Pricing Advice from the World’s Oldest Profession

For many people watching the Elliot Spitzer scandal unfold, the shocking part of the story was not that a powerful politician went to a prostitute. That seems almost retro these days. What seemed jaw-dropping was the amount of money Spitzer was paying out. Well, it turns out that the world’s oldest profession knows a thing or two about high end luxury pricing. (As Bill Mahr pointed out, there’s a big difference between the high end call girls in Elliot Spitzer’s circle and the vast majority of prostitutes who have few or no options and no pricing power.)

As we pointed out in the recent post “In Luxury Goods, Pricing Is Part of the Value“, high prices for certain goods create a perception of high value in some markets. Brownwyn Fryer over at the Harvard Business Review Editors’ Blog takes a much more practical, hands-on view of the experiment we discussed that doesn’t involve MRI machines, but does require purchasing one bottle of expensive wine. (See “Are Your Prices High Enough?“) Bronwyn herself left a comment on one of the other comments referencing a recent New York Times article called The Double Lives of High-Priced Call Girls.

And when it comes to price, Ms. Xi’an shared a secret. When someone pays her $1,250 an hour, he gets exactly what he would for $200, her rate when she started out. The difference is psychological, she explained: “The more somebody pays for you, the more they’ll respect you.”

“Tell a guy you’re $100 and they’ll treat you one way — tell them you’re $1,500 and they’ll treat you better,” Ms. Xi’an said in a telephone interview from her home on Long Island. “I’ve heard a lot of girls saying, ‘Is this girl getting $5,500 an hour because she’s more beautiful? Is she doing something I don’t?’ The answer is no. But that girl is able to look a guy in the eye and say, ‘This is what I’m worth, and this is what you have to pay if you want me.’ And you have to be able to do that, and believe it.”

This can be true for a lot of purchases. People who buy expensive, top-of-the-line offerings, whether they are stereo systems, software applications, wines, or other indulgences think more highly of their purchases and invest more heavily in them that those who purchase cheaper offerings.

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