How to make your brand feel more luxurious.
Perception drives value.
Not all of us are marketing in the world of luxury items, but the world of luxury goods does use some clever psychology that most businesses can use to help elevate their brands.
In the world of luxury branding, pricing is more than just a number—it’s a carefully orchestrated narrative. Luxury brands like Chanel, Rolex, and Louis Vuitton don’t just sell products; they sell from a place of emotion, desire and carefully designed aspirations. This world is focused on building exclusivity and emotional connections and catering to a new level of scarcity.
How do luxury brands use behavioural economics, influential design, and strategic marketing in crafting a unique pricing strategy for luxury goods and how can you use some of these ideas in your business?
How can you use psychology in your business to shape your pricing strategy, similar to luxury brands, and how can you elevate the perception of your brand?
The Price-Perception Relationship
Behavioural economics teaches us that price doesn’t just reflect value—it creates it. Signalling, a term used in behavioural economics, is a tool used in the luxury sector and is based on the understanding that when consumers see a high price, they subconsciously associate it with superior quality, rarity, and prestige.
Dan Ariely, author of Predictably Irrational, explains that people tend to equate cost with worth, especially when assessing products they are less familiar with or cannot objectively evaluate.
Tools for Managing Perception:
Leveraging the Scarcity Effect: We all want what we cannot have. Limited editions, seasonal drops and exclusivity increase overall desirability. Consumers believe that if a product is rare, it must be worth its price. Luxury brands use this to create desire; the Hermès’ Birkin bag is a classic example; it rose to prestige based on the idea that not everyone will be able to have it, launching with a hefty price tag and combined with notoriously long waitlist makes it not just a bag, it quickly became a status symbol amongst those that were fortunate enough to gain access.
Anchoring on Prestige: We reference information and compare additional information to it. For example, if the first thing you see is a $10,000 watch, a lower-priced item in the collection costs $2,000, it feels “affordable” by comparison. Customers compare based on the first piece of information rather than the merit of an item on its own. With luxury brands, the most expensive item is often the first item seen, setting an anchor immediately.
Creating a Halo Effect: You cannot be luxury in one area and 'cheap' in another. Pricing is consistent with the brand’s overall image and further reinforced through elevated storytelling, premium packaging (influencers love an unpackaging event), and positioning, all of these reinforce the perception that the product is not just worth it but indispensable.
Luxury Design and the Power of Minimalism
Simplicity is the ultimate form of sophistication. Luxury is not achieved by the pricing strategy alone; it’s supported by influential design principles that reinforce the feeling of elegance and reflect restraint and sophistication. Minimalism in design communicates refinement and timelessness; often, smaller brands are too afraid of exhibiting this type of constraint.
Consider Apple, a brand that, while not traditionally luxury, everything about Apple's design takes luxury cues. They show restraint through the clean design of their stores, packaging, and digital platforms. Apple's design choices mirror the principles of luxury brands. Further adding to the image, Apple’s pricing strategy follows suit: instead of relying on discounts or a sale strategy, they maintain their premium pricing to reinforce their aspirational image and, according to Scott Galloway, highlight sexual signalling.
Luxury brands use packaging, in-store experience and visual cues to elevate the customer experience. If you have ever entered a Tiffany & Co.’s store, you are welcomed into a world that elevates. They take packaging to a symbolic level with their iconic blue box symbolizing elegance and exclusivity that allows them to command higher prices. This teal colour is so associated with luxury that Tiffany's has trademarked this colour to preserve the image.
Behavioural Triggers That Justify Luxury Pricing
Luxury brands tap into several psychological triggers to justify their high prices. Here’s how behavioral economics comes into play:
1. Using Decoy Pricing
The decoy effect is when consumers are steered toward a higher-priced item when a less attractive, mid-priced option is introduced. For instance, if a luxury perfume brand offers three sizes:
30ml for $100,
75ml for $180,
and 100ml for $200
consumers are more likely to choose the 100ml bottle. It seems like the “best deal,” even though the brand intended to push them toward the higher-priced option.
Businesses can use this tool to help customers choose their preferred option.
2. The Endowment Effect
You know you are in luxury when the personalization starts. The psychology behind this is that once a consumer envisions a luxury item as their own, its perceived value increases and we are less likely to want to give it up (this is why stores encourage try-ons and dealerships get you to test drive cars). High-end brands take this even further; they encourage this psychological attachment by offering personalized experiences (think private shopping) and features such as custom tailoring or monogramming. Louis Vuitton, for example, allows customers to personalize bags with initials or unique designs. This tactic makes the item feel truly personal and irreplaceable, justifying its premium price.
3. Framing and Contextual Pricing
Luxury brands don't advertise like everyone else; they take positioning further and carefully frame their prices in aspirational contexts. For example, a luxury watch brand might pair its product with imagery of private jets, yachts, or exclusive gatherings. They consider the events they will be featured at or create unique sales experiences; for example, Range Rover hosts small, intimate gatherings at luxury homes with only a few elites to share a limited edition vehicle. These special, sought-after experiences and associations create an aspirational frame and context that makes the price tag feel appropriate to the lifestyle it represents, if not secondary.
4. The Pain of Payment (and How to Remove It)
Consumers feel the “pain of payment” more acutely when spending on tangible items versus experiences. Luxury brands minimize this discomfort by integrating experiential elements into their sales process or making the entire sales process the experience (like the reference to Range Rover noted above). Private shopping parties at a flagship store or being served champagne during a consultation session creates a memory, making the transaction feel less like a purchase and more like an event. Taking this one step further, reducing friction points at the transaction time makes the experience feel flawless, smooth and far more enjoyable; this can be achieved through tapping or keeping charge account information on file.
Gradual Price Increases: Chanel raises its prices periodically—not due to inflation, but to heighten exclusivity and desirability. Between 2019 and 2023, the price of the Classic Flap bag rose by nearly 60%. Far from deterring customers, these increases have cemented the bag’s reputation as a status symbol.
Perceived Scarcity: Limited stock ensures demand outpaces supply, a classic behavioural economics tactic. Customers are left with the impression that owning a Hermes bag is a rare privilege. Oftentimes, luxury vehicle brands will make limited numbers of a certain vehicle and at a higher price point strictly to increase the perception of luxury and create demand.
Design Consistency: Luxury brands use signature designs that rarely change. This timelessness justifies the high price and assures customers that their investment will hold value, which often increases their value on the resale market.
The Role of Marketing in Luxury Pricing
Luxury marketing doesn’t just sell products—it sells identities, creates aspiration and evokes emotion. The power of storytelling is central to this. Brands like Gucci and Prada use evocative campaigns to tell stories of bold individuality and heritage, which make their products feel more than material possessions—they become symbols of personal success.
Digital marketing in the luxury sector is also increasingly important. Luxury brands build interest and buzz by collaborating with unexpected partners, like gaming companies or streetwear brands, which intrigues younger, aspirational buyers. These campaigns make luxury feel playful yet exclusive, pulling new audiences into their pricing structure and helping them increase their market.
Balancing Aspirational and maintaining a luxury image
While luxury brands thrive on exclusivity, they also understand the importance of aspirational pricing, creating entry-level products that invite new consumers into their ecosystem. For instance, Burberry’s scarves and Tiffany's small accessories are priced lower than their high-end collections but still carry the brand's cachet. This strategy offers a taste of luxury without diluting its overall prestige.
The psychology of pricing in luxury branding is a testament to the power of perception. By blending behavioural economics, design principles, and masterful marketing, luxury brands create an aura that transcends the mere functionality of their products.
If you are a business owner, you can use these concepts in your business or emulate some of these key strategies. Price is not just a reflection of cost, it’s a tool to tell your brand’s positioning and where you want your brand to sit in the minds of your audience. Whether through anchoring, scarcity, or design, how you position your price can shape your customer’s perception of value, exclusivity, and desire.
The next time you see a $5,000 handbag or a $50,000 watch, remember—you’re not just paying for the product. You’re investing in a dream meticulously crafted by the invisible hand of psychology.
Julie
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