Within a month of each other, two articles appeared in BusinessWeek about  luxury brands.  The articles, about Coach and Tiffany & Co. respectively, describe how the brands are dealing with the decrease in demand due to the recession.  Each has devised a strategy for lowering its prices without tarnishing its brand.

That is the luxury brand dilemma, isn’t it?  With The Conference Board’s Consumer Confidence Index still falling and consumer spending essentially flat, all brands are desperate to generate sales — but while some  have resorted to value messaging and price promotions, these don’t seem appropriate for luxury brands.  Luxury brands’ higher price/higher quality positioning — and the status which comes along with it — plays a key role in their brand image and identity.  They don’t want to do anything to jeopardize their ability to command a higher price in the future.

So, what’s a luxury brand to do?!

Coach has developed a whole new product line, Poppy.  Actually way back in July of 2008, the senior executives at Coach sensed the coming recession and CEO Lew Frankfort knew “Coach would need to create even more compelling reasons for consumers to shop.”  At the same time, Frankfort declared, “We never go on sale.”  So the company set about designing a new line of purses to meet price points approximately 20% lower than their usual $290 average.

Their development process involved predicting consumer sentiment (Reed Krakoff the brand’s creative director decided, that despite a heightened level of anxiety in the marketplace, “People are not buying safe…People want to be inspired.”), sourcing new materials and striking deals with new factories, and re-thinking the company’s financial models.  Ultimately Coach introduced the new Poppy collection earlier this year and two of the bags have exceeded sales expectations.

Tiffany has taken a far more limited and less visible tack.  Late last year, Tiffany decided to lower prices for engagement rings (one of its biggest sellers) by 10% — but they haven’t publicize the move.  Salespeople discreetly tell customers about the reductions.  The discount is positioned as  a “gesture” to consumers in acknowledgment of the environment.

Other than that, the company is committed to its overall pricing strategy.  Tiffany CEO Michael Kowalski says, “It’s about maintaining the long-term value of the enterprise.“  Instead the company is looking at layoffs and store closings in order to manage costs and maintain profitability.

It’s too early to tell whether either or both of these approaches are the right ones.  Not only do they need to stem sales declines now, but also they need to sustain the brand status in the long run.  But, kudos to both companies for their willingness to assume risk and think differently and their commitment to protecting their brands in addressing the luxury brand dilemma.

I was really pleased to read about apparel retailer abercrombie & fitch’s commitment to its brand in a recent LA Times article.

CEO Michael Jeffries told analysts during an earnings call, “We will use markdowns only to clear through seasonal product in a brand-positive way…It is clear to us that the short-term relief provided by the use of promotions is more than offset by the damage inflicted on the brand in the long-term.”

I admire the company’s rejection of the temptation to let fear and market sentiment pull them down into the morass of apparel retailers that are dramatically slashing prices in a desperate attempt to maintain share,

It appears others are less courageous.  According to the article, A&F’s primary competitor American Eagle held a buy-one-get-one-50%-off sale on nearly everything in stores and online. Aeropostale Inc. posted a $10 off in-store coupon on its website and boasted markdowns of as much as 70% off select merchandise.

While such aggressive promotional tactics may generate short-term traffic, A&F is right to be concerned about their effects on the brand in the long term.  Some possible results:

• Come the return to full-prices next year, some customers may bristle at paying a premium for products similar to those they saw priced so low just a month ago.
• The category will become (more) commoditized — drawing so much attention to price causes customers to put more weight on the price side of the price:quality value equation.
• Points for differentiating the brand may decline — after all, if “everyone” is running price promotions and you do too, then really, what makes you different from them?

Nonetheless some might call A&F’s strategy ill-advised at best, crazy at worst — particularly when their sales are so dismal.  But as a person who believes that a strong brand can ward off economic and competitive threats alike, I am optimistic about the chain’s future and look forward to seeing the results of their tenacity.

With the sad state of today’s economy, should companies be doling out empathy or encouragement?

Target stores has been running a campaign called “Brand New Day”  featuring an upbeat look at how people can find joy while saving a few bucks.

Critics call the ads “contemptible” and say that advertisers like Target are at best insensitive and at worst offensive in suggesting that in a time of desperate financial, political, and cultural anxiety, the right product can turn austerity and homelessness into opportunities for personal growth.

I beg to differ – for most folks, the messages are an encouraging and uplifting ray of sunshine in the dark doom and gloom of the news media.  And Target has found a way to make cutting back seem fun and fashionable to boot!

What say you?

I recently came across 2 different items that I left me similarly unimpressed.

The first was a sticker on my Hertz rental car folder, announcing the company was now offering to re-fuel my rental at market prices (instead of the $9.99 or whatever they used to charge.)  Upon further investigation, I learned this was part of an “innovative re-fueling program” Hertz introduced last month.   For customers who don’t refill the fuel tank before returning their rentals, Hertz will charge local market fuel prices plus a one-time Refueling Fee of $6.99.

The second was an article about Whole Foods seeking a more budget-friendly image.  Apparently the company is hurting as consumers pull back on discretionary spending, so they’re offering deeper discounts, adding lower-priced items, and emphasizing value in their messaging.  Such efforts are intended to win back customers who’ve defected to lower priced alternatives and to reinvigorate the company with Wall Street who’s pummeled their stock price in the last 24 months.

While there’s a part of me that is glad to see these companies making an effort to help strained customers, I find myself generally underwhelmed.  Basically Hertz is foregoing their usual price gouging which they should be ashamed of — and Whole Foods is waking up to the reality that $39.99/lb triple cream goat cheese is just not on most people’s shopping lists.  These companies — and many others like them which are struggling to maintain their relevance in today’s economy — should have been treating their customers more fairly and offering great value all along.

Brands gain credibility and develop strong relationships with customers when they do the right thing consistently — not just when the chips are down.  Am I wrong?