I found an article which by research terms is very old, being from 2003, but stay with me. The authors, Kumcu and McClure, are going at the idea prestige goods, or luxury goods as I will call them, are often talked about by professionals as having a backward demand curve. In other words, people explain the pricing so that the lower the price of the item the less people want. Then demand creeps up as price goes up. And it crashes back to zero when the price gets too high. It is very easy to think of price increases as just cosmetic, a way of getting people to desire the product more and to give off the illusion of luxury.
Instead, the authors argue that when you try to understand pricing decisions, you have to think about the whole marketing mix together: product, price, promotion, and place. Price increases factor in changes in those other Ps as well. Think about it this way, you can buy a bracelet from Pandora or a bracelet from Tiffany’s. We can argue the differences in the actual bracelets’ quality, but we won’t. Let’s only consider the additional aspects of the product, which include the service experience, and the place where the items are sold. Here are your examples to review. First the shopping experience at Pandora:
And the experience at Tiffany’s:
Did you notice any differences? The level of service offered at Tiffany’s, the cases they have, even just heating and cooling that expansive store will cost more. That will factor into the operating costs. And those operating costs, as well as hiring Jay-Z and Beyonce for ad campaigns and generally wanting to turn a profit get factored into the price.
Yes, prestige pricing could very well be completely ridiculous and an arbitrary number chosen to try and craft and image of quality. But sometimes it is because these items actually cost more. This is just an argument for you, as a marketer, to consider, how the overall marketing mix might be factored into pricing decisions. And then it’s up to you as a consumer to decide if it is all worth it.
This is the source I used:
Kumcu, E & McClure, J. E. (2003) Explaining prestige pricing: An alternative to back-bending demand. Marketing Education Review, 13(1), 49-57. https://doi.org/10.1080/10528008.2003.11488811
If you want to read more content like this, here are some more you might like:
And here are my most recent posts:
A Wren Says 