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Business of luxury: Pricing strategy Mobile Trends.pdf 1 2013/05/17 12:56:56 PM Keeping a nger When ‘expensive’ P on the pulse of mobile trends is good, and ‘more Price P 1 in Africa expensive’ is better P the price of luxury and branded goods calls into question the real meaning of price positioning, argues Helen Mcintee. 0 Q Q 1 Q Quantity Demanded Top-end consumers More and more goods n ThE lUxURy SECToR, vAST numbers of people are eager to pay don’t want to pay are exhibiting an C i exorbitant amounts of money for less for the brand abnormal demand curve M products that cost far less to produce Y than the price tag indicates. Gone are the days of marketers setting the price by CM taking the cost of the good and adding inherent quality and positioning, charge the minds of its target audience … they’re not MY an acceptable mark-up – one that has more than would otherwise be justified. prepared to pay less for the product! This is a been carefully determined by researching That is fair enough – quality and market that is not interested in sales, discounts CY market demand for the product and its building a brand both cost money. But and added value; they believe that ‘price = value’ CMY price elasticity. it begs a crucial question: how much is and the higher the price the better the value. K Instead, we are now seeing more enough? The cost of production usually This equation becomes even more complex and more goods exhibiting an abnormal decreases over time and as the experience when you consider that owning these products demand curve. In other words, as the curve increases. So just how much profit seems not to be driven by the ‘external’ – how price increases so does the demand (as is made on a 200ml bottle of Chanel other people see them – but is more about shown in the diagram on page 19). eau de parfum that has remained almost personal satisfaction and self-actualisation. As a marketer, to have products that unchanged for 50 years and retails at the In the past the luxury sector was considered react to price increases in this way is equivalent of over US$200? a niche market; a relatively small but well- extremely pleasing and profitable. But we I am guessing that the mark-up on defined market segment in which the brand have to ask: has the consumer, through most luxury goods is several hundred delivered a narrow and focused strategy to a this somewhat bizarre behaviour, created percent. Why do brands do this? Because specific audience. But nowadays, as global a new price positioning that should the consumer wants them to, that’s why! markets open up in Asia and the former perhaps be termed ‘obscene pricing’? It’s called consumer ‘demand’. communist countries of China, Russia and Broadly speaking, pricing theory Eastern Europe, access to the once-exclusive teaches marketers two key concepts: do need but not capacity luxury goods market has opened up to millions not go over the ‘price ceiling’ because There are, of course, consumers with of affluent consumers. demand will drop; and do not go below ‘status needs’ but not the financial capacity So, while the luxury market remains ‘niche’ the ‘price floor’ because the following will to match. They will wear a fake Rolex by definition, it is growing dramatically. Perhaps happen: (a) you won’t make any profit; because, while they know it isn’t the we should find a new name to describe this and (b) consumers may question the real and expensive thing, they hope their unique segment? ‘Amplified niche market’ value of the product. friends and family will assume it is. In such maybe … or what about ‘ever-expanding niche’; The latter tells us that the price vs circumstances, the purchase achieves and perhaps even (referring to the audience’s value of a product is largely psychological. exactly what it was bought for: to attain a deep pockets) ‘bottomless niche’? For example, we know that branded certain level of status among peers. PHOTOS: supplied A premium product unchanged in 50 goods allow premium pricing – where The luxury goods market also seems Helen McIntee is President of the African years can be immensely proftable Africa.Info@tnsglobal.com the manufacturer can, due to the brand’s to have created a remarkable psyche in Marketing Confederation www.tnsglobal.com @tns_SAys TNS South Africa 18 strategicmarketingafrica Second quarter 2014 Second quarter 2014 strategicmarketingafrica 19