Lessons From Luxury #6: Obtain and Retain Pricing Power

'Elegant Insights: Luxury Lessons for Life and Business' is a series of #12 invaluable lessons from looking, deeply beyond the glitz and glamour. For better margins, stronger loyalty, and elevated leadership - personally and professionally.

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Luxury brands create strong loyalty and command premium pricing. Can businesses harness the power inherent int luxury pricing strategies, and if so, how?

Pricing and Competition

Most consumers (and businesses) do not buy mainly because of price; competing on price is not as effective as you might assume.

Price is what you pay. Value is what you get. Warren Buffet

So, value creation happens beyond utility. For example, beyond the need to go from A to B on four wheels in downtown, the intangible factors of doing so in a Ferrari emphasises on benefits like prestige, status or satisfaction to increase the product's worth in the consumer's eyes. By aligning prices with customer perception, businesses can capture more value, focusing on both the utility and the broader value a product or service offers beyond its basic functionality.

How Luxury Gets Pricing Right

Dr. Johann Rupert, chairman of the Swiss luxury conglomerate Richemont, explains pricing power as follows: “Our role is to protect the DNA and the brand equity, because if we can have desirability and brand equity then we can have pricing power.”  Pricing then becomes a positioning tool. It doesn’t just inform about the price. It communicates a message about your brand’s perception and so it influences the decision-making of the buyer.  Superlative pricing strategies create a halo effect that elevates the brand's allure.

Consider Hublot's “Five Million” watch adorned with over 1200 diamonds (and yes it costs $5 million). This is not about a timepiece, it's about a statement that creates a pull for the brand at much larger scale - because Hublot also offers more accessible watches starting at $5,000. This approach cleverly sets a relative price point, making luxury more attainable and creating a pricing ladder within the brand. Deliberately created exclusivity creates desire.

Luxury sets the price; price does not set luxury. Jean-Noël Kapferer

Beyond utility value lies the emotional and symbolic appeal that luxury brands masterfully weave into their narratives. Omega doesn't just sell watches; it offers a piece of history with its timepieces that have been to the moon. Panerai invites you to embody the precision and rigor of a Navy Seal. Ferrari’s allure isn’t solely in its speed but also in the prestige of Formula 1 victory. These brands extend an invitation to not just own a product but to inherit a legacy or personify an icon be it the timeless charm of Marilyn Monroe or the sophisticated allure of sipping coffee like George Clooney.

Pricing Power for Non-Luxury Brands

If you do not have a superlative product that can command irrational pricing power, think about creating one. Even if you don’t sell much at a stratospheric pricing point, it will create curiosity, deliberate distance from your ‘normal pricing’ on products and services - and consequently, and when executed carefully, will command stronger pricing power further down the product ladder. Think about it this way: Porsche may not sell many 911 S/T at nearly 400'000 USD (nor will it want to, for reasons of exclusivity), but it will it make the Macan at 60’000 USD a lot more attractive – and here the volume will be x fold.

Non-luxury brands justify higher price points by enhancing product quality, offering exclusivity, or providing exceptional customer experiences and services. In Switzerland, the supermarket chains Migros and Coop effectively use their premium brands, Sélection and Fine Food respectively, to target upscale market segments through strategic pricing and product differentiation. Why is Red Bull twice the price of Coke - yet comes in a smaller can? Read my full article on pricing including the Veblen effect and more examples here.

Five Ways to Obtain Pricing Power

Here are five key ways in which businesses can leverage luxury pricing strategies to their advantage:

1. Create Perceived Exclusivity: By offering products that are perceived as exclusive or scarce, you can command higher prices. What is your Halo offering?
2. Enhance Brand Prestige: Building a strong, prestigious brand image is crucial. Invest in your brand.
3. Emotional Engagement: Emotion is near impossible to price. Adding intangible value increase the willingness to pay a premium.
4. Use Price to Signal Value: Set prices that not only cover costs but also signal high value to your audiences.
5. Focus on Exceptional Quality and Service: Ensure that your product or service is of exceptional quality can support higher price points.

There is quite a bit more in the full article on Luxury Pricing and what we can glean from it in my latest blog. In summary: think beyond pure utility pricing strategies. Look beyond the glitz and glamour of luxury. It delivers golden insights that can sprinkle some of that high-end sparkle on your own offerings too!

What pricing strategies do you observer, good or bad? What works, what doesn't?

Onwards and Upwards 🚀

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About: Markus Kramer is the MD at specialist consultancy Brand Affairs, advising Boards, Executives and Operational Teams on all aspects of Strategic Positioning, Reputation and Brand Management. He is a senior visiting Fellow in Strategic Brand Management at Bayes Business School and holds degrees from the Saïd Business School, University of Oxford, University of California, Berkeley Extension and Massachusetts Institute of Technology. He is the author of The Guiding Purpose Strategy© and Co-Author of the Responsible Investment Brand Index RIBI™.