Do you remember when we only had Levi’s? Until the late 1970s when Jordache arrived in department stores, buying jeans was not about style. After that, designer jeans became a fashion statement as did their higher prices.
I wonder whether yesterday’s WSJ article on $520 khaki pants for men described a similar phenomenon. The pricier pants represent a trend toward more detail, softer fabrics, and enzyme washes. According to the WSJ, most khakis had looked too much alike, even when sold by different retailers. How to stimulate sales? Create some “designer cachet”.
As an economist, we would say that khakis makers are creating product differentiation…sort of like lettuce.
In a supermarket, lettuces can look alike. But, if you put them in packages, and prewash them, call them organic or provide a gourmet image, you might be able to generate some buyer recognition. And maybe, if the consumer really likes the lettuce (or wants designer cachet), he or she will buy that brand every time.
The Economic Life
Imagine a line representing different competitive market structures. The far left side of the line is labeled perfect competition while the far right side is monopoly. Very similar products such as unpackaged lettuce tend to be sold in markets that are on the left side of the scale. Their producers have little power over price because their goods look just like someone else’s. When individual lettuce growers gave their produce more individuality, they moved to the right on the market structure line. They also got more price making capability–just like Khakis.