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?