Are Price Increases Really Necessary?

You may not like them, but price increases can actually be great for the consumer

Price increases amongst the top luxury brands happen so often that discussions about them appear on the PurseForum regularly. The general consensus? Our members dislike them, and the mere rumor of one sparks what looks like panic buying of the styles that are expected to increase in price.

Great for the brands that increase them, right?

Yes, but they can actually be great for the people who buy from these brands. You read that right, I said, great.

Before all the e-tomatoes are hurled at me, let me explain why:

Take Chanel, for instance. Prices of their Classic Flap and Reissue have skyrocketed in the past decade. I still remember walking into the Chanel on Bloor Street in Toronto in 2008, when the Square Mini was CAD 2200. It was considered high back then, but now customers cannot even buy a considerably smaller SLG (small leather good), the Chanel WOC, for that price.

Chanel Reissue 2.55

Yet if I were to have purchased the Square Mini back then, I would have been able to buy into the Chanel brand at a much lower price point. Chanel has safeguarded its image and the perceived investment value of its bags by constantly raising prices. Even if I were to buy one today at a much higher price of CAD 5025 as of the date of this article, I am assured that the bag will most likely not depreciate.

Raising prices isn’t as easy as some people think. Brands that don’t have a demand that matches their increasing price points can experience sales declines at the chagrin of their investors. Mulberry is one such example when the brand decided to upscale a few years ago and introduce bags at higher price points than their previous Alexa and Bayswater bags. The higher price points did not resonate with their customers. The brand did not have the demand to increase the prices to the level they commanded. Subsequently, Mulberry introduced new bags at lower price points to prevent further sales decline.

Mulberry’s story is an illustration of the relationship between demand and pricing. Want to increase prices? Then be sure that your brand is desirable enough to warrant those prices. Brands famous for exorbitant price increases have carefully curated their brand image so that whatever you buy from them is desirable enough that lots of people are willing to pay those higher prices to obtain them.

Dior Lady Bag

Some consumers are outraged at how prices have increased without an increase in the craftsmanship and quality of the bag. Remember, you are often paying for the brand image rather than the product. After all, how is it possible that a bit of leather and metal hardware, even if the labor was truly intensive, costs over $5,000? Determining the price point for luxury items (and most mass-market items) is based on the perceived demand of the product. Yes, it may be calculated for items with a low-profit margin to prevent a company from taking in huge losses. However, luxury goods have very high profit margins, so that investors aren’t worried that their brand will go bankrupt if the price was a bit lower. It isn’t priced like Costco’s hot rotisserie chicken, which I learned actually sells for a loss but can draw customers into a store to increase overall sales and is a marketing tactic known as a loss-leader.

Price increases also help elevate a brand’s perceived level of luxury to the point where it helps maintain the perceived value of the goods that customers have and will purchase. Brands that are more aggressive in this approach can make their brand more upscale than other brands. Dior is one such example. About 12 years ago, Gucci and Dior’s price points were about the same for comparable products. However, through a series of price increases (as well as successful marketing), the Dior brand now has considerably higher price points than Gucci. The Soho Disco bag, an enduring design for Gucci, has at least doubled in price since that time, where its old price was around CAD 700, and its current price is CAD 1560. However, the Lady Dior has at least tripled in price, with the medium costing $1900 CAD in 2008 and now costing CAD 6600. I am not implying these two bags are comparable (they are not). They are merely used to illustrate how the price increases for these classic styles have been disproportionate.

Hermes Kelly

Hermès’ price increases have helped elevate the perceived image of the brand above Chanel. If Hermès did not do that, then Chanel may have been able to price some of their classic bags at a similar level to Hermès’ iconic Birkin and Kelly bags. Hermès customers should want the brand to keep elevating prices to place its status in one of the highest echelons of luxury, lest other brands supersede its level.

I’m not saying that I personally welcome the price increases. After all, my favorite brand of all time (Dior) is getting more and more unaffordable to me since my salary does not increase nearly as quickly as their prices. That being said, I am happy that the men’s Saddle I purchased when the price was CAD 3400 went up to CAD 4200 in just a year. Now, I have a bag that commands a higher price tag but at a lower price. It was thrilling to discover that the bag I already owned went up in price so much and that it could command a much higher price point.

I’m sure that I am not the only one who is thrilled to find out that what we own is selling for a lot more now. It’s similar to the thrill of getting something on sale when it is not supposed to go on sale.

So before you get upset about the next price increase, think of what would happen if the brand did not increase its prices constantly. Do we want the image of the brands that we love to not be elevated?


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