Abercrombie & Fitch (A&F) is an American-based retailer that focuses on casual, yet luxurious clothing for consumers specifically aged from 18 to 22 (although the brand do have a childrens line, Abercrombie Kids). Under the parent company are Hollister Co. and Ruehl, two brand extensions. However, our focus will remain with the A&F brand throughout. The brand are renowned for expensive clothing that ‘cool kids’ will but in efforts to climb social ladders and be perceived as stylish. The main reason for this is the high price tag on their clothing, used to reinforce the level of exclusivity for the brand. Their main competitors are Aeropostale and American Eagle, both are under-pricing A&F.
In an effort to compete in lower-priced clothing segments, but maintain a premium brand image, Hollister & Co. was created. Hollister & Co. is a slightly lower priced brand and is often used to enter new markets, particularly in European countries where consumers are more price sensitive than in the USA. Typically, the company will open Hollister & Co. outlets, in a way of introducing the market to (ultimately) American clothing. If the store is a success, the company will open an A&F outlet, where they charge considerably more for the clothes. Dublin is a perfect example of this with the opening of a Hollister & Co. outlet in Dundrum shopping centre, which has been followed by the recent opening of an Abercrombie & Fitch outlet on Dame Street, Dublin city centre.
However, the problems started to rise for the company through their CEO Mike Jeffries, pictured in the article below. Announcing to the world that A&F does not want ‘fat, uncool’ customers is not the ideal way to promote a brand. Furthermore, ignoring recommendations to lower prices may be costly, especially in times of economic downturn where consumers are more price sensitive and well informed. Below, I will be recommending two actions which I believe may help revitalise the brand in its expansion throughout Europe and other regions outside the US. My areas of focus will be on corporate communications, caused directly by the CEO and also I will be critiquing the pricing policy and strategy employed by the A&F brand. Will an apology suffice after slating a large proportion of the clothing market? And if an apology will not improve the brands image – will shaking up current pricing strategies help?
Strategic Recommendations for Abercrombie & Fitch:
In an FMCG industry such as the clothing industry, competition is fierce and branding is a key success factor. Having the better, more prestigious brand is the only defence tool you have to fend off market rivals (give or take some production and distribution efficiency elements). How can the all-American brand survive after pushing back from market segments by charging unaffordable prices and only targeting selective niche segments?
Recommendation 1: Hire an Official Brand Spokesperson
In 2006, when A&F CEO Mike Jeffries announced to the world that the brand only wants to attract the ‘cool kids’ and that anything below this is undesirable for the market, the industry was shocked and calls for his resignation flew inform all angles. However, some may have an alternative view. A view that indirectly supports these comments in an effort to increase sales. A&F are not looking for the uncool segment to purchase their clothing but there is a psychological twist at play. For instance, we can analyse two scenarios from both sides of the ‘cool wall’. First, an uncool person sees a group of cool people wearing A&F and decides he/she wants to be like them – he or she may purchase A&F clothing in an effort to achieve this aspiration. The result: an increase in new sales. Secondly, cool kids already wearing A&F have now acknowledged they’re cool due to the A&F clothing they are sporting. The result: cool kids buy more clothes to stay cool, ultimately increasing sales, yet again. Personally, I do not share this view as I am not concerned with A&F profits. I am concerned with buying clothes from a brand that supports my purchase. I want to be reassured that the brand I've spent my hard earned money on acknowledges and appreciates my expenditure. What Mike Jeffries caused for Abercrombie & Fitch was nothing short of a crisis. Although not life-threatening, it could be considered quite a challenge to the essence of the brand. Greyser (2009) outlines a structured framework for assessing the potential impact of a corporate crisis such as this. There are four key areas to be considered which include
- The brand elements
- The crisis situation
- Company initiatives
- Results
For the purpose of this crisis, we will not be focusing on the latter two (company initiatives and results) as the company have since made an official apology and sales have been maintained. More to the point, what we are focusing on are the possible effects of the brand elements and throughout the crisis itself.
The Brand:
Consider the brand in all its existence, not just during the time of this crisis. A&F should analyse their marketplace situation i.e. looking at market share and favourability (prior to the crisis) A&F can determine how big the problem may be. If the situation is weaker, the more detrimental the crisis may be to the brand. Further, Greyser suggests that looking at key differentiators (versus competitors) and conclude how the crisis will affect the brands strengths and weaknesses. The more A&F is differentiated from its competitors, the less the brand will be affected, unless the issue is arising from the differentiator/advantage. However, A&F have not built a successful brand based on a CEO (such as Apple), rather, successful differentiators such as brand image due to higher prices is what the brand has been based on and this crisis only reinforces how exclusive the brand is.
The Crisis:
Analyse how serious the situation is in terms of affected the entire target market. Peripheral markets, parents and the business world were shocked at the comments made by A&F CEO, but Mike Jeffries words were more than likely accepted with pleasure by those ‘cool kids’ dressed in the brands clothing and may strengthen the brand amongst them, rather than threatening A&F’s brand position or meaning, as the theory suggests. I mean, if I have an exclusive product (or even service) and the next thing, the CEO comes out and reinforces the main reasons for my purchase, of course I am going to be slightly chuffed with my purchase and feel my ‘shopper strategy’ is the right one and continue to buy.
Dutta and Pullig (2011) suggest that when events arise that can affect a brands reputation, it is perceived as a crisis. Much of the research points to corporate responses being key n restoring brand confidence, but should this response be singular or multi-dimensional? In regard to the crisis faced by A&F, I feel a singular corrective response should suffice, but what type of response should it be? Should A&F disregard unofficial statements from Jeffries as his own views (denial), tweak the message to make it more politically correct (reduction-of-offensiveness) or should the brand absorb the responsibility and take corrective action?
“Brands are key assets of market-orientated firms and companies continually strive to improve and protect brand equity or value. Unfortunately for owners and managers of brands, brand-related adverse events are common and typically highly publicised. Such crises can harm a brand’s equity through a weakening of brand confidence and a reduced likelihood of brand consideration and choice” (Dutta and Pullig, 2011).
Denial will not suit this situation as Jeffries is on record having slammed the ‘unattractive’ market. Reducing the offensiveness of his comments is not suitable as the market has already cemented their interpretation of the statements. Corrective action is the only potential solution in my opinion. This is why I have recommended that A&F hire an official spokesperson for the brand and release a statement outlining that statements from Mike Jeffries regarding the brands positioning and target markets can be considered unofficial and unrelated to the official stance of the brand.
The spokesperson should have full responsibility in all public announcements, interviews and information omitted on behalf of Abercrombie & Fitch. When selecting the best candidate, A&F should keep in mind; the appeal of the spokesperson to the market (should it be a celebrity?); and the relevant experience of the candidate (have they worked in the fashion or FMCG industry prior to this appointment?).
Abercrombie & Fitch need to develop a professional corporate identity to defend the cool, youthful, fashionable brand image it portrays. Both (brand image and brand communications) should be seamlessly integrated and work in conjunction with one another. It is for this reason that the brand need to empower an individual (the spokesperson) in an effort to prevent future crises.
Recommendation 2: Restructure Current Pricing Strategy
Pricing at A&F is a key factor for profits as it is the only element of the marketing mix that generates revenue. Not just for A&F, for every for-profit organisation. A&F are a premium brand. Therefore, the company must (or can) charge a premium price for their products. In consumer goods industries, a brand is typically characterised by the price they set for the market. A higher price results in higher value associated to the product. In order to be psychologically luxurious to the consumer, there must be an opportunity cost involved, often due to the high price and lower level of consumer disposable income. This is why A&F charge premium prices for their clothing and other products: so only a small fraction of the entire market can afford them, thus creating a sense of exclusivity which leads to consumers placing higher value on A&F clothing than on (for example) H&M clothing.
In my opinion, Abercrombie & Fitch employ a complex combination of several traditional pricing strategies. Prices remain constantly high, even when entering a new market. This is the price skimming component of the brands pricing mix. Price skimming is a “pricing technique designed to charge each potential customer the most that he or she would be willing to pay for a given product or service” (Investorwords.com, 2014). The technique is often used by large technology companies such as Samsung or Panasonic when they launch a new television. The idea is that early adopters will pay a premium and then the price is reduced to capture greater market share as the late majority perceive the decrease in price as an incentive to buy. A&F, however, do not reduce their prices after a certain time (other than seasonal clearance sales). Nonetheless, price skimming is an element to capture the ‘cool kids’ (early adopters) and to attract the status conscious consumer. Additionally, psychological pricing strategies are incorporated into the mix, not through the use of the ‘99cent rule’ (whereby consumers perceive a price tag of €19.99 to offer greater value than a price tag of €20) but in a way that exposes the brand as high value. Customers are forced to pay a high price, but they are willing to pay a premium for luxury. They are willing to pay a high price for ‘cool’.
A&F have used brand extensions such as Hollister & Co. to offer the market a cheaper alternative but for the most part, the two brands are conceived as being separate so those who want Hollister & Co. buy Hollister & Co. and those who want A&F, buy A&F. The use of brand extensions as an alternative to lowering prices, in this instance, is not effective within the market. A&F use their high price strategy as a differentiator of competitive advantage in the market, meaning A&F is different to Hollister & Co. and therefore not a viable alternative to the consumer groups mentioned above.
Considering A&F have decided not to lower their prices, in a move to secure their stance as a premium – high value product (just as Steve Jobs did when asked to lower the price of the Apple Mac to compete with Microsoft), we can immediately eliminate any sort of discounting from the proposed new pricing strategy. A lower price may result in the dilution of a luxury brand image and a discounted product does not say luxury or scream exclusivity to anyone! However, A&F can keep a high price but offer complimentary goods with each purchase.
For example, when the economic downturn started to set in, the Four Seasons Hotels did not look to lower prices for rooms as the rooms were luxurious and premium, such as A&F clothing. However, what the hotel group did do was offer a special promotion – Book for two nights and receive a third free. Consumers still paid the same premium price per room per night but the promotion added psychological value and enticed consumers to book during the recession. Promotions are great for luxury brands. Why? Because they are only for a certain duration. If a company lowers prices during a downturn and looks to return prices to previous levels afterwards, that product or service will become unattractive to the consumer as returning the price to its original level is perceived as a price increase, and who wants that? The Four Seasons were able to lower their ‘psychological price’ (three for the price of two) and simply stop the promotion and the original premium rate had not been changed, but it was not seen as a price increase by the consumer, just the end of a promotion. I recommend that A&F follow these lines in terms of offering something of value to customers, but not for free. If A&F were to offer free (branded) woollen hats with every purchase over €50 during winter months, consumers may perceive this as a gesture of good will during the cold weather. Spiralling from this, an indirect result of this promotion may in fact be that the woollen hat becomes iconic, symbolising that you shop in A&F, which could lead to increased sales of traditional clothing products just so consumers can acquire the hat.
Ultimately, A&F are not going to lower prices as it would alter the image of the brand in the market. The brand is positioned to target the elite, not to capture the mass. This is why the premium prices are set through a combination of skimming and psychology. By offering an exclusive ‘freebie’ (although it is only offered alongside another purchase) will offer a gesture of goodwill to the market, increase sales (if the hat is marketed correctly) and also offer a psychological discount that will not affect the premium prices charged in the outlets. Now who doesn't like s freebie, or a ‘discount’ (but we won’t call it that)?
Thanks for reading my first article! Let me know what you think.
Note: All the views, suggestions and ideas expressed are my own personal opinion.
