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State of the Fashion Union: The New Lower Prices of Paper Denim & Cloth Jeans Means Happy Days Are Here...or Not. It All Depends on the Economics of the Situation. FASHIONTRIBES FASHION BLOG

In a recent contribution to the State of the Fashion Union, Millionaire Socialite posted about the impact of Paper Denim & Cloth lowering the price of their jeans from the current price range of $150 - $240 down to $100 - $160. Why? To increase distribution and sales, gaining new sales accounts that are currently priced out of the market at the higher price point.

In order to lower prices, PDC will be moving their producion to Mexico - and they have assured both worried PDC fans and retailers alike that great pains are being taken to assure maintain their current high level of quality.

Millionaire predicts that PDC will set off a wave of price realignment in the "premium" sector, as other premium jeans companies follow suit & lower their prices in an attempt to keep from losing customers.

However, it is not clear that this will necessarily occur. Two scenarios are possible: 1. Other companies will respond by lowering their prices, and if nothing else (like product quality) changes, consumers win because their beloved premium jeans are now cheaper.  2. PDC harms the prestige of its brand, which hurts the bottom line. Which scenario occurs depends on which of these outcomes dominates:

1. PDC lowers prices & gains so many new customers that they enjoy a huge increase in sales.

Demand_curve_price_mmt_1 

In this standard demand curve, at the higher PDC price $150-240 (P1), customers buy Q1 pairs of PDC jeans. Changes in price always change quantity demanded - it's a simple movement along the demand curve. Assuming the quality of the jeans doesn't worsen with the change to the cheaper Mexican production facility - or, and this is key: the PDC customers don't perceive a decrease in quality - when PDC lowers its its price to the $100/160 range, consumers who before viewed PDC as too expensive now view this as a way to to lay hands on a pair - and PDC gains itself new customers. But what about current PDC customers? Either they see this as an opportunity to get the jeans they love for less, so they buy more; or, if they are snobbier, they will see the new lower prices as indicative of inferiority, and decide never to buy PDC again. As long as the increase in quantity demanded by new PDC customers & non-snobby PDC fans is greater than the loss in sales to snobs, then PDC will enjoy new, possibly untold profits.

2. PDC lowers their prices and customers perceive the jeans to be inferior, lowering the perceived value of the jeans, and causing a contraction in demand.

Demand_curve_shift

The other crucial element to consider when you're attempting to predict changes in demand & supply is people's taste. A mushy, but highly important factor - especially in the fashion market - this captures that hard-to-define element of something being "cool" or not.  In the case of Uggs, when they had their fashion moment, they enjoyed a Demand curve like D. When the fashion cabal deemed them so "out" and "yesterday" - even if prices, production & everything else the company did stayed the same, in the eyes of fashionistas, they were now less desirable - and absolutely less were then purchased. This is known as a shift in the demand curve, and in this case, a contraction. For fashion goods in particular, the taste component is a hugely important element of the demand curve. If PDC's attempt to woo the wider mass market is perceived as making the jeans less cool, then the demand curve will contract, which actually hurts the company.

So what's the verdict? It depends on whether the lower prices which beef up quantity demanded  - ie. the increase from Q1 to Q2 - outweigh the taste (or distaste) effect which shifts the curve inward.

- Lesley Scott

February 2, 2006 in Blog Report, Fashion, State of the Fashion Union, Weblogs | Permalink

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Listed below are links to weblogs that reference State of the Fashion Union: The New Lower Prices of Paper Denim & Cloth Jeans Means Happy Days Are Here...or Not. It All Depends on the Economics of the Situation. FASHIONTRIBES FASHION BLOG:

» http://aestheticspluseconomics.typepad.com/aesthetics_economics/2006/05/_a_while_back_f.html from Aesthetics Economics
A while back, fashion blogs Millionaire Socialite and Fashiontribes featured posts about Paper Denim Cloth's decision to lower the prices of their jeans. Millionaire Socialite noted that PDC's lowering its prices may push down the prices of its compet... [Read More]

Tracked on May 1, 2006 3:42:32 PM

» Paper Denim Price Change Revisited from Aesthetics Economics
A while back, fashion blogs Millionaire Socialite and Fashiontribes featured posts about Paper Denim Cloth's decision to lower the prices of their jeans. Millionaire Socialite noted that PDC's lowering its prices may push down the prices of its compet... [Read More]

Tracked on May 1, 2006 3:47:01 PM

» Paper Denim Price Change Revisited from Aesthetics Economics
A while back, fashion blogs Millionaire Socialite and Fashiontribes featured posts about Paper Denim Cloth's decision to lower the prices of their jeans. Millionaire Socialite noted that PDC's lowering its prices may push down the prices of its compet... [Read More]

Tracked on May 1, 2006 3:48:35 PM

» Paper Denim Price Change Revisited from Aesthetics Economics
A while back, fashion blogs Millionaire Socialite and Fashiontribes featured posts about Paper Denim Cloth's decision to lower the prices of their jeans. Millionaire Socialite noted that PDC's lowering its prices may push down the prices of its compet... [Read More]

Tracked on May 1, 2006 3:50:35 PM

» Paper Denim Price Change Revisited from Aesthetics Economics
A while back, fashion blogs Millionaire Socialite and Fashiontribes featured posts about Paper Denim Cloth's decision to lower the prices of their jeans. Millionaire Socialite noted that PDC's lowering its prices may push down the prices of its compet... [Read More]

Tracked on May 4, 2006 11:29:34 PM

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