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!

Barnes & Noble: Go Beyond Books

Current Situation:
Barnes & Noble experienced a 15% drop in its fiscal 2nd quarter as sales slid 1.6% to $1.22 billion. Same-store sales declined 4.7%, and without the Harry Potter final installment last year it still would have declined 1.5%. These figures are symptomatic of the assaults retailers face on many fronts. The U.S. is in the midst of a weak economy and a significant economic downturn which is exacerbated by record high gas prices. As a result, consumers have a lot less disposable income, and more importantly, less confidence in their economic well-being. However, all was not gloom and doom for Barnes & Noble, as it did beat Wall Street expectations through lowering expenses – this led them to improve margins.

Choose Best Elements of Related Players and Occupy A Unique Space:
While this was a silver lining in their profit reduction, the health of the business must be focused on growth. Barnes & Noble must address the competitive pressures and forces facing their business. They must create a Blue Ocean line of businesses. They have the resources and current substantial brand equity to be known in the marketplace as an “intellectual entertainment” provider. This would offer the opportunity to create, develop, and brand customer and business service lines along related themes. They have the opportunity to occupy a space among Blockbuster, Netflix, Amazon, and Borders. Barnes & Noble can leverage elements of the best features and benefits of all these players to create an independent and unique space with a higher utility value proposition to consumers. They can also leverage their brick-and-mortar operations with a strategy that allows them to point online customers to their stores, and store customers to their website.

Flank Amazon with “Smart Entertainment” Spacing:
Barnes & Noble should also not look to compete head-on with Amazon.com as an “everything to everybody” online seller, but should choose an alternative theme with a strong appeal to a substantial niche of consumers. They should pick a fairly significant and lucrative arena of the market where Amazon’s presence recedes. To actualize gaining market share in this area, Barnes & Noble needs to provide features and benefits to consumers that Amazon does not provide or that utilize B&N’s physical locations. Barnes & Noble’s growth depends on realizing a broader vision and branding beyond books – it can own a place in the “smart entertainment” space, and “go beyond books.”

Barnes & Noble Blue Ocean Strategy Retailers Smart Entertainment Intellectual Entertainment Amazon Turbo Tagger