Pricing Indicates Brand Positioning

Pricing is one of the first indicators of a brand’s positioning to consumers.  Luxury and prestige brands have traditionally adopted the premium pricing strategy to emphasize the brand strength, high quality and exclusivity associated with luxury goods, and also to differentiate them from the mass-market fashion brands.  The luxury target audience is less price-sensitive and actually expects luxury goods to be premium-priced rather than economically priced.  

Pricing forms a part of the branding process as consumers often judge the position of a brand and the value of a product in terms of price.  To explain further, the price of luxury products is significantly higher than the price of products with similar tangible features, but the high intangible characteristics and benefits of luxury goods justify the price.

On top of that, luxury goods are seen as reliable because final prices do not change even if input prices changes, and this builds customer trust.  Prices rarely change, and if they do, notices are sent to existing customers, and information about forthcoming price changes are displayed, so there are no surprises to customers.  Another interesting note about the prices of luxury goods is that they are usually in even numbers, as odd numbers generally give the impression of trickery.  

However, the strategy behind pricing decisions for luxury products requires meticulous evaluation and control.  As pricing is the only direct revenue generator among the Ps of the marketing mix, it holds a delicate position and calls for a clear set of objectives behind its strategy.  Since luxury brands are premium priced, the pricing objective and emphasis is on profitability and return on investments.

The pricing strategy for luxury goods also includes an evaluation of some key objective:

-   First, the overall cost of purchasing a product for a consumer incorporates the price-tag on the product as well as several other ‘costs’ such as time, energy, transport, mental effort and psychological costs.  These factors are important in evaluating consumer responses to pricing, so the overall costs of obtaining the product must be evaluated.

-   There’s also the customer aspect which involves ensuring that there is a ready consumer market willing to pay the set price for the products and services offered.  In the case of luxury brands, customers generally accept the premium pricing strategy.

-   Another important factor in pricing decisions for luxury goods is analyzing the external market demand factor.  This involves the responsiveness of the level of demand to changing or increasing prices.  In technical terms, it is done through checking the price elasticity of demand.

    Pricing also has to be checked against those of competitors.  For example, the classic Hermes Birkin bag retails for approximately €4,000 while its considered equivalent at Chanel costs about €2,500.  For some customers, this could mean that the Hermes bag has more value than the Chanel bag while others might perceive the Hermes bag as overpriced.

The luxury pricing strategy can also be used as a publicity generation tool.  For example, the delicacy known as the Golden Phoenix cupcake is made using premium Ugandan vanilla beans and cocoa, Italian organic flour and many sheets of 23-carat gold wrapping, and was designed to be entirely edible.  The Golden Phoenix can take up to 48 hours to prepare and, more distressingly, must be eaten in 15 minutes or its chocolate will melt, causing the gold flakes to peel and altering the flavour profile.  This cupcake is sold for $27,000 in Bloomsbury’s Bakery in Dubai, which aims to bring London’s quality confections to the UAE.  Even for Dubai, $1,800 a minute is still a relative bargain.  No potential buyers have stepped up so far.

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http://books.google.ca/books/about/Luxury_Fashion_Branding.html?id=a_6CublRtYwC&redir_esc=y

http://www.vaultmagazine.com/uncategorized/introducing-the-27000-golden-phoenix-cupcake/