Hermes Birkin bag

How to Charge Higher Prices

I was inspired by a recent podcast that talked about how a luxury fashion company sells a $60,000 handbag–and has customers begging to buy it.

Planet Money Episode 672: Bagging a Birkin

Description:

There are people with Birkin bags and then there are the rest of us. This purse, made by Hermes, the French luxury brand, averages $60,000. And it’s been the “it” bag for 30 years.

The strange thing about Birkin bags: They always seem to be mysteriously out of stock. This is no accident. Today on the show, we go on a quest for a Birkin bag! And we find ourselves in a world where the normal rules of commerce are totally upside down.

Tons of great marketing lessons.

Target prospects who have money

I know this sounds obvious, but we have to start with the basics. You would be surprised by how many aspiring entrepreneurs have business ideas that are “dead on arrival” because they’re aiming for people who don’t have money: college students, the unemployed, struggling single parents, etc. People who cannot afford to buy even if they wanted to.

You want customers who have money and are willing to spend it. Hermes does this by targeting affluent clients who can afford a $60,000 handbag and are willing to spend money to gain status.

As an aside, you’ll also find that freebie-seekers generate the most complaints and customer service problems, while premium buyers are the easiest to deal with and pay promptly.

Don’t compete on lowest price–flaunt high prices instead

If you’re not yet rich, it’s easy to fall into the trap of trying to undercut competitors by lowering your prices. You like to save money and buy discounted goods, so you assume everybody else does too. Bad move. This only leads to a “price war,” and it’s a race to the bottom where all the companies are trying to lowball each other.

High prices can signal high quality. There’s also a segment of customers who will always default to buying the most expensive option, believing that the highest-priced product is the best product.  Which customers would you rather serve: the broke cheapskates or the big spenders? This goes back to the previous point.

Find other competitive advantages to promote: unique selling proposition, better service, better quality, long track record, awards/achievements/recognition, etc.

Make it scarce

Scarcity is one of the classic weapons of influence Robert Cialdini talked about in his book Influence: The Psychology of Persuasion.

When something is in short supply, we automatically assume it’s more valuable. For example, the American Express Centurion Card (a.k.a. The Black Card). The black card was an urban myth for years before the company decided to capitalize on the free word-of-mouth marketing by turning it into a real product.

If a product is easy to get, we see it as “common,” and don’t associate it with a high value.

Haze your prospects

Taking it a step further, don’t just make your product or service scarce, put your prospects through a “hazing” process. Make it intentionally difficult to buy.

Hazing a powerful brainwashing tactic used by fraternities, sororities, the military and yes, luxury retailers. When you make people suffer to get something, they will assign a high status to you, and will also get conditioned to be more loyal and compliant.

You’ll lose a lot of prospects along the way, for sure. But the ones who make it to the other side will be very well-behaved and inclined to follow your lead.

The “Sunk Cost Fallacy” is at work. When people invest a lot of time, money, effort and ego into something, they automatically value it more. For example, what would be more valuable to you: a can of soda you got from a vending machine or a medal you earned from getting shot during a war?

Military decorations are a great example of the sunk cost fallacy. The metal and materials that make up the medals aren’t necessarily worth a lot in and of themselves. It’s the hard work, bravery and service to their country that makes military decorations valuable to those who have earned them.

Shared suffering is also a fantastic way to build bonds among people. In the podcast, Birkin bag owners share “war stories” of the trials and tribulations they went through to get a Birkin.

From my own experience, out of all the jobs I’ve had, the one where I built the strongest friendships was also the most stressful and high-pressure. I think because my colleagues and I all supported each other under fire, it built a stronger bond. At jobs with more relaxed environments, the relationships weren’t as lasting.

Take the customer off the pedestal–and put yourself on it

This is the most brilliant move that Hermes and other luxury fashion labels do. They don’t try to sell you on buying their products–you have to convince them to let you buy it.

You take the customer off the pedestal and put your business on it instead. Customers look up to you, instead of down at you if you were like your competitors.

If you run a coaching or consulting-type business, you can implement this technique by making prospective clients go through an application process. Instead of you trying to write proposals and win them over, you take the power position and get to decide who is allowed to spend money with you.

Prestigious universities, elite companies and other high-level organizations use this tactic to great effect. A tough selection process makes getting the chance to work with you a big prize.

Gain celebrity status

Getting people to line up and apply works best if you already have a platform and do content marketing. Examples: blog, podcast, videos, etc. Publish informational content that shows you know your stuff. This positions you as an authority and even celebrity in the minds of your audience. So it becomes a privilege to hire you.

If you’ve got celebrity status, your prospects expect high prices. They would think something was wrong if you didn’t. They assume you’re worth more and you will charge accordingly.

photo credit: ingrid’s birkin via photopin (license)