How Do Fashion Brands Price Products?

For fashion brands, developing effective pricing strategies is not only a science but also an art.

In 2014, Pookie and Louisa Burch set up their own fashion brand Trademark. From the sweet picnic dress to the cool lacquer coat, the main product has unique grid pattern and simple style. At that time, they wanted to keep the price of products as low as possible without sacrificing their quality. Their goal is to make most products less than $500, and buy products from small quantities in Italy. But it has proved that this goal is almost impossible, and the retail price of some products exceeds 1000 US dollars.

In 2017, Trademark simplified its operation: the Burch sisters closed the flagship store in downtown New York, abandoned the garment series, and began to concentrate on better performance. Accessories Business - bags, shoes and jewelry. Despite their confidence in the transformation, some products still encounter resistance at the retail end because of the high price.

The Burch sisters understand that they have to make changes. So they negotiated with Italy suppliers who had worked together for many years and agreed to increase orders in some cases, thereby reducing unit costs. They began producing some products in Asia while continuing to use Italy leather. This series of changes has greatly reduced the price of products, for example, the price of 2018 autumn and winter products has been reduced by 40%, but the profit margins remain unchanged (they claim that the quality is not affected). After the price cut, orders for wholesalers in the autumn series doubled, and the number of stores selling Trademark products doubled.

The price reduction measures of the Trademark e-commerce website also achieved remarkable results. The Burch sisters reduced the price of some spring series shoes to the market average price, which resulted in a higher inventory selling rate than in the past few quarters. Sales have also increased significantly, and this year's sales are expected to quadruple. Louisa Burch said, "the number of products purchased by customers has doubled. That alone is exhilarating. The price of products has returned to the level we have striving for.

So far, the pricing strategy of Trademark seems to be effective. But regardless of luxury or mass market, product line price adjustment will have irreversible impact on business. Take Edun as an example, the brand has recently been shut down and stripped from its parent company, LVMH. In the 13 years of brand history, Edun has changed its positioning many times. Although there are many problems, pricing is not only the main reason for the failure of Edun, but also leads to the lack of long-term cooperation with retailers.

Marc Jacobs is another example. The brand puts the contemporary series and designer series under the same brand, causing confusion to retailers and consumers. Although the prices of most products are lower than in the past, the price of bags sold on the official website is below $500, but the effect of price cuts is not satisfactory. Many industry analysts say the brand value of Marc Jacobs has shrunk by half. A few years ago, Mulberry, under the leadership of Herm Bruno s's former high-level Bruno Guillon, tried to shift from the luxury market to the high-end market. The result was counterproductive, with a sharp decrease of 50% in 2013.

For brands, the best thing is to set the right price at the beginning of the creation. But if that cannot be achieved, the brand must correct the price as soon as possible. This is a complicated process involving inner feelings. Designers should lay down their selves and consider the price issue pragmatically. Don't forget, many marketers believe that the correct use of "4P theory", that is, emphasizing the importance of Product, Price, Place and Promotion, will ultimately determine the success or failure of a brand.

"I always ask the designer," what is your expectation of your company? "Ten Yards, Yards Lisa, founder and chief executive officer of fashion brand consulting company, is based in New York.

　 Then, how should the brand price the product?

The first step in pricing is to determine the "landing cost", that is, the basic production cost of the product, including Material Science Labor, packaging, tariffs, transportation and distribution costs. The retail price of products (wholesalers selling products in stores) is usually six times the "cost of landing". If a bag's "ashore cost" (plus marketing cost) is $20, the recommended retail price of this bag is US $120. The brand may charge $50 to retailers, when the sales margins of brands and retailers are 60% and 58% respectively.

The sales target of a brand is usually achieved by an average profit margin of 60%. Some products are usually less profitable, such as the high cost of production, but the one-time value of the brand marketing value, while the core products with more cost are more profitable, such as T-shirts and jeans, which are usually regarded as "profit drivers". Many retailers try to maintain a high profit margin for most commodities in order to develop discount promotions. Brands that are directly oriented to DTC channels, such as Instagram's skirt brand Realisation Par and luggage brand Away, do not need to set up high prices because they do not share profits with middlemen.

If the brand strategy and market The pricing problem will become more complicated, including location calculation. Suppose a designer intends to reduce the price, because the price "looks" too expensive, but she can not cut costs. In order to reduce the retail price to the expected level, she can only sacrifice profits, replace suppliers or increase production to reduce the "landing cost". But raising production may also have risks: most of the stocks coming out may end up at a discount, and the brand quickly loses the chance of a substantial profit. Metcalfe believes that relying on quarter end discount and discount business is bound to fail and your brand value will be thoroughly diluted.

In order to ensure quality, brands sometimes have to raise prices. Underwear brand Commando, for example, is the most famous product of the brand. By the end of 2016, Commando had increased the average selling price of products by 10% in order to offset the increased supply chain related costs.

If the price adjustment is very small, the brand will not need to replace the retailer or be placed in other areas of the department store, so the price adjustment is most effective. Metcalfe points out that if the price of "advanced contemporary" products (for example, a skirt priced at 795 US dollars) is reduced to the price of "mass contemporary" products (priced at a skirt of 495 dollars), the new sales volume will be enough to keep profits at the original level, and the quality of products will not be sacrificed.

On the other hand, a slight increase in price can sometimes increase the perceived value of the product. Shortly after Commando raised its price, the founder and CEO Kerry O Brien re signed a cooperation agreement with the department store, demanding that its flagship core products no longer participate in discount activities (seasonal products still participate in discounts). "Commando is committed to becoming a luxury basic brand," she said. Giving up promotional activities can make consumers more confident when buying Commando products, because they know that our products will not appear at the next week's staff and friends sale meeting. After the increase, sales and sales of Commando increased by two digits per year.

Nowadays, consumers' understanding of product prices and positioning is much better than before because they can easily and easily compare different choices. Therefore, brands should be more flexible in determining the right price. Pookie Burch said: "this generation of consumers is highly educated, and they know what they want, which makes our work more complicated. We must be vigilant at all times. "