Price and Sale loss in Luxury Goods

Why price matters to FLG companies results

This week we bring further evidence on the impacts of transparency caused by “webization” of services, that reach far beyond than mere bargain-scoping apps on consumer’s phones. Margins are already reduced by a rising perception of price-value misalignment (this depends heavily on single cases).

According to BCG survey “True Luxury Consumer Insight 2017”, 52% of luxury consumers feel a progressive separation between value and price, 83% of which (so 43% of the total) react by either switching to another brand or renouncing to the purchase (sale loss) or look for discounts/outlets (margin loss).

For the average brand this means that they let an additional 40% of the money walk out of their doors.
Given the size of most of these companies, it is crystal-clear that the way price is communicated and handled can make a big difference to the top line.

BCG analyis on price/value misalignment effects
Sale loss breakdown due to value/price misalignment

What is important to measure?

Our efforts in providing independent intelligence both for an external observer – such as an investor – or as an active company in the sector, are focusing in providing in our one-page dashboards (see below a screen-shot) the following metrics:

Price discipline. When wholesalers offer the same price for the same product as the official mono-brand store does it’s strengthening the price per value proposition. When the price statement is consistent globally and cross platforms, the consumer is more likely to accept the price (since the benchmarks won’t contradict this).

Promotion discipline. Heavy drops in prices, frequent sales, generalized promotions do harm in two ways: First they tell a customer he or she can wait for a reduction (often 50%) for the same product – which discloses to the customer that there is margin to do so – and Second (possibly worse) they provide short term relief to the brand, that will enter a vicious spiral of promotions to meet target instead of focusing on selling at full margin.

Outlet and off-season. Dropping unsold inventory where the full-price customer won’t see (aka physical outlets) is proving a good strategy for price statement solidity, even if costly and with less short term cash relief provided by off-season websites.

Geo pricing strategies. There is difference between supplementary distribution costs and milking the customer. The latter is no longer feasible when they find out the trick. Again, the trustworthy relationship with the customer pays in long term.