Paying the price for protection

At last, a victory for brand-owners over retailers after all those morale-sapping reverses in the copycat wars.

Relief came in an unusual form. An obscure ruling in the European Court of Justice on some superannuated

Austrian designer sunglasses has effectively crippled the increasingly popular stratagem of parallel importing, which had enabled retailers to undercut freely the premium pricing of luxury branded goods.

Satisfying? Yes. Manufacturers can only welcome an opportunity to wipe the smug smile off self-styled consumer champions which have all the while been fattening their own margins at someone else’s expense. There is a sense that, once again, the supermarkets have not quite been playing the game, but this time they have got their come-uppance.

However, any satisfaction may be short-lived. This is a Pyrrhic victory for manufacturers. It shores up their pricing premium only by imposing artificial restrictions on distribution. The justification is that selective distribution enables luxury goods manufacturers to guarantee requisite levels of product and service quality. But it is a feeble argument and one which, had it any real validity, would be better tested in free market conditions. Worse, so far as consumers and the media are concerned, the resort to legal enforcement of restrictive practice smacks of arrogance and chicanery: presumably not perceptions that manufacturers wish to cultivate.

The simple truth is that luxury goods do not achieve their cachet simply by proclaiming they are exclusive and pumping up margins. Yet all too often this is the mistake committed by the marketers of superior volume-market products cynically trying to leverage their positioning. Sooner or later, the public finds them out and refuses to pay the price. The travails of the branded jeans market is a case in point.

As Alan Mitchell points out, if marketers want to protect their brands exclusivity, the solution is not to restrict distribution, but supply. The fact that supermarkets have, until now, been able to source such brands freely in the grey market is evidence of the very opposite of exclusivity. In other words, retailers are not the problem, but a symptom of the problem.

Longer term, technology will effectively reverse the judgment of the Court. The diffusion of e-commerce, for example, is likely to provide consumers with a means of hunting down bargains wherever they are – within or without the jurisdiction of the EU.

In the meantime, luxury goods manufacturers would be wise to rely on robust added value rather than empty rhetoric to support the price point of their goods.

George Pitcher page 25; Alan Mitchell, page 30