Pricing can make or break the brand. In 2008, CalTech did a study on price and the experience of drinking wine. Researchers discovered that people found the wine that they were told to be more expensive as more enjoyable to drink – even if the wine was identical to the other wine they tasted. In this article, we will be tackling mainly common luxury pricing mistakes.
The results of this study are not new. There are many examples of how the price of something can affect how consumers perceive it. In fact, the price is probably one of the best marketing tools a brand can have. But, like with any other tool, it has to be wielded correctly in order to produce the desired results.
Luxury Pricing Mistake 1: The price is too low.
In economics, the law of demand states that more people want to buy a product when it is priced lower. However, luxury brands seem to be the exception to this rule. Luxury brands, in many situations, need to price according to what is expected of luxury goods – which is higher than what the market expects.
Luxury brands are more than just the sum of its production costs. People do not just pay because of the materials used or how many hours of work went into its manufacturing. There is also added value coming from intangible assets of the brand, such as name recall or company reputation. These qualities lead to a perceived value that people are willing to pay for.
Luxury Pricing Mistake 2: Pricing is based on competition.
Luxury pricing close to the prices set by a competitor is a legitimate price-determination strategy. However, it is not always effective in cases of luxury brands. Again, this is because the perceived value is a huge driving force in the luxury sector.
Pricing based on how competitors’ price their product or service assumes that the brand has the same perceived value, which is rarely the case. Aside from failing to recognize the brand’s true worth, it can also lead to a compounded problem. If the price is set lower than the perceived value, it tends to erode the brand’s appeal.
Mistake 3: Pricing is uneven.
Companies use different promotional activities to entice consumers to their business. However, these campaigns can backfire if they are not utilized well. If actions providing discounts or free gifts result in irregular pricing, it can disrupt the brand’s value.
An excellent example of this is the hotel industry. Hotels regularly offer rooms that are not sold at a discount. This is just business on the hotel’s part – they want the rooms occupied to maximize profits. However, the uneven pricing can confuse consumers. If a room is priced much lower than before, customers who paid the higher price can feel ripped off. Discounts that are too large make people question whether the product was worth the high price in the first place.
To explore your relationship with money and your financial mindset.
To put it simply for pricing mistakes.
Particular attention should be made when it comes to pricing. This is because it can be quite difficult to make price corrections once a price is introduced. The price is a strong signal to consumers what the brand is all about, so it should accurately tell the story of the brand.