3 Ways Luxury Manufacturers Drive Sales During a Recession

Dollar stores, discount big box retailers and fast food chains saw the silver lining that comes with every recession, but they were not alone. Companies that manufacture luxury products refused to accept a decrease in sales with a drop in consumer spending power. Below are three examples of how luxury companies weathered the storm:

1.  ”Used” is such an ugly word; BMW focuses on pre-owned

BMW, among the best examples of a luxury automotive manufacturer, saw a decrease in sales caused by the recession. Instead of strictly pushing new sales, they reinvented the idea behind owning a used car.

According to Bloomberg, “U.S. sales of so-called certified pre-owned luxury autos rose 4.7 percent this year through August, bucking a 31 percent drop for new luxury models, according to researcher Autodata Corp. BMW, Lexus and Mercedes certified sales jumped 14 percent.”

• Takeaway:  Companies can retain the value of their brand without dropping prices. Provide or emphasize options that already exist at lower price points.

2.  Apple drops prices while introducing features

Earlier in the month, Apple introduced a refreshed line of iPod nanos with perhaps the most significant technological improvement since its introduction:  the ability to shoot and record video. And they did it with a $20 reduction in price.

• Takeaway:  Reducing prices alone makes a company look desperate, and the practice harms their brand. Reducing prices while adding features strengthens their brand while remaining competitive.

3.  Louis Vuitton/Ralph Lauren looks to the East

Reuters and Bloomberg report that LVMH and Ralph Lauren are looking to expand and penetrate China and Lebanon in the next few years, and their expansion has already begun. Companies like these want to lay the foundation for years of growth by increasing the percent of revenues derived from emerging markets.

• Takeaway:  All markets are affected during a global recession, but not all markets are affected or respond equally. Modern-day executives should pay attention to opportunities abroad.

Starbucks’ Instant Brew for Instant Change

It’s been a little more than a year since Howard Schultz returned to the iconic Starbucks Coffee Company as CEO.  The stock, which has tumbled from 19 at the beginning of 2008 to 10, hasn’t performed quite as well as analysts expected and shareholders hoped.

Now, Schultz introduces Via, its inaugural venture into the instant coffee category, to a less than enthusiastic public.  Starbucks fanatic blog “Starbucks Gossip” gave sneering remarks:

“Okay, company over. Everyone go home”

If there’s one thing Schultz loves, besides growing an empire of coffeehouses, it’s a well brewed cup of coffee. Starbucks has been known for its luxury designer drinks at a high price point.  The venture into instant coffee may allow Starbucks to reinvent the category, much like how it reinvented the coffee shop in the early 1990s.  Via brings the cost down to encourage people to still enjoy their morning Starbucks, even if they have to wait until they arrive at the office for that first sip.

Fast Company was able to sample an early taste test.  Starbucks set up a blind taste test to try competitor instant coffees, Starbucks’ brewed coffee, and Starbucks’ new instant coffee.  The results?  Favorable, but only if you are used to drinking Starbucks:

Most were impressed, calling the flavor “impressively rich” and noting that “the color, taste, and consistency are identical to a $2+ venti.”

Keep in mind, a few of the samplers from Fast Company didn’t like Starbucks’ original brew.  And Starbucks didn’t provide cream or sugar for people to add to taste.  If the sample was comprised of regular customers, it’s likely that the results would have been more positive.

Even in a recession, Starbucks has already introduced a line of instant oatmeal, which performs very well. The Via instant coffee will join the product lineup to allow any customer an affordable Starbucks breakfast, to go.

Poaching Innovators From Your Customer Base

Media and tech companies may not need to look much further than their own customers for adding value to their product lines. According to a recent article in the Financial Times, companies like the BBC and Last.fm, an online music service owned by CBS, have held events to gather independent developers for a day of invention and creation. People are encouraged to use the companies’ online services to develop a new program or feature. The best creations are awarded with a cash prize, and companies are able to quickly and cheaply get ahold of creative enhancements for their products.

From the article:

Organisations as diverse as the Guardian newspaper, WPP advertising agency, travel site Lastminute.com and O2, the mobile operator, have all hosted unconferences in recent months. These low-cost events are for enthusiasts as well as professionals, who are all required to present as well as listen. Developers compete for prizes, including the possibility of their product being commercialised, while the host organisations can tap into a new pool of talent.

Young and small, old and large; companies across industries are investigating this trend and how it can affect their business. From a talent acquisition perspective, companies have the opportunity to pull a developer aside and discuss a potential position within the company.

These conferences, or barcamps as they are sometimes referred, or barcamps as they are sometimes referenced, will continue to become more popular as technology becomes more social and companies realize constant innovation is imperative to their survival.

Whatever You Do, Don’t Cut Your Ad Budget

If we’ve seen a recent pattern of topics from prominent publications, it’s the suggestion for companies to avoid cutting any of their marketing dollars. Harvard Business School, Knowledge@Wharton and Chief Executive are all pitching in to offer their reasoning on why a recession is the perfect time to not only maintain but actually increase ad budgets.

Modern day executives are looking to trim their expenses under the pressure of tighter budgets. Every year, professionals are asked to do more with less, and 2009 will be one of the toughest years in decades. When looking to reduce spending, why not start in the marketing department? After all, running a single-page advertisement in a magazine can cost as much as $150,000 (like People magazine), and social networking initiatives provide hazy forms of measurement when looking at results.

Why wouldn’t we cut out the ad department? We’ve heard the adage that sales increase with marketing. Decrease marketing and you’ll see a drop in sales.

John Quelch from Harvard Business School adds to the discussion by writing in his blog,

It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain consumers need the reassurance of known brands, and more consumers at home watching television can deliver higher than expected audiences at lower cost-per-thousand impressions.

Knowledge@Wharton agrees by adding,

As companies slash advertising in a downturn, they leave empty space in consumers’ minds for aggressive marketers to make strong inroads.

Aside from the immediate affects of sales, brand perception also changes. Products that are no longer in the marketplace begin their gentle march to the back of customers’ minds. Businesses should maintain a steady level of advertising. Brands are there for the best of times for consumers; they should continue to nurture and comfort consumers in other times as well.

How Retailers are Surviving the Economy

With the current economic slowdown, high fuel prices are pushing consumers to cut back their spending.  No industry is recession-proof, but teenagers still reach a bit deeper to buy their favorite brands. Julian Geiger, chairman and CEO of the New York-based retailer Aéropostale, said on Nightly Business Report,

“Parents tend to sacrifice [for] themselves before they sacrifice [for] their kids”    

He should know. Aéropostale’s second quarter was up 43% versus the previous year, while other retailers like Abercrombie & Fitch are suffering through stagnant or declining sales to prevent jeopardizing their brand’s authority and reputation for a temporary situation. Other shops have found a new solution to increasing revenues during a recession, and it doesn’t involve manipulating prices. Erin Armendinger, managing director of Wharton’s Jay H. Baker Retailing Initiative, Wharton’s retail program, writes in an article for Knowledge@Wharton:

Noting that some teens are unaffected by the economy and will continue to shop where they want, Armendinger says that to be popular, teen retailers must offer something unique and desirable. “If you’re differentiated, you’ll win,” she says, pointing to the example of Philadelphia-based, multiple-brand retailer Urban Outfitters, which reported in early August that its second-quarter earnings were up 79%. “Urban Outfitters has very little competition in terms of their store design and products —and guess what, they are doing very well.”   

Armendinger’s examples offer hope for all executives that some businesses can survive while maintaining their premium prices.