Page 118 - Marketing the Basics 2nd

110 Marketing: the Basics
many new product classes. It lost its exclusivity and cachet. Sales plummeted and only when a new CEO dramatically pruned the product mix did it regain some of its past allure.
Luxury goods also have another quirk. Demand for some luxury goods actually rises when the price rises. Economists classify these types of products as Veblen goods, named after economist Thorstein Veblen who believed most levels of consumption in upper classes were merely acts of displaying wealth and social status. Perfumes provide an example. For most people, especially husbands, we cannot easily tell the quality of a perfume, yet as we rush through an airport on the way home we know that it would be prudent to bring our long-suffering wife a bottle of nice French perfume. What many do is use price as an indicator of quality, hence the higher the price, within limits, the more we are apt to buy that brand. Many of us may well buy wine in the same way. When we have the boss and her husband over for dinner we buy an expensive wine on faith that if it is costly it must be good; real wine lovers know this is not necessarily so! Sadly for most of us, this applies for but a few product categories, for most we have to live in a world where we must reduce price to increase demand – not so good from a profitability viewpoint.
Hip fashion icon American Apparel never goes on sale, instead they provide fashion basics which are timeless and seasonless. Whether this be sustainable over time is an open question. Being in the retail environment they have to follow trends, for those born before the 1980s you may remember Grouch pants were big for a few months then the moment passed, which we’re all thankful for. A more contemporary example would be the Furby toy, which reached its peak in sales in 1998. You can make a short section run but sometime even the best retailer gets caught. If it is not sold and old you have to get rid of it.
At the heart of the issue is seeking to keep the integrity of the brand and differentiating the brand on the high end. But savvy and serious shoppers know they can find it somewhere, especially with the Internet, if you want to spend the time, but not everyone does.
In top-end department stores, like Selfridges, Nordstrom or Bloomingdale’s, high-end fashion brands never go on sale. However, these top stores can negotiate with the brands, even brand powerhouses like Giorgio Armani, which will give an additional 10