Rare items are hard to come by but are appreciated by many consumers who are willing to pay a pretty penny for them. Chiara Farronato, an Associate Professor of Business Administration at Harvard Business School, did some research in 2022 that revealed producing fewer items allows high-end retailers to charge higher prices for them.
Farronato, along with a few other researchers, conducted simulations to uncover how much more customers would be willing to pay for hard-to-get red shoes or how much less they’d pay for more readily available black shoes. They determined that when the inventory of an item doubles, a customer's willingness to pay for it goes down by up to 15%.
In addition, the researchers concluded that when high-end retailers ignored the concept of “rarity” when developing their products, they overproduced. They believe that the key to maximizing profits is to produce fewer products. An online marketplace, such as STOCKX, can give luxury brands data on how much customers may be willing to pay for various products and in turn, help them price their offerings properly.
To enhance the perception of your brand, you can launch premium versions of existing products.
If you’re a high-end retailer, here are some pricing strategies that can set you up for success this holiday season and beyond:
- Value-based pricing: With value-based pricing, you set your prices based on the unique value your products provide to your customers. Clearly convey the benefits your customers can expect from your products and price them accordingly.
- Limited edition or exclusivity pricing: By introducing limited or exclusive offerings like those mentioned above, you may create feelings of rarity and charge higher prices as a result.
- Premium brand extension pricing: To enhance the perception of your brand, you can launch premium versions of existing products. Of course, it makes sense to attach premium prices to these premium variations.
At the end of the day, you should ensure your inventory and pricing strategies reduce waste, optimize cash flow, and increase customer satisfaction. Keep in mind that it may take some trial and error to zero in on exactly what works and what doesn’t for your particular brand and target audience.
[Read more: Experts on Driving Holiday Sales in a Cautious Consumer Environment]
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