Opinion / Are Hermès, Dior and Louis Vuitton goods too cheap? Luxury labels are losing billions of dollars by failing to include the brand story in the sticker price

May 21 , 2021

Luxury brands cannot ignore the expectations of Gen Z who are more clued up than any previous generation and will quickly be turned off brands that don’t price themselves correctly. Photo: Getty Images

Dior’s Nike Air Jordan trainer was priced around US$2,000 and currently trades at between US$7,000 and US$20,000 on platforms like Stoxx and Sotheby’s

From EVs to NFTs, getting your price right means thinking beyond the bottom line, and harnessing the pulling power of a brand’s elusive Added Luxury Value

How would you price a luxury handbag? Let’s say, you apply artistry, craftsmanship and the finest ethically sourced leathers. So should you price the bag for US$200, US$500, US$1,000 or even US$10,000?

Or imagine you are developing a new electric car brand, about to compete in the luxury car space. What should be the price? Or imagine you are curating an art collection. How to price it? What about an NFT for a unique digital artwork?

If I could launch my brand again, I would double the price, at least

Anonymous fashion CEO

Many luxury brands underestimate their pricing potential. The more rare, differentiated and unique something is, the trickier the pricing. Although it is impossible to estimate how many brands are priced wrongly, research suggests that the majority make significant pricing mistakes.

Trainees practising methods to verify the authenticity of a handbag following a class at the Extraordinary Luxuries Business School in Beijing in March 2021. Photo: AFP

This has huge consequences. Since the price carries a value signal, consumers may be confused if they perceive a brand’s pricing not to match the perceived value. This leads to a decrease in brand preference. And even if consumers still buy, many brands could be dramatically more profitable with the right pricing.

In a recent discussion with the CEO of a fashion brand, he told me his biggest regret: “We set the initial pricing far too low. We thought that we were expensive. Our clients saw it differently. They thought we were too cheap for what they got. If I could launch my brand again, I would double the price, at least.”

His words did not come out of greed, more out of desperation. The low price positioning hampered the success of the brand by simply not generating funds to cover operational costs and the necessary investment in brand equity. When a CEO of a luxury brand tells us that he would double the price after everything he knows now, other brands should listen. The likelihood is that their pricing is wrong, too.

Hong Kong actress Angela Yuen with a Celine Triomphe bag. Photo: Celine

In most pricing audits, I find that the brand’s pricing was based on product cost plus a target margin. What many brands neglect to factor in is the value created through their brand story. The brand story is what drives the Added Luxury Value (ALV) which leads to the extreme value perception of a luxury brand.