Today, many brands, including those aiming for luxury status, struggle to sell enough products at their intended prices because they lack the pricing power.
The reason is that the majority of brands, despite doing an excellent job on product and design, fail to create the cultural capital that enables them to be perceived as valuable in an extreme way by clients, and ultimately worth the significant premiums.
So, whenever a brand gets pushback from customers on its prices, the reason is a mismatch between the perceived value it creates and the price it is asking for. The most fundamental building block in creating cultural capital is brand storytelling.
A brand needs to have full clarity on its emotional brand positioning and what its role is in the life of a client in order to create desirability.
Unfortunately, brand storytelling is still often confused with an advertising campaign and delegated. Instead, it should be the role of the CEO and the entire leadership team to ensure that, within an organization, there is full clarity and zero ambiguity on the core values of the brand. Importantly, these values have to be defined from the client perspective, and not from an internal angle.
One of the few brands that is excellent in brand storytelling is Rolex. Rolex is not just a brand that produces some of the best watches in the world, but it has become a byword for luxury by celebrating extraordinary achievements and the personalities behind them. All of its brand ambassadors are iconic figures who have worked hard to the become the best in their fields, whether in art, music, world exploration, sports, business, or politics.
Thus, wearing a Rolex is not just about wearing a beautiful mechanical timepiece but an expression of superlative achievements — a reward for dedication and hard work.
Likewise, each Rolex has an individual story that feeds into the celebration of high achievers. The GMT Master family was conceived as an instrument for pilots at the dawn of the jet age when time zone travel became a reality. The Submariner celebrates deep sea exploration, and the Daytona is the watch of race car drivers. The consistency of storytelling around its core values of great achievements is second to none and explains why Rolex watches are among the most desired, despite their high production volume.
Hard-to-get models like the Daytona or the GMT-Master II with the “Pepsi Dial” can achieve multiples of their retail price in the secondhand market, just because of the high desirability and the cultural equity that Rolex was able to create. When a watch can get a (significantly) higher price on the secondhand market than new, it shows that a customer’s willingness to pay can grow exponentially if the storytelling is executed perfectly.
However, the reality for most brands is different. Many leave a significant amount of dollars on the table in revenue and profitability. Pricing is still one of the most overlooked areas for luxury brands. Why is that?
First, for many brands today, luxury pricing has been heavily influenced by the cost-plus model: base cost, markup, and voila, the retail price is established. Although this strategy maintains a semblance of pricing integrity, it doesn’t take into account the psychological, emotional, and experiential aspects of luxury consumption that are the real differentiators in this sector. In other words, luxury is about the creation of extreme value. A cost-plus model completely omits that.
Second, many brands use competitive benchmarks for their pricing. I can’t even recall how often I have seen pricing matrices that place competitors in a grid from cheaper to more expensive and then the brand almost arbitrarily positions itself somewhere within the competitive set, often with vague rationales.
Third, in our globalized and digital era, prices must have strategic elasticity and contextual sensitivity to truly capture the product’s potential value, and importantly, its perceived value. Underpriced luxury goods inadvertently create an image of lesser quality, undermining brand prestige. Overpricing, on the other hand, risks alienating potential consumers who cannot justify the product’s value. Hence, it is crucial to balance the pricing with the perceived value of a luxury product.
What brands underestimate is that the value of a true luxury brand, or a brand that has a culturally relevant brand story, consists mainly of ALV (Added Luxury Value). In some cases ALV can be a thousand times greater than all other value components, including the tangible ones. This makes it clear that when brands don’t tell a differentiating and compelling client-centric story, there is no way to price disproportionately.
In luxury, pricing and brand storytelling are closely related. Neglecting the story immediately hampers the ability to price. Optimizing the brand narrative should therefore be the top priority whenever a brand faces pricing challenges.
This is an opinion piece where all views expressed belong to the author.
Named one of the “Global Top Five Luxury Key Opinion Leaders to Watch,” Daniel Langer is the CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the executive professor of luxury strategy and pricing at Pepperdine University in Malibu, California. He consults many of the leading luxury brands in the world, is the author of several best-selling luxury management books, a global keynote speaker, and holds luxury masterclasses on the future of luxury, disruption, and the luxury metaverse in Europe, the USA, and Asia.
Follow him: LinkedIn: https://www.linkedin.com/in/drlanger, Instagram: @equitebrands /@thedaniellanger