Harvard Business Review Blog Network
Behind the stalled economy is an army of sluggish consumers for whom buying things often feels like wasting money. In response, marketing brandishes that thing called “value,” which to most people means “cheap, but still OK.” Is there anything else marketers can use to energize consumers out of this funk? There is, and it’s called luxury.
Luxury thrives in this new-normal world, and it’s not only Hermes scarves for celebrities and Mercedes cars for tycoons. We all indulge in delicious cupcakes, premium chocolates, Tiffany charms, spas, and outdoors adventures. We enjoy spending a premium on these objects and experiences that we feel combine great craft and a little dose of our great dreams.
For marketers who want to use this feeble flame of consumer energy to re-ignite their business, we offer this basic insight: Luxury is the experience of acquiring what’s priceless. It is not a crazy expense that will impress your neighbor, or simple appreciation of fine quality. Luxury transports consumers to a world of high status, poetry, intelligence, beauty, and power that transcends the product or service they’re acquiring.
The point is to buy your way out of mediocrity. People who buy luxury don’t maintain a value equation; they fight to get out of it.
This realization poses a very concrete and seemingly insane problem for us down-to-earth marketers: How do we price the priceless so that it sells?
Our ongoing research generates new ideas to address this question. The key is to price in a way that accomplishes two important goals. First, your prices must underscore the uniqueness of the purchase opportunity. Second, they must induce consumers to appreciate the depth of the experience. Here are some sample suggestions:
Offer customized products “starting at $X.” Starting prices are often misused as bait to lure naïve customers to a store or website and make a quick buck. Sometimes they are dismissed as entry points that might make your product line sound less exclusive. But then why do companies like Apple (and many other high-end marketers) constantly use starting prices? The message is: “Step in and see what you can do beyond the ordinary.” In our experimental research, we repeatedly find that consumers give extra personal meaning and value to whatever they buy above and beyond the necessary functionalities, but only when these are stamped with a starting price.
Don’t be afraid to crowd up your product line. When you start from the basics and escalate to items of increasing quality, you create a mental momentum. The deep product lines you see from the likes of carmaker Porsche and piano manufacturer Steinway & Sons engage the consumer into unsuspected levels of appreciation for the finest quality. Your product line is like a ladder; its presence confirms that your best offerings are highly desirable and worthy of effort and risk-taking.
Offer exceptional discounts. Price cuts sound cheap. But discounts that are spaced in time, perhaps associated with a pre-purchase like in the offerings of Groupon and LivingSocial, have totally different connotations. Our experimental results show that consumers exposed to discounts on even the most mundane of products will place more emphasis on the experiential benefits of the purchase than on the easy-to-imitate functional criteria.
Our research continues to unearth new powerful pricing concepts to stimulate consumer engagement and ensure that quality products get the market traction they deserve. Stay tuned.