The Anti-Laws Of Luxury Marketing #13

Jean-Noel KapfererOctober 20, 20093 min

#13. Raise your prices as time goes on in order to increase demand.

In the standard market model, when the price falls, demand rises. With luxury, the relationship is reversed. In the 1950s, Krug was one of the smallest champagne houses. Its champagne had an excellent reputation, was adored by the great artists and performers of the day, and particularly appreciated in Great Britain. In the late 1950s Moët & Chandon, on finding that Krug was being rationed (the product’s objective rarity made that a necessity), launched its new product that was destined to upset the status quo radically. Dom Pérignon was introduced at a price three times higher than that of Krug. In order to speed up the symbolic acceptance of Dom Pérignon, a quantity of it was dispatched to the Queen of England, and in 1961, in the very first film of the James Bond series, Agent 007 drank nothing but Dom Pérignon.

How was Krug to respond to that in order to regain its position at the top of the champagne hierarchy?

-Should it do nothing, believing that the superiority of its product would speak for itself – the truth being in the glass?
-Or, should it imitate Dom Pérignon, and at the same time improve it (a Lexus-type strategy)? This seemed an impossible approach for a house that had been in existence for 160 years, managed by the same family for five generations, and conscious of its mission.

The brilliant stroke – or perhaps one should call it Krug’s strategic daring – lay not in producing an exceptional vintage, a very top-of-the-range champagne that would justify the price put on it, but to hoist its prices substantially across the range, starting from the lowest; within 10 years it went up from $19 to $100 a bottle. At the same time, in a move to create a product of great rarity from one small corner of the vineyard, Clos du Mesnil was born. This champagne takes 10 years to come to fruition, taking into account the time it takes to prepare the land, bring in the harvest and allow for a period of ageing; nowadays, a bottle of Clos du Mesnil fetches a cool $700+.

Krug’s revival is an excellent illustration of the following anti-law of marketing: when it comes to luxury, price is a mere technical detail. As soon as price becomes an issue again in the classic price–demand relationship, we’re no longer dealing with luxury, even if the product bears the name of a luxury brand. Examples abound in every sector: it is by raising prices – and, of course, by reinvesting these additional profits in quality and in advertising – that a brand can stay in the world of luxury.

To live in luxury you have to be above others, not be ‘reasonable’, in both senses of the word. A reasonable price is a price that appeals to reason, and therefore to comparison. Now, recalling our anti-law no. 1, luxury is ‘superlative’, not ‘comparative’. To be reasonable is also to reduce the object to its tangible dimension and to deny the intangible.

By increasing prices you lose the bad customers, but now you suddenly become dazzlingly attractive to people who would previously not have given you a second glance.

The final point of this policy of systematically raising prices is that it gives the whole company a sense of responsibility. Price is a decisive factor in bringing about a change in mentality; indeed, we see quite profound internal changes in mentality, as every person in the company in their own way is constantly trying to find new ways of creating more value for the customer. It’s all a matter of living up to the price.

Excerpted in part from: The Luxury Strategy: Break The Rules of Marketing to Build Luxury Brands by JN Kapferer and V. Bastien, in partnership with Kogan Page publishing.

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Jean-Noel Kapferer

One comment

  • A.

    October 31, 2009 at 6:36 am

    Yes, cost conscious customers are “bad”.

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