August 4, 2015
For the first time in over a decade, I recently had to buy a new pair of glasses. While perusing the vast selection of eyewear at a local optometrist, a couple of things struck me:
- The prices for eyeglasses – even the low-end ones – have skyrocketed since the last time I bought them (this definitely struck me). I am not referring to all of the new optional fluff – progressive trifocals, scratch-proof coating, etc.; just the frames.
- There is a large range of prices, often for very subtle differences in frames that surely have almost identical production costs.
For some products (like cars), higher-end products involve additional costs that somewhat justify increased prices. But for these frames, it was all about pure demand. Whomever it was that priced these glasses, whichever focus groups they used to determine which styles were more desirable, were very effective in determining what I wanted and how much I would be willing to pay.
As a pricer, I found all of this fascinating and almost admirable… but as a consumer I was somewhat miffed. I tend to be fairly conservative in fashion and was happy to not pay the increased price that comes with a little brand logo on the side of my glasses. But even the simplest frames were more expensive than I anticipated. When I considered the large number of brands and how little frames have changed in the last several decades, this made no sense to me – the price should be going down!
A quick Google search later and I was seeing the truth with 20/20 vision. All of these choices really weren’t a choice. Almost all glasses worldwide (a $25-30B industry) are made by the same Italian company – Luxottica. It is estimated that roughly 500 million people are currently wearing their glasses.
Here is a very small sample of brands either produced by or outright owned by Luxottica (including some distribution channels): Prada, Chanel, Versace, Ralph Lauren, Ray-Ban, Oakley, Coach, Tiffany, LensCrafters, Pearle Vision, Target Optical, Sears Optical, Sunglasses Hut, glasses.com, and even Google Glass. Pick almost any brand outside of WalMart and Luxottica probably makes and/or owns it. Heck, they even own the second largest vision insurance company in America (EyeMed).
Ethical considerations of monopolies aside, there are 3 things Luxottica does that are worth considering:
1) Align price to value
In a 2012 CBS interview with Luxottica’s CEO Andrea Guerra (some of which is transcribed here), Andrea makes his pricing philosophy very clear when asked about using his monopoly power to drive high prices: “Everything is worth what people are ready to pay.”
This focus on pricing to value and not cost is something too many companies ignore, losing them significant profit opportunities. There are certainly cases where including cost as a factor is reasonable, but when pricing a product it is always worth asking yourself “Why should how much it costs me to make something have anything to do with how much someone is willing to pay for it?”
Contrary to the title of this blog, reasonable choices in eyewear do exist. It’s easy to find Groupon deals that sell Luxottica glasses for as low as $40, for example. Or a quick peek at Wal-Mart.com and I’m seeing 3-packs of glasses for less than $8! Now, I understand that normal eyewear retailers may have some higher fixed costs associated with stocking zillions of glasses – but if Walmart can sell 3-packs for $8, there is some serious margin going on (even at Groupon prices).
2) Make glasses fashionable
Until fairly recently, glasses were not cool. The CBS interviewer even admits remembering her mother telling her that “men will never ask me out if I wear my glasses. I was to go blind if I wanted dates.” Luxottica changed all that by partnering with high-fashion brands to create glasses that people actually wanted. As the old adage goes – “Sell something that people need and you can make a living. Sell something they want and you’ll be rich.”
3) Respect the Brand
When Luxottica bought Ray-Ban in 1999, this once powerhouse brand was selling for as low as $29 a pair. What was the first thing Luxottica did? They stopped selling Ray-Bans for over a year. They knew that people’s long-term memory of the Ray-Ban brand would win over their short-term memory of how much Ray-Bans were selling for a year ago. After this reset, Ray-Bans are now the number one selling eyeglasses globally. Too often, especially at the deal desk, companies only price versus their competition and do not take the power of their brands into account.
Also, for many of their frame styles they sell almost identical low and high-end versions, but the brand name and/or logo adds a tremendous price bump.
The next time you are developing a price, carefully consider these questions:
- Should my prices be based on my cost?
- Can I make customers want my product (instead of just needing it)?
- Am I fully leveraging the power of my brand?
Otherwise, all you may end up seeing clearly through your Luxottica glasses is red ink.