Luxury–Goods Makers Coming Down Off Their Pricing Pedestal in Rocky Seas

Cut Prices For First Time In Recent Memory
“For the first time in recent memory, luxury-goods makers are cutting prices on designer apparel, shoes and handbags in the U.S. market,” according to the Nov. 14th, 2008 Wall Street Journal. This is in direct response to a shift in consumer spending habits even among the rich – who normally do not change consumption patterns even during economic downturns. According to the WSJ, “The cuts range from 8% to 10% on most products sold in U.S. from Chanel S.A. to Versace SpA, Christian Louboutin and Chloe.” These retailers are trying to “net” a critical mass of consumers in strategic groups that are looking to trade down price points.

Moving Down Price-Performance Grid
Shifting to move down the price-performance grid via lowering price is a partial Blue Ocean strategy. However, luxury-goods makers are not altering the performance, which is good news-bad news. The good news is that it does get more people to buy on a short-term basis, and really accomplishes the same thing as a sale. The bad news is that it’s not a complete or authentic Blue Ocean Strategy, because the competition can follow right along by lowering price too. These current luxury manufacturers are really slipping into a Red Ocean by lowering price and not changing the performance. It would seem to be a better value to consumers given a lower price even without changing the product – but as a luxury good, it’s also about perception and exclusivity. These two factors for luxury goods are usually more important than the actual product itself – especially for items such as clothes, bags, and perfumes.

The Lowing Price Red Ocean
These luxury-makers need to avoid Red Oceans at all costs, and maintain their product’s uniqueness – and in less crowded spaces. They should not pursue a mutually exclusive low-cost strategy without product changes – otherwise it’s not a strategy, but a sale! There is nothing wrong with lowering the product price, but these manufacturers should product features which have “stripped out” low utility features thereby reducing costs. Make the product different and less expensive!

Dell to Re-Enter iPod Arena – Blue Ocean Intentions, Red Ocean Waters

Dell’s MP3 Player
Recently, Dell has been testing a digital music player that ties to software for a range of portable PCs and lets users download and organize music and movies from various online sources.  According to the Wall Street Journal’s July 30th Market Section, the software would connect the device to an online subscription service that Dell expects to launch later this year.  The key advantage of Dell’s MP3 Player will be that it allows consumers to download songs and movies, and then move them between devices like PCs and cell-phones.  Apple’s digital music strategy doesn’t always allow this functionality.  Michael Dell is trying to move out of the Crimson Red Ocean of PCs into a broader range of consumer markets.  The problem is that he has picked an Ocean within this space which is also red, and not blue.

Apple Owns the MP3 Player Marketspace
Companies that dominate other arenas, such as Sony and Microsoft, have tried to move into the MP3 Player marketspace, and they have failed miserably here.  Quite simply, Apple owns this marketspace!  According to the industry analyst NPD Group, Apple owned 71% of the MP3 player market in the 1st quarter of 2008.  Its closest rival, SanDisk, had 11%, while software heavyweight Microsoft had a 4% market share with the Zune.  This is textbook domination and the type of market share I discuss in my forth-coming book, Owning Marketspace. 

Because Apple is so dominant in this market, even a peripheral attack is inherently a Red Ocean.  If Dell wants to think Blue Ocean via consumer markets, it should look elsewhere.  While the MP3 player market is a large and lucrative space, it’s maturing quickly and is blue only to Apple.  Moving into it and competing with Steve Jobs will require a massive amount of resources, especially in marketing – an area where Apple excels.

I am willing to talk with blog participants live via phone for free consultations.  I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities.  For any of these request, E-mail me .  I will help my readers in any way possible – I want to share my knowledge and expertise.

Mike Bolden marketing expert and blue ocean strategist – writing to inform, enlighten, and inspire.  Author of forth coming book, “Owning Marketspace”.  Available for consulting and speaking engagements.
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Southwest Continues To Fly The Blue Ocean Skies

Profitable Again, Away from the Red Ocean
In the midst of a Red Ocean industry, Southwest continues to remain profitable and growing.  It posted a 15% increase in profits in the 2nd quarter, reporting a net income of $321 million (compared to $278 million a year ago).  This happened in spite of rising costs (e.g., fuel, which for Southwest grew by 35%, of which 80% of its fuel bill was smartly hedged).  Nearly all other domestic airlines are facing huge losses, and as a result, they are raising ticket prices, slashing unprofitable routes, and charging various fees such as checking baggage.

Stay the Course into Blue Waters
Southwest, already a Blue Oceaner, is a prime example of a company that can do well to follow its current course.  The overall outlook of its management must continue a Blue Ocean tenet of not focusing on the same point in time as the other carriers.  Other airlines live by a short-term time horizon.  Southwest should maintain a mid to long range focus and; do not charge additional fees for baggage, continue hedging fuel costs, and in particular, do not raise ticket prices too quickly on less competitive routes.  This last point is very pertinent because capacity in Southwest’s markets have decreased by 15% – the industry norm is 10%.  With a weak economy forecasted to continue in 2009, management has prudently lowered its growth plans.  Although this is forecasted and its load factor is down this summer, Southwest should focus mid-term and long-term on building share where competitors are retreating.

Emotional Orientation as a Key Differentiating Factor
Lastly, Southwest should retain its focus on another of its Blue Ocean traits: maintain the emotional orientation that distinguishes its identity from the other domestic airlines.  Continue the momentum of friendly service and attitude of its employees, its corporate culture, and paramountly, the quality of customer treatment at every touch point.  This momentum begins with the internal culture, at the very start, with its attitude-focused hiring and screening process. 

What else do you think Southwest can do to maintain its Blue Ocean?  What would you do if you were running American or United?

I am willing to talk with blog participants live via phone for free consultations.  I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities.  For any of these request, E-mail me .  I will help my readers in any way possible – I want to share my knowledge and expertise.

Mike Bolden marketing expert and blue ocean strategist – writing to inform, enlighten, and inspire.  Author of forth coming book, “Owning Marketspace”.  Available for consulting and speaking engagements.

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