This case study examines the pricing strategy of Cath Kidston, a UK-based company that sells furnishings, home and personal accessories, and clothes, operating mainly in the UK, Europe, and Asia regions. How much are you willing to pay for a key ring? The market price charges just a bit more than $1. But would you pay $2 for a comparable product? How about $7? A low-price strategy is often used by companies if their products are not well differentiated. Although a low-price strategy might seem attractive, especially in an economic downturn, some companies are focusing on creating value for customers and adopting customer-value-added pricing strategy. Cath Kidston Ltd is one UK-based company which understands that sometimes it pays to charge more. Cath Kidston's key rings sell for roughly $7 to $10, whereas the market price charges less than a third of that. To understand how Cath Kidston has succeeded with this pricing strategy, let's look at what makes the brand so special. The cheery colors and fun patterns Cath Kidston created allows it not to focus on price-sensitive market segments but instead lure customers with a value-added pricing strategy. It is important for a brand to create something that people respond to with their hearts, which is a sure-fire way to breed success for a brand. Cath Kidston is a brand that is confident in its design style and fun in its character. From Humble Beginnings Cath Kidston Ltd was founded in 1993 when designer Cath Kidston opened a tiny shop in London's Holland Park with a $23,800 investment in her business, selling towels, vintage fabrics and wallpaper, and brightly painted "junk" furniture she remembered fondly from her childhood. Cath Kidston's clever reworking of traditional English country style made her tiny shop soon become a cult success. Today, the brand carries a wide product range, everything from furnishings, crockery, cutlery, cloths, toys, china, bed linen, and bags, to women's and children's wear and accessories, charging price premiums that fans are gladly paying. In 2012, Cath Kidston had 57 shops and concessions in the UK, 2 in Ireland, 27 in Japan, 7 in South Korea, 3 in Thailand, and 1 in Taiwan. The business is also driven by successful web, mail-order, and wholesale divisions, with UK, Euro, and U.S. transactional Web sites. Cath Kidston has become a powerhouse of British design and retail, up there with the likes of Burberry and Pringle. Design is core part of Cath Kidston's brand. However, it is more than the vintage-inspired patterns and the stunning shop interiors. Walk into any Cath Kidston shop and you are able to "experience" the brand that other retail shops do not offer. And this "experience" permeates Cath Kidston's Web sites and all of its printed communications. If you are a fan, you can feel the essence of the brand in every aspect. In color psychology terms, Cath Kidston is pure springfun, creative, warm, inspiring, and young, adding a splash of color and vintage charm to a routine day. Cath Kidston not only offers a wide product range but is actually a lifestyle store. You can buy almost everything for your home, children, or yourself. The broad product range maximizes the brand's appeal and means that it works for both gift and personal purchases. Cath Kidston allows its brand personality (fun and brightness) to shine through its brand identity (colors and typography), hence becoming a brand consumers can fall in love with. Value Versus Price In certain respects, cross-comparing personal products such as key rings can be problematic, because there is so much variation in both features and price. But consider some popular Cath Kidston products. Its scarves sell for roughly $77, whereas comparable products from apparel retailers such as Marks & Spencer or Monsoon range from roughly $20 to $55. Cath Kidston's plastic-coated fabric bags sell from roughly $56 to $104, whereas other apparel retailers only charge similar prices for their leather bags. The fantasy of the English country childhood that Cath Kidston creates for customers enables the brand to charge price premiums as compared to competitors, such as John Lewis, Marks & Spencer, and Monsoon. For the fans of Cath Kidston, her products excite them in a way that IKEA and other competitors cannot hope to grasp. In terms of competition, in the product category of home accessories, Cath Kidston competes directly with UK retailers like John Lewis and Marks & Spencer. In the clothing category, apparel retailers such as Monsoon and Marks & Spencer are the key competitors of Cath Kidston, while it competes with retailers like IKEA in the furniture category. Compared to its main competitors, the weakness of Cath Kidston is that its product offerings are still relatively limited and narrow. However, Cath Kidston's unique strength is its product design offers its customers a strong personal statement and identity that other competitors find hard to achieve. The biggest challenge for the Cath Kidston brand is to continue its success with the traditional English country style and fun brand character, while satisfying its loyal customers with innovative product design and product line extension. Retro Brands in Hard Times Given the harsh economic climate, you might expect to see the cheerful floral prints that made Cath Kidston a household name withering a little. However, Cath Kidston has survived the recession very well, selling the retro styling and a rose-tinted antidote to an uncertain world in the uncertain economic climate. The brand is now a seemingly recession-proof "global lifestyle brand." In 2009, while other brands were chalking up serious losses due to the economic downturn, Cath Kidston saw profits leap by 60 percent, and sales rose from roughly $30 to $49 million. The reason for this phenomenon is that in these uncertain times, consumers, although cash-conscious, have an appetite for nostalgia. The products of Cath Kidston fulfil consumer needs for value and meaning, because they are inspired by a comforting and familiar 1950s aesthetic. For Cath Kidston, its premium pricing strategy coincided with a trend of consumer preference toward nostalgia, which seemed to provide comfort in the time of recession. Thus, the value derived from Cath Kidston products was enough to justify the high prices for many of its products. In an economic downturn, consumers want a bit of security and comfort, and this trend shows in the recession of the 1990s and today. UK retailers such as Asda reported a surge in sales of nostalgic brands, as people seem to look back to their childhood in an attempt to cheer themselves up. Consumers want the comfort and security that retro brands can give them, reminding them of their childhoods and even their parents' childhoods. In times of economic downturn, people are worried about the credit crunch and losing jobs, and thus brands that act as an antidote to anxiety will do well. A lot of people didn't see the most recent economic crisis coming, and that makes them nervous about looking forward. The reflex is to seek comfort in things that refer to the past. Also, as people stay at home more in a recession time to reduce consumption, stylish home comforts become more important, which also helps explain why Cath Kidston has done well in hard times. Cath Kidston is conquering the world with her floral and polka dot designs, and it is not surprising to see how such a powerful brand can divide people. Consumers either love it or hate it. For those who hate it, the products of Cath Kidston look like the junk from a late granny's attic. However, as the key target audiences of Cath Kidston are 30- to 40-year-old middle-class working women, their strong purchasing power sustains the growth of the brand. Spotting the brand's potential to expand in all directions, Cath Kidston embarked on a series of collaborations, including a range of mobile phones for Nokia, eco-bags for the UK supermarket chain Tesco, a flower-covered Sky TV box, tents for Millets, and radios for the retro-styled Roberts range. To the fans of Cath Kidston, the brand offers them a dream of a simpler and nicer world that make them think of happy childhoods, homemade cakes, picnics, and the seaside. In 2010, Cath Kidston became the subject of a high-profile buyout, when a $159 million deal saw the sale of Cath Kidston Ltd to a newly incorporated company owned by the U.S. private equity firm TA Associates. Cath Kidston Ltd had an equality sale valuing it at $119 million, while the funder and designer Cath Kidston retained her remaining 30 percent share, valued at $39.75 million, and continued her design role for the brand. Pressing on with Price Premiums The core idea of the Cath Kidston brand is a product-centric strategy. The control and expansion of the brand to a wider product range is still the focus after the shifting of company ownership. The product centric concept of a brand is a business model that embodies perhaps the most essential brand ingredient for business success: simplicity. By 2014, there were 59 shops in the UK and Ireland, with a further 54 in Spain and the Far East, including Japan, South Korea, and China. The brand is pressing on with its nostalgic designs that create value for its customers, justifying the premium price of its products.

Is Cath Kidston's pricing strategy sustainable?