I haven`t read all the posts but I study Retaling management, and had exams in Pricing Strategi yesterday, so I can give all of you that want to learn more a "quick" answer.
Costs:
The main rule is to never think to much about the costs while pricing. The user of the apparel cares if it is cashmere or cotton(incremental costs and variable costs), but not if you spent alot on a expensive marketer, sewing machine, or rent, that is an avoidable cost(usually fixed costs).
For example you invest on a new sewing machine, you cant price your garments higher, the costumer does`t care. Designers that sell less have smaller margins in general because of their small scale, but you cant pass those costs on to the custumers.
Pricing
Traditionally pricing:
A pricer that uses the same Cost+markup theory because it carries an aura of financial prudence. Financiel prudence, according to this view, is achieved by pricing every product to a yield, a fair return over all costs. This is according to the book "the Strategy and Tactics of pricing" by Thomas T. Nagle and Reed K. Holden, a blueprint of mediocre finacial pricing(recomendend)
because you first make a product, then see the total costs of the products made, then look at how much you think you can sell and set a price that makes profit.
Product->cost->price->value->costumer
The Value based Pricing:
the only way to make good profits in the long run. look first at the costumers you are going to sell to, then see what their perseption of the value is, then you look at what the price can be set at, ad then look at the costs too see if it makes any profit to make the clothes, last you look at the product youre making.
Customer->Value->price->cost->product
That is why Dior homme can price a tee that costs 5$ to make, 150$(x30), but not a suit that costs 200$ for 6000$. they know that their custumers buy their tees for that price, but not their suits for that price.
But back to the question:
What should a new designer do?
Product life cycle is relevant to think about.
Who buys what in a certain part of the Products Life cycle?
The laggards dont pay as much as the innovators, but laggards and the majority are a much bigger segment(scale) etc
Growth
there are several growth strategies, but a newly started high end brand should never price their garments cheap, because when people dont know your brand, they check the price and the price indicates what the "quality" of the garment is. They have no other way to find out! A designer that starts selling clothes expensive can give rabates etc, but should never have a cheap retailing price! if you start off selling your clothes cheap people will always think that the quality is bad or mediocre. But if you price high, people will think they are buying quality.
The psykology: It is easier for LV to make a new brand "LV2" that sell cheap clothes, than it is for H&M to make a new brand that sells expensive clothes "H&M2". Even if "H&M2" clothes are much more expensive to make Luis Vuitton clothes they will have problems. Because of the price you assosiate with the mother brand.
To use take big profits for each product is called a skimming price strategy, and is usually used in all products introduction and growth fase. The opposite is the Penetration strategi, Penetration strategy is used when it is a product wich is sold to the mass marked and price sensetive segment, and is always going to be cheap in the future. It rarely be sold for higher prices in the future unless it is products that makes the cosumer dependant of the product, like Microsoft or Playstations. If for example Playstation sell their machines cheap, they can later sell the games expensive, and make it hard for competitors to enter the market. But dont think this is the strategy is smart in the apparel buisness.
If H&M starts pricing higher, people will feel that they are paying too much, because of the price level it had before, even if they improved the quality equally to the raise in price.
bottom line:
to say a brand has to "earn" itself a reputation with nice and cheap clothes is according to we have learned wrong. Unless it is supposed to be a brand wich sells to the massmarket and pricesensetiv segment.
1.First look at the COSTUMERS. who are they?
Rich classy girls. A small, but price insensetive segment. Innovaters and early adaptors
2.The VALUE for them is to buy clothes that are exclusive and have great quality etc
3.Which type of pricing strategy is smart for me too use in the long run? Skimmingstrategy, it is a small segment, so scale can rarely be acheived. If they are satisfied they will come back, if they dont like it because it is to "cheap", they would never bought it anyways. Look at brands you want to be assosiated with and price in the same range, or even higher. Remember, better to price to high than too low. You can have "sales" more often (if you do it all the time costumers that pay full price will feel like fools). You can also give the costumers that you want to be associated with a "special price".
4.Costs;
the costs are obviously going to be high. The custumers are demanding expensive materials etc
5.Product;
What can I make to furfill their demands?
Avant-Garde Quality Apparel!!
Tip:
A good strategy is to sell your clothes to all the stores you want to be assosiated with and give them a price that just covers youre costs, but they have to price clothes expensive. They will earn alot selling your clothes, and promote it more. Customers will think it is a quality brand and you will get the costumers you want, the price insensetive, quality seeking segment.
Later when you have established your quality brand and are not longer in the early fase in the product life cycle, you can begin harvesting
This is why many new designers fail, they make clothes they like, find out how much they can carge and how much they can sell based on the price+markup strategy. Without thinking Product life cycle and value pricing
this is just a very small part in pricing strategy, but it is the most essential!
Hope you kind of understand how it works now.
)because of this. I keep my prices descent but i dont compromise on the quality of the product.
e.g. Gucci Group
