As the recession in the United States drags on, more and more companies are considering cutting prices in a bid to attract cash-strapped consumers. However, lowering prices may hurt the perception of a brand – particularly in the luxury sector – and squeeze margins, often with little effect on market share.
Still, company executives often appear to believe that price is the number one thing that drives consumer behaviour, and consequently, market share, according to recent consumer surveys.
As Mike Jeffries, chief executive of Abercrombie & Fitch (A&F), which recently u-turned on its refusal to lower prices in the midst of the recession, said on the company’s first-quarter conference call:
There is a price consciousness dictating shoppers’ purchases today unlike anything I have seen before.
Other retail stores are also cutting prices to try to lure people in.
David Moin, a writer at specialist fashion publication Women’s Wear Daily, has been following the price cuts that retailers have been implementing. In a recent article, he noted:
… given the poor economy, retailers have been marking down spring merchandise almost since it hit the floor in January, offering one-day sales, private events or other promotions.
But it in the case of A&F, at least, it is hard to believe that customers stopped buying the clothes solely because of their high prices.
Some stores selling to the same target market – sometimes with higher prices – are faring rather better.
Buckle, another clothing retailer which, like A&F targets trendy teenagers, for instance, has experienced a growth in sales. Last month, Buckle reported profits had risen 44 per cent in the first quarter of 2009, while sales rose 25 per cent over the same period. In contrast, A&F reported a 26 per cent decrease in sales during the quarter and a net loss of $26.8m.
This suggests price may not be the only factor consumers consider when buying a product. Today’s consumers may be basing their buying decisions on the quality of goods and services and on their overall feeling about the companies they are buying from. In fact, they appear to be favouring those companies that rank as good corporate citizens and that prioritise customer service, according to a recent survey of shoppers conducted by Euro RSCG Worldwide:
… quality and service are the driving forces behind consumer purchase decisions in the current economy
Buckle says it’s devoted to taking care of their customers first. According to a store review by Associated Content, Buckle’s motto is “to provide personal attention to every guest”, yet there are no “annoying sales people following you around the store asking you if you need help finding anything”. Instead, employees are there for customers when they actually do want or need help. As one consumer told Smart Money – the personal finance website of the Wall Street Journal – the employees are always there to find the right fit and style you like so “you end up buying more than you planned on.”
A&F, on the other hand, is a study in contrasts.
The company is not known for prioritising customer service, and the design of its stores – which tend to be dark and feature posters of models in minimal clothing and shop attendants who spritz cologne at passers-by – can be off-putting.
These factors may be a bigger contributor to A&F’s falling profitability than its relatively high prices compared to its nearest rivals, which also include American Eagle and Aeropostale.
As current and former employees of A&F will attest, the company is extremely focused on maintaining its “unique presentation” and appears to be less concerned with customer satisfaction.
In the past, management at A&F branches were encouraged to “act superior” to customers, and to ignore them when possible, a former store manager confirmed to FT Alphaville.
Company marketers believed customers would respond to this treatment by buying the outfits worn by the employees in order to achieve the same level of superiority. This policy is no longer as explicit, following a series of PR gaffes in 2000. According to the Encyclopedia of Major Marketing Campaigns:
“The company denied the widespread belief that it intentionally sparked controversy even at the expense of seeming offensive, but conventional wisdom maintained that the cultivation of a spirit of rebelliousness verging on the offensive was a marketing tactic of particular usefulness among college students.”
Consumers have caught onto A&F’s marketing scheme and many are not falling for it anymore. Moreover, A&F has also fallen out of favour with parents, a factor that becomes more significant now that the unemployment rate for 16 to 19-year-olds stands at a whopping 21 per cent, leaving more parents paying for their children’s expenses.
Chris Rottenberk, a New York-based mother of two, told FT Alphaville she did not approve of her 16-year-old daughter shopping at A&F. As she put it:
I think stores that cater to teenagers need to be socially responsible and not just try to make a buck off this age group.
Given that parents are often a major – if the not the sole – source of teenagers’ spending power, this is yet more bad news for A&F.
In sum, Abercrombie & Fitch needs to rethink its entire marketing strategy instead of just focusing on cutting prices.
Related links:
Losing its cool at the mall – NYTimes
When not cutting prices becomes a luxury – John Gapper / FT
On 5th Ave, discounts arrive early – NYTimes
US fashion retailers in crisis – FT Alphaville
Abercrombie & Rich – FT Alphaville
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Madison Lukaczyk is entering her junior year at Syracuse University. She studies marketing and advertising at the S.I. Newhouse School of Public Communications and the Whitman School of Management. She is currently an intern at FT Alphaville in New York.