What Factors Led to Higher Prices in Europe than in the United States for Hilfiger Merchandise - Assignment Example

What factors have led to higher prices in Europe than in the United s for Hilfiger merchandise? What problems might Hilfiger encounter by having higher prices in Europe than in the United States? A number of factors have resulted in the European merchandise of the company being priced higher than the American. In order to adapt to the European tastes and preferences, the company hired a team of European designers and deployed them at the headquarters in Amsterdam. While the new designers were able to create pieces that catered to the market, the associated costs rode up. The CEO at Hilfiger shifted the bulk of design output to the European headquarters and this led to an overall price hike. For one thing, the costs of production in Europe are higher. Operational and distribution costs are also very high in Europe compared to the United States based on the different retail and wholesale systems. In the U.S., mid to high tier department stores are utilized to stock the merchandise and reach the customers. Due to the “mall” culture of United States, this strategy worked very well and at lower distribution costs the company could easily reach its target market. In contrast, the retail culture in Europe is very “small boutique”, where shoppers go to small, exclusive shops to buy clothing rather than bigger departmental chains. These chains, such as Galeries Lafayette in France, are costly distribution options. As a result, the associated costs spiked. To compete with European brands that are tagged at higher prices (up around $50 on average on a single T-shirt, for example) Hilfiger merchandise was priced higher in Europe to make them competitive. Lastly, to convey the message of premium quality and compete with higher end European brands such as LV, Prada and Gucci, the company positioned the product in the top tier category and had to mark prices accordingly. In branding, the Law of Quality described by Al and Laura Ries (2009) shows that the higher the price of a brand, the greater the perception of quality. This law was seen in practice in the European Hilfiger market. The company has been able to establish a European customer base and market presence. As a result, the European market accounts for 40% of the total sales of the company. The American market has suffered due to lower pricing strategy and inability to compete on the fronts that the Hilfiger brand was traditionally known for. Competing on different price levels in different regions does not have as big an impact if the two are compared; however, as standalone businesses, the European region has benefitted and North American region has suffered. 2. Hilfiger’s CEO would like to harmonise the European and U.S. collections by having Hilfiger move more upmarket in the US. What problems might the company face in doing this? What might it do to make this strategy successful? Building on the tested idea that higher prices are equated with higher quality, associations that the Hilfiger brand strives for, the company intended to move more up-market in the U.S. The major problems that might result from this strategy are mentioned below: Changes might hurt the overall brand. Branding is achieved through a consistent face of the company and its products. With standard designs in collections, it would be damaging in the long run for a brand to have a changed strategy and pricing policy in Europe and US. Resistance from the traditional buyer of Hilfiger. The traditional buyer comes to Hilfiger expecting the All-American, classic casual wear that is affordable. A higher price tag will disillusion the buyer, making him think the brand he loves to wear has changed and is not what he has always wanted. This will result in lost sales for the company. Lose the essence that made it famous. A higher price tag will demand a change in the design strategy also because charging a premium for the standard material and design will confuse the buyer. For example, when the company changed the logo design, a Hilfiger trademark, the company faced lower sales. The distribution strategy will cease to work. Retailers give a tough time to brands by copying designs of the brand and getting them made at lower costs from low-cost producers, which allows them to sell the same designs at cheaper quality and cheaper costs. This not only hurts the brand name of the original designer such as Hilfiger, but also forces them to sell the same product at discounted prices ('Keep the Heritage of the Brand Intact', 2010). This becomes a vicious cycle for the company. Forward Strategy In order to charge a premium, the company has to attack multiple fronts which include costing, distribution, branding and publicity. The company has to focus more on PR rather than traditional modes of advertising it has been using. The company’s higher end brand does not account for much in sales and overall turnover and needs focus. The company must separate the Hilfiger brand from the high end brand, which accounts for around 3% of total sales. The target price can be achieved through multifaceted, targeted marketing: runway shows, presence at exclusive art and publicity shows such as Coachella, dressing A-list celebrities, associating the Hilfiger brand with stylish, American TV shows and icons such as Gossip Girl and Sarah Jessica Parker. The models that the company uses for advertising must be sophisticated and globally recognized such as Giselle, David Beckham, Emma Watson and Kate Moss. A sudden price increase would negatively hurt the market presence of the brand. Therefore, the company must ensure that it gradually and gingerly increases price, all the while following it with a topnotch branding strategy that makes customers understand and anticipate the price increase. Tommy Hilfiger does not intend to be a mass market product: in order to succeed in the long run “a fashion brand must aim high and deliberately avoid appealing to customers lower down the fashion hierarchy” (Ritson, 2008). This means that the company must swift focus from a sales orientation to marketing and branding: all efforts must be made to strengthen the brand image and associate it with premium quality (and higher price). The top line, according to Ritson, must not be the focus: in other words, not sales volume but overall profitability through selling high quality, limited items, rather than mass produced ones should be the aim. 3. What strategies would you recommend for clothing companies outside France and Italy to overcome the positive images of “Made in France” and “Made in Italy?” What might Hilfiger do? There are a number of things any Clothing and Accessories company must understand when competing with Italian and French brands in the tough European market and the strategies that the company, like Hilfiger, can follow: Be Realistic The brand must know if it can compete with a Chanel or a Gucci piece. In some cases, as in the case of Tommy Hilfiger, the realistic answer would be in the negative ('Keep the Heritage of the Brand Intact', 2010). Define Priorities Most companies lose focus of their branding as their scale increases and make inept decisions that hurt the brand and the sales volume in the long run. This happened with Hilfiger in the US and it has been unable to recover ever since. The company must acknowledge that sales follow branding, and not vice versa. It is known for classic with preppy and that is the brand’s selling point (Wilson, 2012). Using the Correct brand associations: What any company such as Hilfiger must do is that it should target brands associations, rather than the competing brand itself. A French brand such as Louis Vuitton is classic, highest quality and sophisticated. Hilfiger must strive for these associations in its product strategy and branding activities. It must drill in the minds of the consumers that the Hilfiger brand is top quality and sophisticated. That will allow it to be competitive in the presence of stalwarts. Also, the strategy should be to allow consumers to connect what they don’t know with what they do so they have a clearer picture of the brand. Avoid discounts and sales promos. A surefire way to hurt a brand is to offer unnecessary deals, discounts and sales promotions. With the current setup in the United States, the company has been forced to offer discounts on its products which has hurt the brand. Find what clicks with Customers and then Stick to It Hilfiger lost the American market because it lost focus on its core success factor and began working on innovative and ‘artsy’ designs which were not accepted by the customers. In order to compete, the company forgot to focus on the needs of the customers. Know the Economy Another reason for the continued dwindling growth in the American market is the slow economy. The buyer of Italian and French brands is very fashionable and stylish and would want wardrobe pieces that are current, on trend and of the latest season. The buyer of Hilfiger and similar brands want stylish pieces that will last them some time and will be repeated often. With a slower economy, the company must know that the consumers’ needs are also different than they were in a growth economy. References Knowledge@Wharton. 2010. 'Keep the Heritage of the Brand Intact': Tommy Hilfiger on Weathering the Ups and Downs of Retail Fashion. [online]. Available at Ries, A. & Ries, L. 2009. The 22 Immutable Laws of Branding. New York: Harper Collins. Ritson, M. 2008. Brand Management: The Hilfiger Lessons. [online]. Available at < http://www.brandingstrategyinsider.com/2008/04/brand-managemen.html#.UYnngqL-GWw > Wilson, E. 2012. “Who’s That Handsome Man at Tommy Hilfiger?”. The NY Times Blog. Available at Read More