Discounting costs luxury its cachet

London - Discounted luxury fashion and designer deals found in second tier stores may do great things for a company's profit margins, but ultimately they damage the cachet of the brand.

Customers who are willing to spend four digits on a designer handbag at full price may be alienated when the same bag can be purchased for half price at discounted retailers, outlets, or stores with regular seasonal promotions.

Accessibility is not luxurious

There is little aspiration to buy into a brand when every Tom, Dick and Harriet can be seen sporting the same bag. The aura of luxury will quickly begin to wane, as discounting has an impact on brand equity.

Perhaps that is why companies such as Michael Kors, Coach and Ralph Lauren are taking control of their distribution channels, ensuring even pricing strategies and keeping their key sellers away from discounters.

According to the Washington Post, Coach this week said it plans to pull its products out of more than 250 department stores, a move that reduces its presence in such locations by 25 percent. Meanwhile, Michael Kors said Wednesday that it is reducing the inventory it provides to department stores and, starting in February, is demanding to be excluded from storewide promotions and coupons.

When something is available too easily and too affordably, it is not likely to be considered luxury. Take Michael Kors, whose brand currently operates 771 stores compared with 550 last year. It's aggressive expansion rate has meant the products are available in hundred of suburban shopping malls around the world. There is little elitism to buy into when a brand is so commonly and affordably available. On the other hand, Coach has suffered less from its shopping mall presence, but more from relying on its outlet stores for growth, a move that hurt the brand with a prestige-minded customer.

Luxury means brands can defend higher prices

The most powerful value contribution of a strong brand is the ability to demand and defend higher prices than competitors. Since powerful brands produce higher margins, discounting can be seen a sign of weakness.

According to Killian Branding, research has shown that deep discounts can cause the consumer to question the brand. Frequent discounting serves to lower the value of the brand because of an almost subconscious reaction by the consumer who believes that quality also has been lowered. Quality and price therefore do not exist as isolated concepts in consumers’ minds. They are interrelated.

The trick is to be able to entice today's frugal buyers to continue buying while trying to maintain tomorrow's prestige. By discounting too much, too often, the biggest cost to luxury brands is its cachet.

Photo credit: Michael Kors Facebook, Coach Facebook