Nicole Miller Inc.
The Challenges of Pricing
Bud Konheim, chief executive officer of Nicole Miller Inc., is a fourth-generation apparel producer in New York. He's been in the clothing industry for 52 years, so he's seen many changes. One unpleasant change was the United States' loss of its competitive advantage of cost-efficient production to Asia. The shift so unnerved him that he made a commitment that took him in a different direction. When most fashion houses were outsourcing the production of their clothing overseas, Konheim brought all of his company's production back to the United States. With that decision made, Konheim turned his focus to building a business around design, instead of demographics. When Konheim and Miller decided to start their own business, after working together for years in the industry, Konheim told Miller that she should design what she herself would wear.
"You make stuff that you really love to wear, and I'll fi nd a crowd in the United States that shares your aesthetic," he said. Focusing on design generally results in higher-priced clothing. For Konheim, however, the pricing strategy has to be "part of the fun" of shopping. So the Nicole Miller team decided to design a women's clothing line that was youthful and fun-Miller's specialty-but wasn't priced so high that women would consider the cost and worry about regretting the purchase. That is, a woman shopping for a Nicole Miller design shouldn't look at the price tag and say, "This is uncomfortable for me; it's not fun." The price and quality must be in line with the customer's expectations. Jerry Bernstein is a renowned pricing strategy expert whose advice to entrepreneurs confirms Konheim's pricing strategy. Bernstein, founder of Price Improvement Team in St. Louis, encourages entrepreneurs to find out how their customers "perceive, use, and apply" their product-in other words, how they "value" the product.
He also urges business owners to determine what they are doing right with their profitable customers. Research helps an entrepreneur determine the value of a product or service to the marketplace. That value should be communicated in every sales and marketing promotion, and in every conversation with customers. In fact, Bernstein reveals, the price selected for the product is one of the most powerful means by which the entrepreneur communicates the value of the product. Before answering the questions and working the activities, watch the video on Nicole Miller. Watch for the various types of pricing decisions you learned about in Chapter 15.
Question
1. Which pricing strategy (or strategies) has Bud Konheim used to build the Nicole Miller design house? Be specific, citing examples you saw in the video clip. What evidence do you see that Konheim is using pricing to build a competitive advantage?
2. Why do you think Konheim says that price strategy has to be "part of the fun"? Do you agree or disagree with his selling philosophy? Explain.
Activities
1. Nicole Miller's core clothing collection is strong and remains a priority, but lately Miller has broadened her design portfolio. Use the Internet to research Nicole Miller's product lines. Write a brief analysis of Miller's new products' relationship to the existing product line.
In your analysis, try to anticipate the implications of the new products on manufacturing methods, distribution channels, type of promotion, and/or manner of personal selling. How do you think Konheim determines pricing for the new product?
2. Nearly half of Nicole Miller Inc.'s $130 million in annual revenue comes from licensing Miller's designs to 15 different fi rms that make handbags, travel accessories, socks, and more. Visit the International Licensing Industry Merchandisers' Association website at http:// www.licensing.org/intro/Introduction.cfm. Summarize the characteristics of licensing and the advantages to the licensor. What is the difference between licensing one's products and franchising?