TIFFANY & CO.
Tiffany & Co.: Protecting Brand Image from Tarnish
Author: Molly LeBel, Kaylea Hoelscher, Lisa Staritathor, Mark Teborek and James S.
O’Rourke
• Publisher: The Eugene D. Fanning Center for Business Communication,
Mendoza College of Business, University of Notre Dame
• Original publication date:2007
• Length:2,514 words
• Region:Northern America
• DOI:http://dx.doi.org/10.4135/9781526405654
Abstract:
In 2004, Mike Kowalski, chief executive officer of Tiffany & Co., faced a major decision
for the future of the Tiffany brand and franchise. After three rounds of price hikes, the
highly profitable silver jewelry line, “Return to Tiffany,” witnessed price increases of
200%, which finally resulted in a reduction in the demand for Tiffany silver by the
upper-middle-class consumer. The popular silver line had increased sales as well as
equity for the shareholders, but at the same time, it was eroding the brand in the eyes
of the core luxury consumer. Tiffany is left with the juxtaposition between increased
profits and a tarnished brand image.
Case
A woman strolls to the display window at the flagship Tiffany store in New York City,
gazing longingly inside. She fantasizes about owning a luxurious piece of Tiffany
jewelry.
Women dream in Tiffany blue. Their little blue boxes contain merchandise that women
of all ages aspire to. She pictures the love of her life on one knee, asking for her hand
in marriage, offering her a little blue box containing a beautiful Tiffany engagement
ring. In another dream, the little blue box contains a pearl bracelet to celebrate the
birth of her child. Or, perhaps a luxurious tennis bracelet is enclosed in the box,
purchased by the woman herself. These are what the dreams of luxury are made of.
Mike Kowalski, CEO of Tiffany & Co. needed to stand his ground. He knew that the
Tiffany brand was at risk. To refurbish the brand image, he had just executed another
price increase on Tiffany’s highly profitable line of silver jewelry, much to investors’
dismay. Mr. Kowalski believed this was the first step to preserve the highest reputation
for the luxury goods brand. But people across the business world and on Wall Street
questioned whether this move was a good one for Tiffany & Co.
History of Tiffany & Company
1
Tiffany & Young was founded on Sept 18, 1837 by schoolmates Charles Lewis Tiffany
and John B. Young as a stationary and fancy goods store. The store’s revolutionary
policy of non-negotiated pricing created headlines and generated a first day’s revenue
of $4.98. In 1853, Charles Tiffany gained ownership of the entire company and
officially changed the name to Tiffany & Co.
One of the company’s earliest effects on American business was the introduction in
1845 of the first retail catalogue, which is still in circulation today. They continued to
define the jewelry and luxury goods market when Tiffany’s personal quality standard
for silver eventually became the U.S. Sterling Standard in 1851. Tiffany’s silver
became the first American enterprise to win an award for excellence in 1867 at the
Paris Exposition Universelle. Later, in 1907, a Tiffany gemologist helped define the
metric caret as the standard weight measurement for diamonds and other gems.
The unique jewelry and luxurious pieces caught the imaginations of the New York City
elite and wealthy, making Tiffany jewelry and diamonds a visible symbol of status and
wealth. Tiffany’s focus on quality and beauty was integral to their product line’s
developments and innovations. In 1886 the company introduced the “Tiffany Setting”
which created a revolution in engagement rings by positioning the diamond high above
the band, thus catching more light and enhancing its beauty.
Tiffany & Co.’s history is rich with instances in which their brand spoke of luxury,
exclusivity, and prestige. Some of their most notable achievements include designing
an inaugural presentation pitcher for President Abraham Lincoln, creating presentation
swords for Generals Grant and Sherman during the Civil War, revising the Great Seal
of the United States, as seen on the $1 bill, and ownership of the “Tiffany Diamond,”
the largest yellow diamond in the world at 128.54 carets with 90 facets cut to focus on
the gem’s beauty, not size.
The company achieved international recognition in 1887 when Charles Tiffany
acquired a collection of French crown jewels, officially solidifying Charles Lewis’
position as the “King of Diamonds.” 100 years later Tiffany & Co. went public with an
IPO on the New York Stock Exchange. The first Tiffany & Co. retail store outside of
New York opened in 1963 in San Francisco followed by their first international retail
presence in Tokyo in 1996. Today, Tiffany & Co. stores can be found in most major
cities around the world, as well as in many smaller markets across America.
The Little Blue Box
In 1837, the year that Tiffany & Young was founded, a shade of blue as unique as the
pieces the store carried was chosen to represent Tiffany’s focus on quality and
sophistication. Today known as “Tiffany Blue,” the color defines the brand’s exclusivity
and elegance. Charles Lewis Tiffany instructed that never was one of the “Little Blue
Boxes” to leave the store unless a purchased Tiffany piece was contained within.
Tiffany & Co. has long enjoyed a gilded reputation, conferred by its association with
the happy things in life: engagements, weddings, babies, trophies, retirements,
anniversaries and romantic Hollywood movies. 2 Tiffany’s little blue box represents
quality. Consumers aspire to be associated with this brand and are willing to pay a
premium for it.
2
Perhaps the best expression of the Tiffany brand is encapsulated in the 1961 film
Breakfast at Tiffany’s, based on Truman Capote’s 1950 novel of the same name. Holly
Golightly, the story’s central character, played by Audrey Hepburn, captures the
nation’s admiration of the store and the aspiration of every girl who would look at the
store’s window displays in hopes of one day owning a Tiffany piece.
Return to Tiffany
In the late 1990’s Americans had a voracious appetite for affordable luxury goods. In
1997 Tiffany & Co. capitalized on consumer sentiment and introduced the “Return to
Tiffany” line of silver jewelry. The cornerstones of this campaign were a chain-link
bracelet and necklace that contained a tag that stated “Please Return to Tiffany & Co.
New York.” The campaign was intended to make Tiffany seem less intimidating. CEO
Mike Kowalski stated that “Tiffany wants people to aspire to be a customer, but never
to feel excluded.” The corporate strategy was for the relatively inexpensive silver
product to draw in the larger upper-middle class demographic and increase sales. By
enabling a younger demographic to access Tiffany merchandise today, executives
hoped these customers would return to purchase larger items in various milestones of
their lives, starting with a Tiffany engagement ring.
The “Return to Tiffany” product line was wildly successful. Between 1997 and 2002,
Tiffany realized sales growth of 67% largely due to the inexpensive silver line.
Earnings doubled over this time period, from $72.8 Million to $189 Million. 3 By 2003,
silver jewelry represented 31% of Tiffany’s U. S. sales. 4 Investors lauded Tiffany for
the resulting sales increase, as the stock price responded favorably. In the late 1990’s,
Tiffany’s stock price hovered around $10.00 per share. By 2000, the price was over
$40.00 per share.
A Tarnished Brand
Even with the success of the “Return to Tiffany” campaign, Tiffany executives worried
that their merchandise was perhaps becoming too much of a fad. They wondered
whether this fad could alienate the jewelry firm’s older, wealthier and more
conservative clientele. Worse, it could forever damage Tiffany’s reputation for luxury.
6 High-end customers were turning away from a brand that a growing number of them
now perceived as targeting younger, less exclusive customers.
There was similar concern about a tarnished reputation overseas. The silver jewelry
so popular in America did not receive the same accolades in Japan. Tiffany executives
soon realized that Japanese luxury consumers were even more fickle than American
consumers. The Japanese luxury consumer takes her purchases very seriously. If
she’s going to spend several thousand dollars on a piece of jewelry, she doesn’t
necessarily want to be buying it next to a teenager buying a piece of silver jewelry for
$100. Tiffany’s sales in Japan were growing at around 12.5% a year between 1994
and 2000, but have since fallen 2.7% per year on average.
The initial aspiration of the Return to Tiffany line was to “hook” consumers early.
Tiffany wanted to draw in a younger demographic with more affordable goods, hoping
that exposure to Tiffany goods would encourage girls to return to Tiffany for larger
purchases in the future. But would these young girls want their engagement ring
3
purchased at the same jeweler they used when they were 13? It was an important
question for Tiffany to grapple with.
Yet another repercussion of the popularity of Tiffany’s less expensive silver line was
the increased in-store traffic. During peak shopping periods, Tiffany salespeople had
to pass out pagers to customers to keep up with the demand for help. This was
certainly not the shopping experience a Tiffany customer wanted if she were making
a purchase upwards of $2000. One shopper commented “I felt like I was in Macy’s.” 9
This was a new experience for long- time Tiffany consumers and salespeople alike.
And the experience wasn’t in alignment with the store’s lofty brand image. The large
number of silver customers represented a fundamental threat – not just to the
business, but to the core franchise.
Tiffany & Co.’s regal history and brand equity are closely intertwined. The brand is as
much a part of the company’s long term financial success as are its revenues. Tiffany’s
diminishing brand equity could threaten the successful luxury goods business goods
that Tiffany has enjoyed for so many years.
A New Push to “Return to Tiffany”
In 2002, armed with brand erosion results of his research, Kowalski raised the prices
on all of its most accessible collections, including “Return to Tiffany.” The increase
was not a response to rising costs or a desire for higher margins. It was a marketing
decision intended purely to reduce sales.
Tiffany’s next “campaign” would be one designed to encourage luxury consumers to
“Return to Tiffany,” especially those customers discouraged by the inexpensive
product offerings and related fads. Tiffany would be trying to attract more big spenders
by shifting its marketing away from low-priced jewelry to higher-end pieces that cost
$2000 and up.
To try to reverse the slide in Japanese sales, Tiffany opened more modern, stand-
alone stores in Osaka and the Marunouchi area of Tokyo that are focused on high-
end jewelry pieces.
Facing competition from premium jewelers, Tiffany underwent something of a face-lift,
both physical and ideological. Their new message was “bring on the bling.” 14 In 2001,
Tiffany began remodeling its flagship store in New York City. The flagship store was
crucial to U.S. sales figures, accounting for anywhere between 13 to 25% of domestic
sales, and the appearance of this store would signal to tourists and New York opinion-
makers the direction of the company.
Like Tiffany’s famed first floor, the newly designed second floor presents an open
environment that allows for individual customer attention and augments the dazzling
diversity and originality of Tiffany jewels, including the company’s illustrious array of
diamond engagement and wedding rings, as well as diamond jewelry of ultimate
glamour; exquisite colored gemstones and luminous pearls from the South Seas. 16
The second floor renovation also includes two private viewing salons for increased
privacy and customer service during higher end purchases.
Current Dilemma
4
Tiffany & Co. is attempting to walk a razor-thin line: broadening offerings to the upper-
middle-classes while pitching privilege to the truly rich. The dilemma is particularly
common these days, as investors clamor for sales growth on one side and fickle luxury
buyers demand exclusivity on the other.
Tiffany first realized slowing sales of the silver jewelry line during the second quarter
of 2004. After three rounds of price hikes, in 2002, 2003 and 2004, and price increases
of more than 30%, 18 the demand for Tiffany’s highly profitable line of silver jewelry
began to decrease. 19 Mike Kowalski braced himself, as he knew investors would be
pessimistic about an intentional reduction in sales of Tiffany’s most profitable product
line.
Mike Kowalski understood, more than most, that in today’s marketplace, branding is
of paramount importance. Few would argue that the Tiffany brand is their strongest
asset. Tiffany & Co. has maintained its brand promise with unique, elegantly simple
design and superlative, special designers. 20 For a luxury brand there is also equity
in history, cultural references, innovations, and icons such as the French Crown
Jewels, Holly Golightly, and the Tiffany setting. There is also brand value in customer
touch points. Pagers as a touch point fail to demonstrate the exclusivity of the brand.
So did low prices, teenage buyers, and widespread trends. Mike Kowalski must now
determine how to revamp the Tiffany brand image and to return it to its former glory.
But he must do so without alienating clients or frightening Wall Street.
