Company Case 9
Coach: Riding the Wave of Premium Pricing
Synopsis
Coach is the number one seller of handbags in the U.S., selling $5 billion company worth
of handbags every year. All financials have grown vigorously in the past four years.
Coach has achieved this success through value-added pricing. What makes its products
worth more? Quality (materials, workmanship), design/style, and above all, the value of
the brand as a status symbol do. The bags are pricey, but they are moderate to even cheap
when compared to the higher-end handbags from Prada and Gucci. It’s aspirational, but
within reach. The problem the company now faces is that it is losing share in the U.S.
(two years in a row). Various factors contribute to this, including increased competition.
But there is also criticism that Coach may have overestimated just how high of a price
customers are willing to pay. This case examines the challenges a premium-priced brand
faces as it becomes popular across demographics.
Teaching Objectives
The teaching objectives for this case are to:
1. Discuss the different aspects of price.
2. Examine the nature of establishing an image of low price.
3. Evaluate the different ways (and outcomes) for responding to price changes.
4. Consider the role that price plays in the marketing mix.
Discussion Questions
1. What challenges does Coach face relative to pricing its vast product line?
The primary challenges faced by Coach are posed by increased competition,
2. Based on principles from the chapter, explain how price affects customer
perceptions of the Coach brand.
Perceptions of price are very psychological. Consumers consider price relative
to what they are getting and relative to competitive offerings. Price can have an
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Part 1: Defining Marketing and the Marketing Process
However, Coach has relied on deep discounting through its outlets as a means
3. How has increased competition at Coach’s price points affected the brand’s
performance?
For decades, Coach was in a class by itself. It was priced much higher than
4. Will the plan proposed by current Coach leadership be successful in reversing
the brand’s slide in market share? Why or why not?
On the surface it would seem as though Coach’s plan will work. Consider the
issues and how Coach is addressing them:
High prices in tough economic times – introduced the lower priced “Poppy”
line, a slightly lower quality product at a 30% lower price point.
Thus, it would appear that Coach has a good plan to address all the factors that
have led to lower financial performance. However, it hasn’t really addressed
one of the biggest issues—the fact that the brand has grown so much and is
5. What recommendations would you make to Coach?
In order to maintain a premium image, it is likely that Coach will have to
accept that it will grow slower for a time and may even have to decline
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Chapter 1: Marketing: Creating and Capturing Customer Value
Teaching Suggestions
As this case is discussed, provide some points of comparison by illustrating online the
options that are available to customers, including department stores, the Coach website,
the Coach outlets, eBay, and other sites. Also, look at competitive offerings. Use this
demonstration to drive home just how many options customers have and how Coach has
become its own competition in many respects.
This case was developed for use with Chapter 9. This case also works well with the
marketing environment chapter (Chapter 3).
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