Weekend View: Prices, Brand Values. Are we being taken for a ride?

No pictures, no names, just an opinion.

A few weeks ago I was told that a leading model brand had in effect, issued an edict insisting that its brand name was so valuable (in its own estimation), that it now expected retailers to apply premium prices and stop, or at the very least severely restrict, discounting. One retailer told me, and this was verified by another, that they’d more or less been informed that failure to comply could create supply problems.

I was told to expect some pretty steep price rises. They weren’t joking.

We all know that the foolish decision to quit the EU would have consequences, and the lack of debate, the lack of understanding as to what that really meant on day-to-day lives, including our collecting hobby, was totally and utterly missed in the heat of some of the most disgusting political con-artistry in modern times.

The UK pound fell to a level not seen against USD since the mid 1980’s. The variance is that it averages 15% in terms of price rises. That’s 15p more in every pound we spend. The rate against the Euro in this case isn’t relevant as these models are supplied in USD, despite being shipped directly from China. (Other brands apparently use Chinese currency to UK pound conversions, and that’s hardly been affected).

Now, a new range of models have been revealed and the price rises are eye-watering.

A few months ago the same brand released a 748F which is (and was) available for £37. The newest 748F is list priced by one retailer at £58 reduced to £55. That’s a 57% rise.

A rather ordinary 744 is listed at £58 reduce to £55 – that makes the over-priced and still not perfect 744 from jut a month ago seem ridculously cheap. That was selling for as low as £36.99 on eBay and between £39 and £44 from retailers on a list price of £51. Now the list price is £58, and the discount minimal.  A simple A320 is now listed at £36.

However – if you look at European prices, they’re considerably lower. I found two European suppliers I coul buy everything from for 25% less including the cost of shipping!

Now let me just mention again that this is allegedly about Brand Value. This brand now thinks it’s brand name is so important, it can charge more money for product bearing its name even when it doesn’t actually make the models. It can allegedly, suggest a supply restriction if you, as a retailer don’t tow the line.

Interestingly this is against the law inside the European Union, and inside the UK as long as we remain a member, and will likely continue to be so even when we leave, as the regulations are enshrined in various other Acts of Parliament. Because the only time anyone can make a retailer  restrict his prices is if the original owner (ie the manufacturer) still owns the stock at the time it’s sold to the consumer.

For example, I bought a Tag Heure Monaco watch, the jeweller it came from, had it in stock for 90 days and was about to be charged by the LVMH Tag Heure company for the watch. They get 90 days free stock, then they pay for the item automatically. The day after he was able to sell it me for some 40% less just to get his money back quickly, having been charged for it by the manufacturer/owner.

This is the same practice that occurs in the motor trade, and many other businesses, from perfumes to cameras. The manufacturer owns it so can determine the price the retailer charges. The retailer sells it, pays the manufacturer their cut and keeps their markup.

If however the manufacturer has sold the items to a wholesaler, and they in turn to a retailer, or even direct to a retailer without a man in the middle, they are not allowed to restrict prices or threaten to curtail supply. It’s that simple. It’s no longer their property to determine the price it’s sold at.

The regulations are crystal clear.

There is a bit more to this. I spent years as Global Brand Guardian for massive multi-national high-end automotive companies. Their brand was, and is everything to them, protecting it a never-ending battle with those who would chip away at it. My job was to ensure that The Brand was seen, displayed, shown, portrayed and delivered in the strictest possible terms. Deviation from brand ‘guidelines’ was rigorously enforced, world-wide. They were less guidelines than compulsory edicts. They extended to the minutest details, from factory floor to the CEO’s office, from dealership to online ads and overall public perception of what the brand meant to the consumer.

It was possible to do this because the product was generally considered, perceived and actually delivered as, a superior, quality item. They were aspirational, superior, better, premium products that competitors envied, and consumers aspired to. They were not somebody elses product shoved in a box with a different name. The doors didn’t fall off, the wheels rotated, the paint was perfect. Nowhere did lumpy tyres, missing paint, bad build quality and parts that didn’t fit, jarring occasional inaccuracies, allow those brands to claim superiority. The same applies now.

More to the point, once a vehicle was sold to the customer it had a manufacturer backed warranty. The current arrangement in model world is that the retailer buys from the wholesaler, or even direct from the manufacturer, and if there’s a problem, well tough luck on the retailer. He absorbs the loss and the cost of replacing it in the event that items are returned. It’s exceptionally rare that a manufacturer will accept any liability for badly made models.

There will be many people who must be thinking that these prices are too much. Currency fluctuations you can understand. Unless quality assumes the same level as the prices, this whole escapade is doomed.

Brand blindness is a modern phenomenon, people forgive brands if they mostly deliver. Yet I have never yet found a manufacturer of anything that overcharges for its products without drastically improving them.  As Samsung have found out, you only need one bad product at a premium price, and you can look like a fool very quickly.  47% of Galaxy Note 7 owners said they would never buy a Samsung again.

Brand Value is not about pricing, it’s about quality and integrity; that what you get is worth what you pay, that the experience of the product is more than just the physical. It’s emotional, delightful, the satisfaction that everything is perfect, that it exceeds expectations. Charging more for the same old toot doesn’t add value to a brand, it’s arrogant and greedy, and more than a few brands have gone down the tubes having failed to understand that.

This ‘manufacturer’ will see a reduction in units purchased, but maintain the same income, possibly even increase it. They’ll think it a successful policy if that happens. Their perception will be that it worked. They will so have missed the point if they do. These people have no idea what ‘Brand Values’ really means. They’re headed to the land of short term gain, long term drain.

Well, they won’t be doing it with my money. I’ve already found a way round the increases, and so will many of you. And so have the retailers who’ve started to offer other incentives. That’s for another article though.

Have a great weekend.