So, what happens when a luxury brand drops its prices ?

Excerpted from the WSJ, “In Rare Move, Luxury Goods Makers Trim Their Prices in the US”, by R. Dodes and C. Passariello, November 14, 2008

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For the first time in recent memory, luxury-goods makers are cutting prices on designer apparel, shoes and handbags in the U.S. market.

With even the biggest spenders starting to scrimp, luxury companies are reversing the industry’s maxim that luxury prices only move up. The cuts range from 8% to 10% on most products sold in the U.S.

But the move isn’t likely to dent the profit margins…because the value of the dollar has increased 28% against the euro since April. Luxury-goods companies don’t disclose margins, but Louis Vuitton is estimated to have a margin of 45 cents on every dollar…The strengthening of the dollar means luxury-goods companies are earning more than they had budgeted on every handbag or piece of clothing sold in dollars.

Luxury-goods executives must walk a fine line when cutting prices… if prices drop precipitously, the perception of a label’s value may also drop… During the recent years, luxury companies often assumed that money was no object for their fans…But luxury makers have acknowledged that a ceiling exists even for exclusive goods…

Edit by SAC

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This article is a follow-up to a previous post on marketing luxury brands in lean times. It confirms that even high-end consumers are cutting back spending and likely avoiding conspicuous consumption. As a result, marketers are faced with the challenge of maintaining their premiums and exclusivity while also making sure their brands are accessible and acceptable to purchase in the eyes of the high-end consumer.

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Full Article:
http://online.wsj.com/article/SB122662444379126865.html

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