Having sales is a classic price discrimination strategy--the shoppers who love a dress so much that they won't risk losing it, or can't wait to wear it, pay full price. Those who care less, have less money, or have less urgent time preference wait and pay less.
So why are sales common in the midmarket, but unheard of at both discounters and many luxury brands? Apple doesn't discount; neither does Bose or Louis Vuitton. At the other end, you don't see a lot of clearance racks at Costco or Wal-Mart. (Though expensive electronics, like cameras, do get marked down, at least at the one Wal-Mart I've been to.)
It's not because price discrimination wouldn't work; there are people who would buy a cheaper iPod or Louis Vuitton bag. In the case of Apple, that wider distribution might actually help them, since the network effects of widespread ownership of their products are fairly large. iPhone has a lot of apps that interact only with other iPhone users. Ubiquitous Macs mean more software, wider familiarity with the OS, and, if you're a DC journalist, the ability to recharge your computer using any other journalist's power cord.
The answer is that both sets of brands have a very distinct message that discounting wars with. In the case of luxury brands, it is "This is a product for people who are willing (and able) to pay for quality)". In the case of the discounters, it is "You will get the best possible deal every time you shop here." Moreover, the discounters manage to capture the real thrill of a sale--getting something for less than it ordinarily sells for--simply by offering very low prices all the time. Every time I contemplate my Rabbit corkscrew, I get a little extra utility from remembering that it was $11 at Costco. While for luxury retailers, getting a deal would give your less enthusiastic or wealthy shoppers the thrill of a deal only by significantly diminishing the carriage trade's joy in owning something most people can't have.
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Apple really isn't a luxury brand. It's possible that they avoid discounts not so much for image purposes, but for the same reason that the NFL doesn't sell tickets at a discount - the demand is so strong that there's simply no need to discount.
I think Walmart would discount, if they could. Walmart/low end discounters make their money on volume, not individual sales.
Walmart's products, thanks to its strategy of "zero surplus", must be at a cut rate price (re 1 cent profit per item) in order to drive people into Walmart to buy everything--hence why Walmarts are becoming supercenters where everything under the sun is sold and the store is way out in the boonies. They need you to be far away from any other store and surrounded by groceries, clothes, and electronics to get you to purchase everything in one fell swoop.
Boutique stores don't have sales because of the image they like to project--one product sold equals the profit of 100 items at Walmart sold. Bulk sales aren't so important, especially since it brings in the "wrong type of crowd" and ultimately hurts the bottom line by making their products less desirable, because everyone has one.
Walmart doesn't have sales because 1) they buy so few of everything that they have no excess; and 2) they depend on volume sales, not individual ones, for profit--so profit-per-item is small.
Walmart does have sales racks.
The iPhone was $500 and then $400. Now it's $200. They have student discounts and often include rebates for free ipods and printers for back to school sales.
Costco often has coupons and mail-in rebates for additional discounts. In fact, if you go to Costco's homepage right now, I can see at least 10 items that are on sale or have a mail-in rebate.
Bose has outlet stores. So do brands like Coach, Lacoste, Armani, and Burberry.
These places do have sales.
Remember when Apple dropped the price of the 1st Gen iPhone after 6 months or so? Early adopters cried bloody murder.
Wal-Mart does discount. Every Wal-Mart has a clearance section, especially those related to end of season - after Christmas,Easter, etc., after winter, after summer, and so on.
I buy a lot of my kids' clothes when the $5 boys shirts have been discounted down to $2. I think the khaki skirt I'm wearing right now was bought at Wal-Mart, discounted from $10 to about $5.
"Status Symbols" aren't effective unless they announce exclusivity. The greater the exclusiveness (generally generated by expense: exclusive ability to overspend for status) the greater the status. As such, a brand's exclusiveness IS it's main value and having a sale would reduce that brand's value.
That's why they don't have discounts or sales: getting them inexpensively would hurt the very thing that makes an Louis Vuitton bag worth having in the first place!
I suppose you're referring to different retail strategies. At first glance, your mention of luxury brands for products claimed to be exclusive is a little confusing.
My take is that retail strategies and general sales strategies are evolving. Think of it: Some products are still entirely sold through licensed resellers, like cars, some lawn mowers (like my "luxury" Toro =), HVAC systems, branded apparel and accessories and so on. The last thing these product manufacturers want is for their products to become mass-produced commodities. They make certain claims and keep prices intransparent while offering their licensed dealers larger per-unit profit margins.
As for retailing, until the advent of Wal-Mart and its claim of "Always Low Prices," retail chains like Sears, K-Mart, J.C.Penny's and such pretty well stuck to the standard of holding seasonal clearances and sales. These same brands pretty much still do, although if you judge by their advertising fliers, they increasingly rely on frequent periodic sales events to draw customers in.
For luxury brands, the worst thing that could happen is for their products to wind up on the shelves of Wal-Mart or similar retailers. It simply hollows out their claim of exclusivity. Yet, like Apple selling iPods through general retailers nowadays, they may decide that they can achieve volume sales and still manage to retain their brand exclusivity.
My guess is that Apple mainly retains its boutique stores for the hard-core Apple fans more than for any reason. So even if Apple's products become more widespread, they can still make a claim to brand-distinguishing exclusivity with a dedicated group of target customers.
Walmarts near me (3 of them in different directions) take the entire garden section during the winter time when no one is gardening, and right after Christmas and turn it into a heavily discounted section.
I've been to plenty of high end boutique outlet stores too. Perhaps you're just used to shopping in all the wrong areas at the wrong times and assume everyone else is as ill-informed as you?
Granted, those high dollar items that do sell at Armani, etc. don't go on sale in the outlet store because they...duh have already sold. But you can be certain that what they don't sell for full price in X amount of time ends up in an outlet store somewhere.
Might it have something to do with thwarting competition for market share with Apple retail stores, or online purchases? In the absence of price discrimination through discounting, the choice between purchasing online or in an Apple retail store is restricted, probably boosting direct-to-consumer sales and driving more customers to the Apple store, be it a brick-and-mortar or virtual store. I'm sure this helps peripheral sales.
Might it have something to do with thwarting competition for market share with Apple retail stores, or online purchases? In the absence of price discrimination through discounting, the choice between purchasing online or in an Apple retail store is restricted, probably boosting direct-to-consumer sales and driving more customers to the Apple store, be it a brick-and-mortar or virtual store. I'm sure this helps peripheral sales.
These places do have sales.
Basing a wide-sweeping generalization on completely fictional examples? Economics at it's finest, particularly as practiced by McArdle.
Consistency (with reality) is the hobgoblin of little minds, after all.
Apple does price discrimination in a couple of ways. If you buy through Amazon or other resellers, not only can you avoid sales tax but you can often get instant or mail-in rebates. Also, Apple charges ludicrous prices for upgrades like memory and hard drives, which can be purchased for far less elsewhere. Price-insensitive (or uninformed) buyers can get everything directly through Apple, bargain hunters can save substantially at the cost of a bit of inconvenience.
Wal*Mart does have clearance racks, but the best are over at Target.
I spent a good amount of time as the only non-obese man in my town in the Upper Midwest. Every pair of pants with a longer inseam than waist ended up on the clearance rack at Target and I cleaned house.
Yeah, to add to what others have said, there is a difference between sales (or backdoor sales by lowering prices over time) and printing coupons. I'm pretty sure (but not 100% sure) I've seen Wal-Mart coupons in Sunday papers before. Burberry, meanwhile, would likely never have such coupons because part of the point of shopping at Burberry is that you aren't surrounded by the stereotypical middle-class housewives and grandmas who clip coupons.
You actually can get discounted luxury brands. Perhaps not Louis V. but I got my Kate Spade bag at the Kate Spade outlet at Woodbury Commons. Same for my La Perla bras. I have Coach products which I also got at discount (although all of it from a friend who worked there) .You just have to know where to look.
Do people really view Bose as a premium brand? Sound-man joke: No highs, no lows? Must be Bose! Sorry for going off-topic, but the idea that con-artists like Bose are really seen in those terms seems absurd.
The best corkscrew is made by Screwpull.
http://www.amazon.com/gp/product/B0001UZPY0
Its called the pocket model and costs $15.00. If the bottle of wine is 14 years old or older the cork may have softened so much that it crumbles when you try to pull it.
In that case there are cork removers that are just 2 flat prongs attached to a handle. There are good ones and there are bad ones. The good ones are sold at Mondavi in Napa valley. Its worth the trip from DC to get a good cork remover.
Do people really view Bose as a premium brand? Sound-man joke: No highs, no lows? Must be Bose! Sorry for going off-topic, but the idea that con-artists like Bose are really seen in those terms seems absurd.
I was thinking the same thing. Mark Levinson -- that's a premium audio brand. Ditto, Meridian. These are the Louis Vuittons of the audio world. Then again. Ms. McArdle is on the record as saying that audiophiles are weird.
Apple has one outright sale every year, for Black Friday.
Bose isn't a luxury brand. Real stereophiles would turn their noses up even further than they normally are. Bose is a company, however, with a very idiosyncratic channel and distribution strategy. So I wouldn't read any economic insight into how they do things.
Wal-Mart's business model:
-- Buy bargain basement, cheap crap from communist China.
-- Mark it up a fraction.
-- Pay your employees reprehensible wages, skimp on health care and offer paltry benefits.
-- Bully distributors and steamroll local competitors
The system works great for the Wal-Mart management, but it's probably a net negative for the fabric of American business and society.
"The system works great for the Wal-Mart management, but it's probably a net negative for the fabric of American business and society."
It's definitely not a net negative. It's great for any consumer... that is to say all of us. Low prices raise the value of the dollar and therefore the real wages and wealth for all of us (especially those with small budgets who are most likely to benefit from low prices).
It's simple to realize this once you picture the world in terms of efficiency. The more efficient producers are, the greater the total wealth will be for everyone. Wal-Mart just forces efficiency among its suppliers.
From a freedom perspective, no one is forcing you to buy from them. You are more than welcome to buy from higher priced/higher quality retailers if you wish. You can even pay someone to create hand made items and give that person full health benefits if that's your fancy and you can afford it. You just shouldn't expect (or force) everyone else to do the same.
There's a difference between high-end and luxury. Stuff like the Coach logo bags do go on sale,
because they're high end, but aimed only at the middle class. Coach is a low-end luxury brand at best (seriously,
the only women who carry the C Coach bags are either teenaged girls or women who were slightly poorer as children
and now make a large salary, but are not actually rich. In other words, people who rely on status symbols rather
than quality). Contrast with Hermes, an actual luxury brand, with bags retailing for as much as $25,000.
Kelly bags do not go on sale. Ever. So while companies like Louis Vuitton might-might-might have sales
on their lower end items (the LV bags, the Murakami bags, Armani Exchange, those awful Prada things that look
like Le Sport Sac only they say Prada on them), they don't put the actual luxury items on sale pretty much ever.
You might find one for cheap on ebay or in a secondhand shop, but that's about it.
A basic way to distinguish: if it's luxury, and not just high end, it will not be sold in most malls.
Sales have specific costs. They create uncertainty in the market, delaying sales (why buy now when it could be cheaper later?), and they increase the cost of selling (deciding what goes on sale, tracking multiple prices, more complicated interaction with retailer/sales force, etc.). Removing these costs makes the sales process more efficient, and therefore cheaper as a whole. (This applies more at the low-end, of course; at the higher end discounts affect brand image, as Megan said.)
I think some posters are confusing "luxury" with "quality". Which is, after all, the point of most luxury brand advertising.
Apple sells refurbished Macs and iPods. That could be considered a form of price discrimination.
There is an interesting analysis of the "grey market" here:
http://espinosaiplaw.com/wordpress/?p=14