When it comes to luxury brands, you expect to pay a high price!

In fact, some would say that the higher the price, the better the product and that is what makes it exclusive!

Tom Ford, the consummate commentator on fashion, clearly agrees: “The ‘democratization of luxury’ promoted by the large luxury brand conglomerates is without doubt the main force behind the vulgarization of most traditional luxury fashion brands,” he says.

Let’s face it; the only thing that stands between most consumers and the luxury brand is price. People want them but they just can’t afford them!

But, if a consumer is shopping for an exclusive brand (think Hermes, Louis Vuitton, Gucci), and likes the idea of buying smart, then many would conclude they can save some money by buying online from a country that sells it cheaper. However, the truth is that they probably won’t succeed; at least not online.

Why? First, the presence of truly international e-commerce sites are rare, particularly among fashion companies. Second, to protect prices in different markets, companies have made sure that the comparison of prices is not easy. Some of the “price fences” used to discriminate prices, include: language exclusivity; limited country selection within a site; cookies to automatically send you to your originally selected country of choice; different products names across geographies; and, variations in specifications.

These differences help protect brands from being gray marketed and from having their sales cannibalized from high priced markets in lower priced markets – sound strategies from a business perspective.

Although the Internet has facilitated the comparison of prices, it has not driven price harmonization. For example, when Chanel raised the retail price in Korea for some of its bags in July, sales should have dipped, according to the economic rules of supply and demand – but instead they increased.How consumers fight back will depend on the industry. In the electronics world, consumers tend to be quite powerful and apply pressure on technology companies through user groups leading to a change in the company’s behaviour. But in the world of fashion it’s a different story. There is virtually no resistance against online price differentials for fashion products.

“Luxury is the ease of a t-shirt
in a very expensive dress”

 

-Karl Lagerfeld

In essence the luxury brands are pricing for value. In some markets the value is high and in others it is lower, hence the resulting price differentials.

Some price harmonization occurs among markets in close proximity to one another because there tends to frequent travel across borders and multilingualism is more common.

If you want a good deal on your next Gucci bag, surprisingly the good old USA is typically the best place to buy.

Those living outside the U.S. will have to plan that purchase for their next visit there. The reality is that as much as the web mimics a global environment, online retailing doesn’t follow when it comes to fashion.

Paul Hunt is the president of Pricing Solutions, an international pricing strategy consultancy dedicated to helping clients achieve World Class Pricing competency. Paul publishes a weekly pricing column in the FP Executive. He also writes for the Pricing Solutions Club.