Inflation and Brands
DataBoutique in latest Bernstein report on Luxury Goods price increases
Inflation is unbranded
Inflation measures how prices change over time. It is measured by national statistic institutes in each country as the change in Consumer Price Index (CPI).
But this is of little help for brands. CPI is an aggregate of unbranded goods (i.e. "milk”, “gas”, “electricity”, “footwear”, …) but does not tell anything about brands.
This approach works well with commodity products but falls short on branded products. Brands make different choices and end up moving differently from one another. In a year from now, the brand you work with (and its competitors) will have changed its positioning, willingly or not.
Being aware of this is a good thing when you work in marketing.
Brands respond differently
Brands respond differently to price changes. Some move with the tide, some don’t move, and some move faster. If a brand doesn’t move, others do.
There are different ways in which brands act (or don’t act) when it comes to price changes:
Change the price of existing products (so-called “like-for-like price change"). This marketing move is visible to the final consumer. Luxury brands use consumer awareness to leverage a “value increase” perception, while price-sensitive clients may perceive this as aggressive in mass-market segments. The same product price increase is easy if a brand directly owns distribution, less so when heavily reliant on wholesale.
Change products (so-called “mix change”). This is more hidden to the final consumer and ideal for less “commoditized” products. In fashion, the new collection can have slightly adjusted prices. In categories with multiple price levels (i.e. electronics) the addition of more variants higher up in the mid and upper range of the spectrum.
A nice schema for these behaviors appeared in today’s Bernstein report for price changes in Luxury Goods (featuring DataBoutique data):
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