Tiffany are doubly rare. An American luxury brand. And one that knows what it is doing. A great illustration of why marketing and sales are often very different things.
Tiffany launched the 'Return to Tiffany' collection in 1997.
The accessibly priced silver jewellery was so named because every piece carried the 'return' message alongside a prominent Tiffany & Co logo. The collection, headlined by a large silver charm bracelet priced $110, sold fantastically well.
Over the next five years, thanks in no small part to this collection, sales at Tiffany rose by two-thirds. The financial markets were impressed and the company's share price rocketed. By 2002, however, a flaw was growing deep in the heart of the Tiffany brand. The company was selling too much of the wrong product to the wrong people.
At this point that the Tiffany story could go in one of two directions. If the firm was being run by the average British chief executive, with no training, experience or appreciation for brand equity, the likely response would be to open a few more stores, set some aggressive sales targets and gradually drive the brand towards disaster. But Tiffany was led by Mike Kowalski, the kind of chief executive we rarely encounter in the UK. Prior to assuming the role in 1999, Kowalski spent five years heading Tiffany's marketing. So he was experienced enough to recognise that Tiffany's explosive sales success masked bigger, long-term problems. His diagnosis: the large number of silver customers represented a fundamental threat - not just to the business, but to the core franchise.
Kowalski looked beyond the sales figures and examined brand equity. Using extensive customer research, his team began to identity the precarious position Tiffany was now in. High-end customers were turning away from a brand that a growing number of them now perceived as targeting younger, less exclusive customers. The research also revealed that Tiffany's brand associations were switching from high-end luxury to affordable silver accessories. It was also being deluged with young female customers at weekends and its small, private boutiques and attentive staff struggled to cope with this bigger but less valuable clientele. It became standard practice to issue customers with a beeper on entry to page them when a sales associate became available. Tiffany's traditional customer base began to defect and brand equity was eroding.
In 2002, armed with the results of his research, Kowalski raised the prices on all of its most accessible collections, including 'Return to Tiffany'. The increase was not a response to rising costs or a desire for higher margins. It was a marketing decision intended purely to reduce sales. This sounds like madness if you are a salesperson. But if you understand brand, and the difference between marketing and sales, it makes perfect strategic sense.
Problematically, the price rises had no discernible impact on sales. So in 2003 and again in 2004, Tiffany drove prices even higher. Finally, with prices up by more than 30%, Kowalski achieved his goal: sales of jewellery under $500 began to decline. Profits took a hit and many analysts questioned the logic of the price increases. Tiffany's share price plunged in 2004.
It has taken more than two years, but Tiffany is now back on track. New high-end jewellery ranges and VIP invitations to high-value customers are gradually restoring luxury and exclusivity to the brand. Brand equity has been restored and the share price has begun to revive.
Mike Kowalski exemplifies all the qualities of a brand-centric chief executive. Take the long-term view: it's better to have 20% of the market forever than 60% for five years. Look at customer research as well as sales figures - who is buying and why? Don't be afraid to disappoint shareholders in the short term; they don't understand brand-building - that's why they are investors not marketers. Most important, prioritise brand equity over everything else. Always.
