How Do Fashion Brands Price Their Products? There Are These "Correct Postures"

For fashion brands, formulating effective pricing strategies is both a science and an art.

In 2014, Pookie and Louisa The Burch sisters founded their own fashion brand Trademark. From sweet picnic clothes to cool patent leather coats, its main products are printed with unique checkered patterns in a simple style. At that time, they hoped to keep the product price as low as possible without sacrificing quality. Their goal is to keep the price of most products below $500, while purchasing products in small quantities from Italy. However, the fact has proved that this goal is almost impossible to achieve, and the retail price of some products exceeds 1000 dollars.

In 2017, Trademark simplified its business operation: the Burch sisters closed their flagship store in downtown New York, abandoned the ready to wear series and began to focus on developing better Accessories Business - bags, shoes and jewelry. Although they are full of confidence in this transformation, some products still encounter resistance at the retail end due to the high price.

The Burch sisters understand that they must make changes. So they negotiated with Italian suppliers who have cooperated for many years and agreed to increase the order quantity in some cases, thus reducing the unit cost. They began to produce certain products in Asia while continuing to use Italian leather. This series of changes significantly reduced the product price, for example, the price of the autumn and winter 2018 series products decreased by 40%, but the profit margin remained unchanged (they claimed that the quality was not affected). After the price reduction, the orders of wholesalers of autumn series products doubled, and the 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 average market price, resulting in a higher inventory selling rate than in the past few quarters. The sales volume also increased significantly, and is expected to quadruple this year. Louisa Burch said, "The number of products purchased by customers has doubled. This alone is exciting. The price of products has returned to the level we have been striving for."

So far, Trademark's pricing strategy seems to be effective. However, no matter in luxury goods or mass market, the price adjustment of product lines will have an irreversible impact on business. Taking Edun as an example, the brand has recently closed down and was spun off from LVMH, the parent company. In the 13 years of brand history, Edun has changed its positioning for many times. Although there are many problems facing Edun, pricing is not only the main reason for Edun's failure, leading to less and less long-term cooperation with retailers.

　　Marc Jacobs is another example of the brand putting contemporary collections and designer collections under the same trademark, which has caused confusion for retailers and consumers. Although the price of most products is lower than in the past - the price of bags sold on the official website is less than $500, the effect of price reduction is not satisfactory. Several industry analysts said that, Marc Jacobs' brand value has halved. A few years ago, Mulberry was in Bruno, the former senior manager of Herm è s Under the leadership of Guillon, the attempt to move from the luxury market to the high-end market backfired, and the profit in 2013 decreased by 50%.

For brands, the best thing is to determine the appropriate price at the beginning of creation. But if this is not possible, the brand must correct the price as soon as possible. This is a complicated process involving inner feelings. Designers should put down their ego and consider the price issue pragmatically. Don't forget that many marketers believe that whether the "4P theory" can be correctly applied, that is, the importance of emphasizing the product, price, place and promotion will ultimately determine the success or failure of the brand.

Fashion start-up brand operation consulting company Ten Yards is headquartered in New York, and its founder and CEO Lisa Metcalfe said, "I always ask designers, 'What are your expectations for your company?' Because companies of different types and sizes require you to make different decisions."

　 So, how should brands price their products?

The first step of pricing is to determine the "ashore cost", that is, the basic production cost of the product, including Material Science , labor, packaging, tariffs, transportation and distribution costs. The retail price of the product (the price at which the wholesaler sells the product in the store) is usually six times the "landing cost". If the "landing cost" (plus marketing cost) of a bag is $20, the suggested retail price of the bag is $120. The brand may charge the retailer $50. At this time, the profit margin of the brand and the retailer is 60% and 58% respectively.

The sales target of the brand is generally to achieve an average profit margin of 60%. Some products are usually less profitable, such as disposable products with high production costs but high brand marketing value, while core products with fixed costs, such as T-shirts and jeans, are more profitable, which are usually regarded as "profit drivers". Many retailers will try to maintain a high profit margin for most of their products in order to carry out discount promotions. Brands focusing on direct to consumer (DTC) channels, such as Realisation, a skirt brand popular in Instagram Par、 There is no need to set high prices for the luggage brand Away, because they do not share profits with middlemen.

If the brand strategy and market Including positioning, the pricing problem will become more complex. Suppose a designer plans to reduce the price, because the price "looks" too expensive, but she can't cut costs. In order to reduce the retail price to the expected level, she can only sacrifice profits, change suppliers, or increase production to reduce "landing costs". But there may also be risks in increasing production: most of the extra inventory may only be sold at a discount in the end, so the brand will soon lose the opportunity to obtain considerable profits. Metcalfe believes that relying on quarter end discounts and discounts "will inevitably fail, and your brand value will be completely diluted."

In order to ensure quality, brands sometimes have to raise prices. Take the underwear brand Commando as an example. Traceless underwear is the most famous product of the brand, and the designers holding the conference are particularly fond of it. At the end of 2016, in order to offset the increased supply chain related costs, Commando increased the average selling price of products by 10%.

If the price adjustment is small, and the brand does not need to change the retailer or be placed in other areas of the department store, the price adjustment is most effective. Metcalfe pointed out that if the price of "advanced contemporary" products (for example, a skirt priced at $795) is reduced to the price of "mass contemporary" products (a skirt priced at $495), the new sales volume will be enough to keep the profits at the original level without sacrificing product quality.

On the other hand, a small increase in price sometimes increases the perceived value of products. Shortly after Commando raised the price, Kerry, the founder and CEO O'Brien signed a new cooperation agreement with the department store, requiring its core products not to participate in discount activities (seasonal products still participate in discount activities). She said: "Commando is committed to becoming a basic luxury brand. Giving up promotional activities can make consumers more confident when buying Commando products, because they know that our products will not appear at the staff's relatives and friends special sale next week. " After the price increase, the sales volume and sales volume of Commando have increased by double digits every year.

Today, consumers know more about product prices and positioning than ever before, because they can easily compare different options. Therefore, brands should be more flexible in determining the appropriate price. Pookie Burch said: "This generation of consumers are highly educated, they know what they want, which makes our work more complicated. We must always be vigilant."