-sounding product names, ingredients and ad campaigns. Take away the logo and many would be hard-pressed to tell the difference between an ad from a fast-fashion chain like Mango and some of the high-end couture houses. This is also true for beauty, where the same types of imagery and sometimes even the same celebrities are used to market mass-market make-up and highend fragrances. Changes in where consumers shop have also made it hard to justify prestige prices. Consumers now don’t mind buying beauty from Target or their local drugstore; they don’t really understand why they should pay more just because they’re in a department store, especially if the service isn’t that much better. Prestige retailers too have looked to offer more inexpensive products, which “ One day the consumer sees a product at one price and the next day it’s something different. She’s wondering why a product is now discounted when it never was in the past—the consumer is losing all benchmarks of price La Prairie international director Nadia Miller. She continues: “Consumers are becoming immune to so many price offers and discounts. It’s not just because you reduce prices that you are going to sell more. In apparel the summer sales used to start with a 30% reduction, now they are starting with 50% off, but people are not buying more.” Most brands are reluctant to reduce prices, which they say is a short-term measure that risks cutting tomorrow’s business. This is hardly surprising since most of the growth in the industry in recent years has been due to an increase in prices as opposed to an increase in volume. (Retailers also add that last year price increases from some suppliers had gone too far and were ‘bad economics’ given the global recession.) Up for review However, those in the middle market have had to review how much they sell for. Clarins, for example, lowered prices partly due to the crisis and partly because prices were no longer in line with the brand’s positioning. “We need to offer the best quality at the ‘best deal’, and we weren’t perceived that way anymore,” Clarins ceo Philip Shearer told BW Confidential. Many fragrance companies also launched smaller sizes as a way of providing an entry-level price. Smaller formats resonate with consumers and often result in a sales spike for the brand. However, it is seen by some as a short-term solution. “With smaller sizes the brand is not making a lot of money, the retailer is lowering his basket and the consumer per milliliter is not getting such a great deal,” says Clarins Fragrance Group ceo Joël Palix. However, this idea of smaller sizes is similar to L’Oréal’s strategy of accessible September 2010 - N°3 - BW Confidential La Prairie international director Nadia Miller may have further taken the consumer’s eye away from higher-priced items. Both Harrods and Printemps, while focusing on high-end goods, extended their price ranges to include entry-price products during the crisis. On the retail front, analysts say that the discounting campaigns by some stores have led to confusion and skepticism over price. “One day the consumer sees a product at a certain price and the next day it is something different. She’s also wondering why a product is now discounted when it was never discounted in the past—the consumer is losing all benchmarks of price,” says ” 28

Table of Contents for the Digital Edition of BW Confidential - Issue #3 - September 2010

Cover
Contents
Comment
Update
- Brand & retail news recap
- Digital digest
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
Launches
- The latest in fragrance, skincare & make-up
Interview
- O Boticário president Artur Grynbaum
Insight: luxury
- Category overview
- Pricing
- The internet
- Return to quality
Wellness
- The spa consumer
- Spa case studies
Retail
- New store concepts
Travel retail
- Inflight sales
Market watch: US
- Country overview
- Industry roundtable
- Retailing analysis
- Emerging retail channels
Radar
- Six up-and-coming beauty brands
Packaging trends
- Make-up innovations
Last word
- Inspiration&Creation founder Leïla Rochet-Podvin

BW Confidential - Issue #3 - September 2010