The importance of entry level pricing for luxury brands

Bank of America Merrill Lynch‘s research analyst Sherri Malek believes the brands like Prada who keep their entry-level prices way higher than their competitors are hurting themselves.

“The entry-price handbag for Prada is 40% higher than for Gucci and 80% higher than for Louis Vuitton,” Malek writes in a recent note to clients. “This increases our concerns around Prada’s pricing strategy: elevating the brand so that it potentially alienates the ‘accessible’ segment of its customer base, which could later become core customers.”

Interestingly, Prada’s management attributes the brand’s recent underperformance partially to a “sub-optimal merchandising mix, primarily an incomplete product offer in the lower and higher product range (i.e. above 1,000 ($1,100) and 1,400-1,600 ($1,545-$1765)).”

However, Malek notes that Prada should also take some time to think about its “incomplete product offering” in the below 1,000 range – since all of its major competitors have a presence in that price range.

Prada Pre-Fall2015 Accessories Collection