Expand into the suburbs and entice first-time buyers with ads showing affordable jewelry: It’s a formula that helped Tiffany & Co. hit an earnings home run in 1996

Hundreds, possibly thousands, of people in Palo Alto, Cal., will enter a Tiffany & Co. store for the first time this month. Once they’re in, many will leave with a purchase cushioned in the famous blue package and become regular customers.

Sure, it sounds simple. Almost too simple. But the 160-year-old retailing legend says placing stores in upscale suburban surroundings fueled Tiffany’s record-breaking sales in 1996. Last year, sales increased 15% while earnings skyrocketed 49% over 1995’s numbers. The company also credited other recent tactics for its sales and earnings success, including an advertising strategy to show first-time customers that Tiffany quality is attainable.

Tiffany operates more than 100 stores worldwide. Of the 23 in the U.S., 14 are in major cities while nine smaller, newer boutique stores operate in suburban areas outside these cities. The company plans to open three to four stores per year.

The boutique stores should act like magnets, wooing the first-time Tiffany buyer, according to Michael Kowalski, Tiffany’s president. “There are still many customers in the United States who feel they can’t afford anything at Tiffany or that they would be intimidated by the store’s atmosphere,” he says. “Once they are in the store, we’re confident that they are made to feel comfortable.”

Tiffany’s suburban locations introduce the store to new clients without cannibalizing the larger, primarily downtown stores. The closest store to the new Palo Alto location is San Francisco’s large Post Street location in the Union Square shopping district. In the boutique stores, merchandise is limited by store size to a representative sample of the store’s offerings. To combat the perceived price barrier many consumers carry in their minds, Tiffany pitches print ads featuring its many sterling silver items priced under $125.

Even more importantly, Tiffany consistently advertises its diamond engagement rings with a starting price of $850. “This says to consumers that they can afford to buy their engagement rings here,” Kowalski says.

The purchase of an engagement ring engenders strong emotional ties that often result in repeat purchases over many years. “Diamond engagement ring sales are growing much faster than other product sectors,” he says.

While Tiffany has always used print advertising to strong advantage, it went after the first-time buyer during the ’96 holiday season with a series of television ads – its initial foray into that medium. Products and prices were not mentioned – viewers were treated to scenes of a series of family milestones, including weddings, graduations and anniversaries.

The spots appeared during news programs and in time slots calculated to best reach potential customers, including football games and NBC’s “Friends” and “Seinfeld.” Kowalski says more commercials will appear this year in New York City and possibly elsewhere. It’s likely these will follow the openings of the new stores into areas with an existing store.