The value of many luxury items is that they have no intrinsic value, but their conspicuous consumption demonstrates the wealth and social standing of the buyer. You can therefore charge much higher prices, mainly just by charging higher prices. (You also need a customer experience that aligns with the price. The shopping experience at Tiffany’s is very different from that at All for a Dollar.) A great strategy in luxury retail is to design an elegant experience, including physical space, nice packaging, an air of exclusivity, and a nice story around the product that helps the buyer think of their purchase as something well beyond utilitarian. Apple is a good example of a company that achieves premium pricing this way. Yes, there may be some utilitarian benefits to Apple products, but much of the premium comes down to the overall experience, as this great article about opening boxes containing a MacBook Pro and a ThinkPad illustrates. Diamonds are perhaps the best example of taking something very abundant (carbon) in a form that you pretend is very rare (the diamond), wrapping a story around it that is emotional, rather than utilitarian, and extracting very high prices in the process. (See this great article in The Atlantic magazine from back in 1982, which still applies today.) “Premium” vodkas and tequilas are so yesterday. Today, “superpremium” is where it’s at. (Btw, for people looking for a very smooth vodka without the superpremium price, Tito’s Vodka, distilled here in Austin, Texas, of all places, is extremely good.)
If this strategy works well, why not take it one step further? Take an existing category, and add another layer of exclusivity, mythology, and, of course, price. Mercedes Benz took what used to be their top-of-the-line sedan and gave it a more powerful engine (signed on the engine block by the worker who made it– nice story telling), some other sporty features, a fancy badge and takes the price from $140,000 to $180,000. Yes, we’re talking about cars, not houses.
Chocolate is a great market for this strategy. High end chocolate is about gift giving, when fancy presentation and big price tags are a real plus. The founders of Noka chocolate took this lesson to heart, and deliberately set out to create the world’s most expensive chocolate at about $2,000 a pound. The sold them in nice metal boxes, and told a story about their chocolate being completely pure and from a single plantation. They got placement at Neiman Marcus, and numerous mentions, all talking about their price. (More great strategy, now people who receive them will know how much money you spent.) Unfortunately, the prices attracted the attention of a blogger at DallasFood, who wrote a very detailed expose on the company, focusing on whether the chocolate is worth the price. Here’s a funny snippet:
Vintages Collection (i.e., molded tablets) — Signature Box (i.e., stainless steel).
…
4 piece — approximately $2,080 per pound…
Let’s compare that with the products of some commonly known chocolatiers. Godiva chocolates range from about $30 to $65 per pound. Joseph Schmidt chocolates range from around $30 to $55 per pound. Fran’s chocolates cost around $55 to $70 per pound. Michael Recchiuti’s chocolates run from $58 to $85 per pound. And La Maison du Chocolat ranges from about $65 to $85 per pound.
Noka’s pricing soars over that of most gourmet chocolatiers by a factor of five, ten, even twenty times or more.
To make some “apples to oranges” comparisons, Noka chocolates cost more than:
Foie gras — $50 per pound
Domestic sturgeon caviar — $275 per pound
American Wagyu and Japanese Kobe beef — $100 to $300 per pound
Sterling silver — $170 per pound
Marijuana in El Paso — $350 per pound
A fat stack of dollar bills — $454 per pound
Aside from this funny comparison, the main problem the author had was that he didn’t believe the story. As far as he could tell, this was just regular chocolate, put in a fancy box, and marked up. The story got coverage in the New York Times, and spread around the net.
How is it affecting business? I don’t know, but the lesson is that the story has to be believable for the pricing strategy to work.