How To Price Luxury Items (Product/Service)

After going through the basic pricing methods and techniques, you are now considering to price your offering, you believe that the concluded price is the “right price”, but what if it’s not ? What if you are charging far too less or far too high that discourages your target market to buy your product/service, leaving you wondering what’s wrong with your offer.

“Right price” means to neither over price nor to leave any money on the table and I believe there is a sure way to find that out, that is to consider price from target market perspective.

By using the Veblen Effect approach we can look at price from target market perspective and can pin-point the “right price”.

Veblen Effect: Value of a luxury product/service perceived by a customer increases with increase in price.

  

Now Why & How would Veblen Effect help in Setting the Right Price ? 

Good question!

Let me give you “The Reason” for Veblen Effect before going for “The How”.

THE REASON

Researchers at Stanford and Caltech have conducted a research that concluded, that people experienced greater pleasure by consuming $45 wine (luxury item) compared to $5 wine (Veblen Effect), even when both wine types were one and the same thing but just with different price tag.

What does it mean ?, it means two things!

1.      If you have a luxury product/service with good quality but not priced rightly it will result in lower customer satisfaction from consumption of your product/service and thus less sales, less profit.
 
2.      And by conducting similar experiments or studies you can find the right price. A price that will result in maximum profit for the producer and maximum pleasure/satisfaction for the consumer/customer.

  

Right, Got it, Tell Me, How to Use it for Pricing ?!

THE HOW

Well it’s easy, either you need to get your hands on that study to understand the methodology, technique or you need to outsource/hire people to do similar research on your target market.
   

Different Prices

What they will need to do or you need to do in that research is to experiment with different prices and evaluate customers satisfaction, after several studies you will achieve the maximum price and maximum satisfaction or in other words the “right price”
   

Approach Applications/Uses

You can use this approach not only for new luxury products/services, where you want to set the right price but also for the existing luxury products/services to evaluate their prices and set the right price for them with new packaging.

Obviously if you price an existing product in old packaging, target market would question the new price, which will not only harm your sales but also your brand in one way or another, therefore you need to give it a new packaging so that the target market consider it as an entirely new product.

Now new packaging doesn’t mean just change in packaging, change in service name or something but redefining the product/service, repositioning and re-branding the product/service with new attributes (which you know aren’t there but like in the Wine example its only the price that is changed nothing else!), you have to make your target market believe that it’s not something old but an entirely new product/service.

Likewise you can add brand worth/value to the price, by charging your target market for brand worth. In that case what you need to do, is to follow the similar study or research approach only this time adding the brand name to the product/service for which the study is conducted.

And that’s how you will get exactly the maximum satisfaction and maximum price range (right price) when customers are aware of the brand. 

  

Remember !

Remember that the maximum price and maximum satisfaction point (right price) is a point beyond which a customer would realize the price deception or in other words would not consider the product worthy of a given price.

Now going beyond that point will not only harm your sales but also your brand, your market share etc. Therefore take necessary steps to avoid such situation like by outsourcing or hiring the right professionals who know exactly what they are doing, take a large target market sample for the research, the larger the better so that you can get a much better understanding of your target market so on and so forth.

That's it, now either you go and do it or let's talk about it further :)

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