1. What other pricing promotions could a luxury retailer offer to build sales? Should a retailer use different strategies when targeting existing customers and new customers? Why?

In a tough economy, the market for luxury goods and services faces unique challenges.

Many people who at one time might have splurged on a Rolex watch or a Lexus sedan are now unemployed and, possibly, facing foreclosure on their home. Even those with high net worth felt the pinch when their investments—affected by a stock market in free-fall—took a hit, some losing as much as 50 percent of value. Thus, even the wealthy had less disposable income for high-priced vacations and weekly spa treatments.

The luxury goods market experienced a several-quarter drought during which sales fell 8 percent—about $227 billion. As the stock market began to stabilize, however, sales in the sector have begun to pick up: high-fashion house Hermes posted a 19 percent spike in sales for a recent quarter, and LVMH Moet Hennessy Louis Vuitton reported an 11 percent increase.

Still, luxury retailers aren’t out of the woods yet, and they resist applying the same promotional strategies to bring in business that more mainstream retailers might try. Tiffany’s—widely regarded as a premier jeweler—would risk damaging its carefully tended image if it were to advertise, for instance, a “buy one, get one free”

sale or discounts on its crystal or sterling patterns. Interestingly, such promotions by retailers like JCPenney or Lord & Taylor seemingly have no adverse effect on shoppers’ perception of value.