Retail margins have shriveled. Wallets have tightened. Channels are now competing with manufacturers for sales.
Maintaining high prices in this climate is already difficult. Raising them may seem absurd. But consider the potential damage if these trends are not reversed. After post-Christmas sales in the United States last year reached lows of 90 percent off, retail experts speculated that it could take a decade for New York City consumers to consider paying full price again. If you’re a retailer or manufacturer, this is a doomsday scenario.
There is a strong link between price and perceptions of product—and the brand behind both. Rather than succumbing to the current trend towards rock-bottom pricing, let’s look at creative ways to strengthen the perceived value of your brand by increasing prices.
The root of desire: The one-off
One-offs or one-of-a-kind items present the clearest opportunity for high—even ridiculous—pricing. No supply-demand curve here, just a dot on a chart.
In 2007 Damien Hirst broke records in the art world by producing a small sculpture that premiered at £50 million—more than the prices typically paid at auction for works by Picasso, Rembrandt, and Warhol. Titled For the Love of God, this piece contained 8,601 flawless diamonds set in a platinum human skull.
Retail, of course, is a different game from art auctions. Mass production is assumed, and a one-off approach is admittedly impractical. But perceptions of supply and demand can be managed so that retail goods take on certain aspects of prime offerings.
Limited distribution, for example, enhances the sense of urgency towards purchase. Brand perceptions can be taken into provocative territory. Icon status can be built into designer name and channel selection. And a strong stance on retail pricing can cement the value placed on an offer.
Method 1: Limit opportunities
In this scenario we consciously target a limited number of sales for a SKU. Consumers with softer interest are quietly alienated. Respect for the brand deepens, and this regard justifies higher prices throughout the remaining product range. Control of supply becomes part of the brand story. As with one-offs, prices rise in line with desire, hope, or fear around purchase.
Swatch, for example, continually generates interest and revitalises price through a blend of limited quantity, unusual materials, and association with celebrities or special events. The Nuit Etoilée, released in 1998 and limited to a numbered run of 9,999, featured 21 diamonds and was promoted by top model Alek Wek. Watch number 0021 fetched over $1,800 at auction, and the remaining 9,998 sold for $400 each, a substantial premium over Swatch’s core price range.
Barriers to purchase, handled properly, can serve to whet appetite. Online auction giant eBay capitalises on the gap between would-be purchasers who desire an item and the single item available, driving emotive buying behaviour through the competitive, timed nature of bidding.
Then there’s the Singapore-based Whatever drink. It comes in six flavours but uses only one package design, so purchasers can never be sure which flavour they’re buying; it’s always a surprise. The uncertainty has become the brand’s appeal—and an incentive for repeat purchase.
Method 2: Develop silver bullets
Truly exemplary products or services can come to epitomise the experience of a particular brand. Such unexpected, risky, or high-priced offerings can lend story power and lift customer expectations of an entire brand portfolio.
Consider the impact haute couture and concept cars have on the sales of more mainstream clothing and automobiles. The premium offerings not only build interest, credibility, and price lift, they also allow a brand to make a powerful statement about itself.
In 2000 Apple sold its Cube for under $2,000. The computer was a marvel of simplicity and performance, but offered less upgrade flexibility than a G4 tower and cost twice as much as the iMac. By comparison, the iMac appeared a perfect synthesis of down-to-business workhorse and state-of-the-art icon. These dual messages turned the iMac into Apple’s standard-bearer, a role it continues to play today.
Method 3: Offer entry-level luxury
In Trading Up, Silverstein and Fiske contend that people exploit price wars on quotidian goods in order to save for aspirational purchases. Such consumers would gladly shop at a discount grocer and put the savings towards a BMW. The trick with this method is to appeal to both urges simultaneously: Spend less and treat yourself to something exceptional. This is the domain of $10 chocolates, $20 bars of soap, and imported beer—the “special indulgence” category.
Because the cost of entry-level luxury items remains a fraction of a consumer’s daily budget, they tend to be less scrutinised than other expenditures, even though they may offer less product per dollar than bargain brands. In addition, the higher price tag results in more limited consumption, sharpening the brand’s perceived value.
The lesson for marketers is twofold: Guard the perception of a brand to make it desirable, then size the package so that per-unit margins are higher but cost to possess is lower. The key to this method lies in right sizing.
This is only an excerpt. Read full post here.
Published by Landor , May 2009