One of my favorite tasks is optimizing pricing strategies for luxury brands and teaching pricing in my luxury class at Pepperdine University. I love it so much because pricing, or better yet, the willingness to pay, reveals deep psychology.
It is a mirror into the souls and deepest emotions of humans. Pricing is the ultimate expression of all the elements a brand needs to master to create desirability and make people say things like “I fell in love with the brand.”
However, most brands completely ignore the psychology of pricing and utilize a cookie cutter approach, often letting accountants create the pricing based on cost and target profit.
This model, fundamentally, calculates the cost of production, adds a margin for profit reflecting features and specifications, and determines the selling price accordingly.
This approach overlooks a crucial element inherent to luxury purchases: the Added Luxury Value (ALV). I never cease to be surprised by how many brands make this mistake, again and again. Instead of attaching pricing to brand equity, brands tend to follow category trends (i.e., “How did our competitors price? Let’s charge more or less the same as long as we get to our margin.”). There is a sea of sameness in pricing — meaning that practically everyone is getting the price wrong.
Brands that excel in pricing base their strategies on ALV estimates. ALV is not a tangible attribute but rather a reflection of the perceived value of a brand, determined by its ability to evoke positive emotional shifts in consumers through compelling storytelling.
This distinction is critical because, in the luxury domain, ALV often exceeds traditional value components by a significant margin — sometimes by factors of 10x, 100x, or even 1000x. When brands price solely based on cost, they overlook a substantial portion of the value they create and significantly underprice their offerings. Conversely, if they fail to generate substantial ALV due to deficiencies in their brand storytelling, they risk pricing themselves out of the market.
ALV often exceeds traditional value components by a significant margin — sometimes by factors of 10x, 100x, or even 1000x.
The implication for luxury brands is profound: Pricing should prioritize the brand’s narrative and the emotional resonance it creates, with the actual products playing a secondary role.
Take, for example, my recent acquisition of two bags from a limited edition Pharrell Williams collection: a Keepall 50 and the nano-sized Keepall 25. An analysis based purely on material and craftsmanship would suggest a substantial price disparity between the larger bag and its smaller sibling. Yet, their pricing is nearly identical, with only a few hundred dollars differentiating them.
This pricing strategy underscores Louis Vuitton’s deep understanding of ALV, prioritizing its storied heritage and the meticulously crafted narrative around travel and exploring new horizons, amplified by a unique and exclusive event in time, over mere material considerations. It's an illustration of pricing predicated on brand storytelling excellence.
Contrast this with Burberry’s recent introduction of higher-priced bags under designer Daniel Lee, which was met with a lukewarm reception from its clientele. This reaction hints at a possible disconnect between the price points and the underlying brand story at Burberry. It underscores the critical dependence of pricing based on a brand's narrative-related equity. Any shortcomings or misalignments not only dampen sales but also risk eroding brand prestige.
The pitfalls of inappropriate pricing are not just theoretical. Brands that stray beyond their narrative equity or default to cost-plus pricing invariably find themselves in an ill-suited price bracket, often leaving millions, and even billions, in unrealized revenues and profits. For some, this miscalculation could be catastrophic, undermining their market position or, in extreme cases, jeopardizing their survival.
The stakes in luxury pricing are unequivocally high. In a market where perception is reality and emotions dictate value, the cost of pricing mistakes can be devastating. Brands must therefore prioritize their brand storytelling, meticulously crafting and communicating stories that resonate deeply with their audience and evoke an emotional response. This task transcends marketing; it must be reflected in every touchpoint of the brand. Only then can they price with confidence, knowing that their items are valued not merely for their material attributes, but for the dreams and desires they inspire.
It's a stark ultimatum: adapt or face obsolescence. In the luxury sector, where the line between success and failure is as fine as it is unforgiving, mastering the art of pricing is not just an advantage — it's a necessity.
This is an opinion piece by Daniel Langer, CEO of Équité, recognized as one of the “Global Top Five Luxury Key Opinion Leaders to Watch.” He serves as an executive professor of luxury strategy and pricing at Pepperdine University in Malibu and as a professor of luxury at NYU, New York. Daniel has authored best-selling books on luxury management in English and Chinese, and is a respected global keynote speaker.
Daniel conducts masterclasses on various luxury topics across the world. As a luxury expert featured on Bloomberg TV, Forbes, The Economist, and others; Daniel holds an MBA and a Ph.D. in luxury management, and has received education from Harvard Business School.
All opinions expressed in the column are his own and do not reflect the official position of Jing Daily.
Follow him: LinkedIn: https://www.linkedin.com/in/drlanger, Instagram: @equitebrands /@drdaniellanger