The Silver Lining

This past Saturday I was at the King of Prussia mall and was walking by the Tiffany & Co. store when I saw a mob of people crowding the counters. Thinking that perhaps what I was reading a few days earlier in The Wall Street Journal might have been partly wrong, I went in to see what it was all about. Well, at least that's my excuse and I'm sticking to it.

A few posts ago we had a conversation on the importance of packaging. It can attract new buyers and give your customers mileage on spreading news of the product to their friends and family if the packaging tells an interesting story. In this case, the packaging equals the product in many instances. The iconic blue box communicates a luxuriant and romantic tale of class, style, and uniqueness. 

Remember the film "Breakfast at Tiffany's"? In the 1961 role, Audrey Hepburn played a thin chic Holly constantly in search of a place to belong. Another apparently carefree woman, "Legally Blond" Reese Witherspoon Ellen Woods, adorned her bikini with a Tiffany charm bracelet and all hell broke loose. Teenagers from all over poured into the stores to acquire a piece of that attitude. At $100 or less per item in 2001, the accessories were quite accessible.

This spelled what the WSJ termed "Silver Handcuffs" for Tiffany. The idea was not that anyone would own a piece of the famous jeweler collection; the idea was to keep the brand name polished and the experience exclusive for the high-end buyer. The promised land never quite achieved but always aspired to for the rest of us. And this item here was the culprit.

Tiffany launched the cheaper silver jewelry in 1997 to cash in on the trend of affordable luxury after having made silver chic in the 1970s with a line of bold designs by Elsa Peretti. They succeeded beyond anyone's imagined prediction and the charm bracelet became a teen fad.

To respond to this increased demand and rebalance the company high-end image for its wealthier and older customers, Tiffany began raising prices steadily in 2002, then again in 2003, and by 2004, the same bracelet was up 30% from 2001. In fact, the whole line of products saw a jump in price from 20% to 32%, depending on the item. It took a couple of years of rising prices for the enthusiasm to wane, writes Ellen Byron in the WSJ article.

The consequence of a decrease in purchases by aspirational customers was alas a 16% hit in earnings in 2005, when the company stock sunk by 40%. The strategy of introducing new and more expensive silver lines with a 2004 collection by Paloma Picasso and a 2006 by architect Frank Gehry for a more mature clientele may or may not work. In my field observations on Saturday, teens were piling up at the silver counter heedless to the higher prices and more than ever determined to get their wrist inside a heart-shaped adornment. Who in their right mind would contend with that crowd to get to the more expensive silver items?

When I saw that I could not possibly get the attention of any of the store sales staff, I walked passed the guard out the door and right into Swarowski, they too have beautiful jewelry that doesn't tarnish and no lines at the counter.

This experience prompts some questions on luxury brands and growth.

• Can a company really go for high-end and mass market under the same name brand? Ironically, what appeals to mass market is what high-end customers shy away from.
• Would you rely on customer focus groups to make a decision on which end of the market to preserve? Tiffany did after complaints about crowding were beginning to appear in internal consumer research.
• Would you be willing to sacrifice sales growth while you recalibrate the brand one way or the other? In publicly traded companies investors may have you for dinner.
• We often talk about how spreading ideas can be fantastic in exposing people to your brand story. Is overexposure the price you're willing to pay?

As for Tiffany & Co. it appears that the stylish charm bracelets may indeed be the silver lining for its expansion. Too much of a good thing?

Comments

[Roger von Oech]

Valeria,

I, too, read that WSJ article last week and thought, "Huh? What?"

Thanks for your take. It makes a little more sense to me now.

[gianandrea facchini]

valeria, luxury companies do mix high end products with entry level a lot of time. what makes gucci profitable is the number of wallets they sold. by far where they, and a lot of others, get the money is the grey area around the flagship products.
some other companies do choose to brand and sale second lines with increasing price, as mr tod's did with hogan and pomellato did with dodo. at the beginning in the same store and then in separate installments.
and at the end it's true that what appeals to mass market is what high-end customers shy away from but mass markets customers are millions!

[Richard Dowling]

I would have to agree that if a high-end brand goes for the mass-market, it risks devaluing the brand.

In your previous post you mentioned that Ferrari is part owned by Fiat--I'm sure that Ferrari's would lose much of their appeal if they were sold under the Fiat brand.

And, in response to one of the comments above, yes, the mass-market is millions but once the brand loses its desirability then those millions will go away and you will have lost your original high-end clients.

But this is one of the reasons for having seperate brands!

[Valeria Maltoni]

Roger -- thank you for stopping in. Well, I think I might have solved the mystery in the WSJ article. If not, Tim Manners at Reveries might be helpful http://reveries.com/?p=883.

Gianandrea -- right you are that certain brands get mileage out of extending their cache' to different lines. However, if you think about little doggie coats, you might not be so ready to spend so much on a Burberry coat for yourself.

Richie -- your comment dovetails nicely in that a luxury brand should learn to go only so far before it becomes commoditized and begins to lose its luster. Much better to have separate brands... but then we encounter Tiffany's dilemma: the aspirational buyers may not want a perceived lesser brand.

[gianandrea facchini]

richard, the ability of the performing luxury brands is in fact, to retain their desiderability on the high end products (bags for 10.000 usd) and market for the lower end products (wallet for 100 usd). high end customers are not endangered in their perception and the rest of us dream about.

[Stephen Denny]

I'm a big believer in finding ways of bringing very high end luxury brands to a larger audience -- Gianandrea's note about Gucci wallets explains this well.

Making a high end brand "accessible" is one thing -- making it "mass market" is usually disastrous. Owning Porsche sunglasses is relatively cheap compared to owning a 911. But you can own a little piece of the Porsche cache, and that's worth it. This is a first step in trading people up and into a brand.

So what did you buy? Come on. Tell us.

[Valeria Maltoni]

Stephen:

Yes, that is the point Gianandrea was making and what puzzled me about Tiffany's decision to forsake some of its success with the silver line of products.

Armani used the Emporio concept to sell an edgier version of his fashion to a younger crowd; it's working in both keeping the name brand awareness and maintaining the cache for the premium brand.

I didn't buy anything this trip. I was conducting field research remember?

[Kristasphere]

Ah so that's what made those bracelets so hot! I'm not in the 'teen'demographic by a long shot so this tipping point missed me.