Why don't Walmart and Louis Vuitton discount?

By Megan McArdle

Having sales is a classic price discrimination strategy--the shoppers who love a dress so much that they won't risk losing it, or can't wait to wear it, pay full price.  Those who care less, have less money, or have less urgent time preference wait and pay less. 

So why are sales common in the midmarket, but unheard of at both discounters and many luxury brands?  Apple doesn't discount; neither does Bose or Louis Vuitton.  At the other end, you don't see a lot of clearance racks at Costco or Wal-Mart.  (Though expensive electronics, like cameras, do get marked down, at least at the one Wal-Mart I've been to.)

It's not because price discrimination wouldn't work; there are people who would buy a cheaper iPod or Louis Vuitton bag.  In the case of Apple, that wider distribution might actually help them, since the network effects of widespread ownership of their products are fairly large.  iPhone has a lot of apps that interact only with other iPhone users.  Ubiquitous Macs mean more software, wider familiarity with the OS, and, if you're a DC journalist, the ability to recharge your computer using any other journalist's power cord.

The answer is that both sets of brands have a very distinct message that discounting wars with.  In the case of luxury brands, it is "This is a product for people who are willing (and able) to pay for quality)".  In the case of the discounters, it is "You will get the best possible deal every time you shop here."  Moreover, the discounters manage to capture the real thrill of a sale--getting something for less than it ordinarily sells for--simply by offering very low prices all the time.  Every time I contemplate my Rabbit corkscrew, I get a little extra utility from remembering that it was $11 at Costco.  While for luxury retailers, getting a deal would give your less enthusiastic or wealthy shoppers the thrill of a deal only by significantly diminishing the carriage trade's joy in owning something most people can't have.

This article available online at:

http://www.theatlantic.com/business/archive/2008/08/why-don-apos-t-walmart-and-louis-vuitton-discount/3928/