Estee Lauder joins L’Oreal and P&G in lowering prices to boost sales

Speaking at the Reuters Global Luxury Summit in New York, Estee Lauder executives said the company is working on more affordable products for the holiday season.

Reuters reported COO Fabrizio Freda saying that the price of Estee Lauder’s cheapest products would fall in some categories and innovation will now be focused on value products.

To hold onto luxury consumers, Estee Lauder is also making smaller sizes of some products, such as 50ml and 30ml bottles of its Clinique Happy Perfume, which is normally sold in 100ml bottles.

Estee Lauder CEO William Lauder said the smaller bottles are selling better than the regular size one. He said: “The consumer has some money to spend; she just doesn’t have as much so she’d rather spend a little bit now.”​

Analyst supports pricing strategy​

Kline consumer products analyst Carrie Mellage said Estee Lauder is pursuing a smart strategy. She told Cosmetics Design: “Consumers are holding onto their money and are not splurging on luxury items as they once did. Manufacturers have to respond quickly to adapt their products to the new marketplace.”​

The announcement from Estee Lauder comes shortly after Proctor & Gamble (P&G) unveiled its shift towards lower-priced products.

At the end of last month P&G head A.G. Lafley said every P&G business is working to reach more consumers by widening the price range of its products.

This is a marked u-turn in strategy for the consumer goods manufacturer which had been introducing increasingly sophisticated and costly products.

Looking at breakdowns of recent sales figures provides a strong justification for the shift in approach. For example, last month L’Oreal reported a first quarter drop in like-for-like luxury sales of 17.5 percent while overall like-for-like sales were down 4.3 percent.

The French company had foreseen trouble ahead in the luxury market and announced in February that it would release more value products and smaller versions of existing products.

For example, L’Oreal Paris, which currently has products in the €11 to €18 price range, plans to release a €9 moisturizer in mid-2009 and a 20ml version of the Viktor & Rolf perfume was launched recently at €35. The regular 100ml bottle sells at €98.

Risks associated with cutting prices ​

By offering more lower priced products, L’Oreal, P&G and Estee Lauder could run certain risks. As the Wall Street Journal pointed out in relation to the P&G announcement, consumers might abandon premium products permanently, deciding instead that the new cheaper alternatives are good enough.

Offering luxury products at lower prices could also reduce the value of a brand. However, Mellage said these risks are small so long as the higher priced products are kept and consumers are able to differentiate between the higher and lower priced ranges.

With specific reference to Estee Lauder, she said it would be inadvisable to slash the prices of its high-end La Mer products, but that there is scope to broaden the price range for Clinique.