Recession and luxury brands: the end of fun?


I've recently read a blog post by Martin Lindstrom, The end of brands as we know them. He writes that many luxury brands have begun to lower prices in an attempt to boost sales. His main question is whether this is a way towards loss of brand equity.

My short answer to this is YES.

I was actually very surprised to learn that luxury brands would ever choose retail price cuts as a way to survive in the current economic crisis. I wonder if any market researchers have any rigorous results which would confirm this, in my opinion, destructive strategy. Many media sources state the opposite, suggesting that luxury brands are surprisingly resilient in the times of the economic downturn.

Retail price cuts are a very short-term fix, and may result in erosion of brand equity in the long run. According to the blog Knowledge@Wharton, in a recession “in which even upscale consumers may find themselves strapped for disposable cash, it is a bad strategy to chase customers too far down the economic ladder.”  I fully agree with this.

What can luxury brands do to survive in the current economic situation and preserve their exclusive image? I suggest the following:

  • Reassess the role of Japan as the key market and re-focus their attention on customers from other geographical areas. Although it's well known that the Japanese adore luxury products, one can't forget that the country has been in recession for a long time. Instead, re-consider Russians, Ukrainians and Arabs. And what about the emerging wealth in India? I haven't heard too many luxury brands talking about moving there.

  • In his article, M. Lindstrom describes his recent experience at Hermes's shop, where his purchase was put in a bag without the company logo. I see no reason for being hesitant about displaying brand logos on packaging. Brand identity doesn’t have to be put on hold with economic crises. If luxury brands want to come across as a bit more understated, current cuts in advertising budgets will do the job just fine. Besides, it’s worth reminding your customers that you carry on your existence, even in the toughest of times.

Overall, as long as luxury companies stick to their values, communicate them consistently and delight their customers, they will be able to nurture their brands and sustain them even in the toughest of times. But please, don't start trading down!