Cutting The Price Without Diluting A Brand’s Value

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What do you do when your company bumps up against the limits of the market segment and comes to the realization that every consumer in a struggling economy expects discounts? If you are J. Crew, and want to continue to dominate in your higher-priced fashion segment while seeking broader consumer appeal, you create a new, lower priced brand and new distribution model.  The new brand is to be called “J. Crew Mercantile” and will feature lower-priced clothing and accessories sold online and at separate retail stores in traditional malls and shopping centers away from the company’s outlet locations. The company reports that the new lines will be priced competitively with their Outlet Stores with prices mostly under $100.

Like the majority of retailers, the New York-based chain appears to be working to recover from a cutthroat holiday season, when rivals relied on deep discounts to attract shoppers. Net income tumbled to $5.92 million in J. Crew’s fourth quarter, down from $10.2 million a year earlier. Still, revenue grew almost 7 percent to $686.2 million in the period, which ended Feb. 1.

Offering lower price versions of successful products is not unusual in industry, apparel or otherwise, but unlike The Gap, who moved to distribute a lower-priced line of products through their Old Navy stores, the new J. Crew endeavor seeks to capitalize on their already iconic name by attaching their brand to the new line of offerings. While there is always a premium market for exclusivity, luxury and high fashion, there is a certain amount of risks in attaching a high-end brand to a lesser quality product. Care needs to be taken to avoid dissolving the consumers’ value-added perception of the higher priced products.

Cloning a lower cost line of products is not without precedence. John Deere, the recognized leader of agricultural equipment and home maintenance equipment was running out of consumers willing to pay upwards of $8,000 for a lawn tractor to mow the lawn on weekends and managed to successfully connect to a much larger market by redistributing the new lower-priced line through different distribution channels. While the new line carries the iconic John Deere brand, it appears that it has not diluted the brand’s image at the higher end of the market. It is clear that both consumer segments are comfortable with the differences in the offerings.

But fashion is a different animal from agricultural equipment. Much of fashion’s consumer appeal is founded more on image than quality of materials and serviceability. Few buyers of high fashion select their apparel for long use and durability over years and decades and while lower costs can lead to more sales over shorter fashion seasons, J. Crew’s established consumer base may balk at paying twice as much for a garment that carries the same label and image as the much lower-priced apparel. It all comes down to consumer perception, and we all know that consumer perception can be the most persistent and dominating factor in marketing.

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