A quiet but visible move was made by YSL headquarters this past week to reduce the prices on some of their hero products with prices falling between $100 to $300 on certain bestsellers in the handbag category. The price decrease was noticed by TikTok Dalila, who communicated to the masses that the Lou Lou Small bag which was priced at $2950 in 2023 is now available on the brand’s website for $2650, a $300 decrease. Her video gathered over 200k views and saw commenters literally “shocked” from hearing the news and many speculating that rationale behind the decision was Kering group’s poor performance in 2023 with revenue falling 10%.
Price reductions are usually unheard of in the luxury fashion industry as brand’s invest tirelessly to innovate on products and entertain their audiences, driving demand higher and higher every year. This year, luxury brands such as Chanel and Hermes have announced annual price increases ranging from 3% to 15% on their best-selling products. This scenario paints an interesting picture about price discovery through the internet. Last week’s article focused on the digital marketing environment. This article aims to unpack further the implications that the internet has on consumer’s understanding of prices and some of their benefits and disadvantages experienced by the luxury sector.
The internet has been a driver of price transparency especially since the digitalization of commerce experiences. This price transparency means that luxury brands cannot take advantage of price discrimination practices. Although price discrimination still takes place due to accountancy factors of operating in specific locations and exchange rate fluctuations, the internet drives consumers to be informed on these differences and even motivates them to take action based on where they can find the best prices even for luxury goods. Differential pricing however can make consumers feel that they are being treated unfairly especially if price differences are not justified by the brands or brand influencers who comment on pricing.
One benefit of price transparency is that it invites customers who may have been initially unaware and intimidated by a brand’s prestige to explore affordable product categories of the brand and still gain the brand experience. This is a phenomenal driver of brand awareness and equity and results in sustained increases in brand demand. Small gifts, cosmetics and perfumes are some categories that are competitively priced across large scale global luxury brands and help build a large consumer audience who are more likely to return to the brand to make larger purchases if they are satisfied by entry level priced products.
Another phenomenon caused by prices being openly published on the internet is the commoditization of products. This is very common across the luxury goods sector as brands collate industry trends data to forecast what designs will be popular in the coming seasons, this often results in brands producing similar product styles and allocating them similar prices for competition, making them difficult to tell apart. In the luxury sector, this decreases the consumer’s ability to differentiate between brands and often makes similar products seem like seasonal, trendy items, diminishing their luxurious appeal and leading to reduced sales volumes as consumers struggle to justify their long term value. Beyond that, commoditization also dilutes brands’ value as luxury consumers may not sense the exclusivity that they expect.
The internet has also aided specific subsectors in the luxury market through the visibility of various pricing techniques. Where dynamic pricing in luxury hotels was initially a driver to make the best profits in busy periods, today it also motivates those who want luxury hospitality experiences to access those experiences in off-season periods where prices may be kinder and facilities underutilized. In the luxury health and wellness industry, especially when launching niche products, price testing is a technique which is often used to understand the way various consumers respond to different price levels to help brands find the optimal pricing strategy.
In the fine art and rare items trade, auctions are made available even through the internet, an adaptation of the traditional pricing approach in this luxury subsector. For those consumers willing to access the premium and luxury versions of tiered products, the internet has allowed all customers to see and understand which version will appeal to them based on the price, features and benefits of the varying product levels available. A common example is airline lounge access which is often not offered to economy level travelers and is available to premium and first class travelers with access to a full stack of features for those who pay the highest rates.
The internet’s ability to create price visibility is both a superpower and a weakness. While access to prices can help consumers make purchases faster and motivate higher transaction volumes, transparency and awareness of price differences can also diminish consumer’s trust in specific brands. Ultimately, it is up to the various decision makers at luxury brands to balance the act of transparency and exclusivity and adapt to the ever evolving nature of the internet in a manner that still maintains their appeal and quality across multiple touchpoints.
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