The Hermès Birkin, one of the most in-demand bags in the world has been way ahead of its competitors in terms of status and craftsmanship. Costs from $7000-$10,000, these handmade bags are made of calf leather, ostrich, crocodile and lizard, and take around 15-20 hours to produce. They also have high variable costs because it craftsman takes three years of training to master this bag. They are released infrequently and unpredictably which adopts the model of scarcity. Often times, the wait to purchase a Birkin can be more than a year.
Despite the fluctuating economy, the price of Hermès handbags definitely has not changed. Its strengths root from the perceived value created through their pricing strategy and limited quantities. Hermès’ company objective has employed a customer orientation and grasped the consumer’s reaction to different prices, as customers believe that purchasing a Birkin is an investment, not an expense. Similarly, prestige products such as the Birkin does not follow traditional demand model, which is demand increases as price decreases. Their pricing strategy aligns with its company objective, which is to preserve the heritage and quality. Customers who buy the Birkin purchase for their status rather than functionality. The exclusivity of the product makes it more desirable because fewer people can afford to purchase it.
A problem that Hermès might run into in the future with this pricing strategy is the risk of devaluing their brand if they decrease the price. For example, growth slowdown may urge the company to satisfy shareholder’s interest by increasing the number of sales and expanding the manufacturing. In turn, the product may lose its premier position. The challenge would be; how can Hermès increase the quantity of bags sold by being more assesible without losing value?
Sources:
http://insidefmm.com/2009/11/hermes-marketing-never-discount-hermes-birkin-kelly-handbags/
http://www.bnn.ca/News/2013/10/2/BLOG-Hermes-Birkin-The-most-in-demand-bag-in-the-world.aspx
http://www.hermes.com/index-ca-en.html