Warren Mann

When Lower Prices Hurt Sales
January 23, 2007

Selling more dealers might result in lower sales volume

Raising prices could increase unit sales

Simplification may undermine success stemming from complexity

Manufacturers or retailers counting on low prices to compete — rather than their range of options like service, expertise, bundling, installation, education, et al — may actually collapse sales and customer support.

Everybody in our industry grumbles about a lack of profitability. You’d think the groundswell of disgust alone would launch actions to counter the trend. Probably in time it will. As a catalyst to spur just such a movement, I’m outlining four examples of past marketing opportunities. Maybe some decision makers can apply these historic lessons to today’s marketing mess. The first case dealt with vodka, Wolfschmidt vs. Smirnoff in the 1960’s. This second study, from the 1970’s, highlights distribution choices.

Example #2 Pierre Cardin Finds Every Shelf

Introduced in 1972, Pierre Cardin’s cologne immediately shot to the top of every man’s toiletry list. The post-Woodstock period saw businessmen emerge slathered in aftershave scents — possibly related to the lack of bathing facilities during the concert itself. Some historians believe aftershave mania contributed to the rise of disco. Their view: The pheromone phenomenon killed off close proximity dancing as mass quantities of English Leather or Hai Karate triggered female gag reflexes.

Riding the “up escalator” of a customer base suddenly far more fragrant, Cardin’s market share surged. Flushed with the sweet smell of success, management at Pierre Cardin rapidly expanded distribution. From boutiques and Neiman Marcus, the cologne spread first to A&S, Gimbel’s, and Bamberger’s, later to J.C. Penney, E.J. Korvettes and Woolworths, and finally to truck stops, Citgo stations and Stuckey’s. The snob appeal nurtured in those model-staffed perfume departments gave way to unadorned price cutting. Margins declined as retailers tried pumping up store traffic with ads discounting the popular cologne.

Who wants high-fashion fragrance at cheap prices? The masses. Sensible, no-nonsense, down-to-earth (OK, boring) people, like:

-Uncle Lucas, whose double-knit suit sported a permanent gravy stain.

-Recently arrived relatives fleeing Bulgaria.

-Grandma Henderson trying to help 17-year-old grandson Bucky “get hep.”

Those no longer interested in buying the brand? The target market, intuitively understanding that high-fashion products are rarely available in laundromat vending machines. And while there were lots more “masses,” they were not about to spring for the buy one, get one free Pierre Cardin deal at Alberson’s until the last drop of Old Spice evaporated.

The good old Domino Theory — the one that didn’t work so hot in Southeast Asia — applies well to U.S. retail. First, department stores and boutiques dropped the brand, seeking something more exclusive and profitable. (Why pay attractive models to stop shoppers in the aisle for samples of stuff being sold for a quarter a squirt in the men’s room of the pancake house?) Next, mass merchants scrambled to sell off the now slow-moving Pierre Cardin cologne to make room for Chia pets, Atari games or other high-margin merchandise. As prices and profits plummeted, Pierre’s product pooped out. Flea markets sold off most remaining stock, and fraternity kids who couldn’t afford fake ID’s drank the remaining inventory.

Step #2 to avoid Death Spiral Marketing? Avoid additional distribution if it harms the brand image, or loses the currently successful dealer base. Adding dealers creates risk; make sure the risk is necessary. Remaining patient in the face of growing sales volume and brand image isn’t easy, especially with Vito down in accounting revising sales quotas upward quarterly. Have him lower his eyeshade and focus on the bottom line while it’s still black. Selling 1,000 units profitably usually beats selling 100,000 at break even.

Posted by Warren Mann on January 23, 2007 | Comments (2)