Premium Pricing and Luxury Products

                Two examples of brands that where manufacturing costs are well below selling price are Hermès (luxury fashion) and Beats (high-end consumer electronics).  Beats headphones are often over $200 in stores but cost $20 in materials and manufacturing costs (Schiesser, 2015).  Likewise, a Hermès handbag that costs $4800 in stores only costs $180 to manufacture (Kaufman, 2000).  Beats by Dre has been acquired by Apple in 2014, which is known for a premium product (People Aren’t Hearing All the Music, n.d.).  Both companies position themselves as luxury or premium quality products.

How are they successful charging high prices?

                In the case of Hermès, they market themselves as being artisans with six generations of talent and creativity built into their product.  This view of themselves is absolutely true, as they do product a fine product from the finest materials, and they do have experience making fine leather goods since 1837 (Hermès, Contemporary Artisans Since 1837, n.d.).  Everything on the Hermès website is expensive.  A replacement strap for a dog purse is even costs $2,225 (Mini Dog Carres 16mm Bag Strap, n.d.).  A men’s belt runs anywhere from $800 to $1,150 (Super H 32 Belt, n.d.).  The Hermès Birkin bag, made popular by Jennifer Lopez, Cardi B, the Kardashians, and the Sex and The City television show (Hermès Birkin: where to buy one, how much it will cost you and why the bags are so hard to find – and still so popular, 2021), costs between $12,000 and $379,261 (Ginsberg, 2017).  Cost to manufacture most of them is $800 (How much does it cost Hermes to manufacture a Birkin handbag, n.d.).  Hermès is a “unicorn” company, according to Charles Gorra of luxury resale site Rebag.  The limited quantities and the demand and waiting lists for the products drives up their prices.  Hermès controls inventory levels in order drive up demand, and prices, of their products (Hermès Birkin: where to buy one, how much it will cost you and why the bags are so hard to find – and still so popular, 2021).

                In the case of Beats by Dre headphones, they market themselves as “premium sound entertainment” and consider themselves to be “premium consumer headphones, earphones and speakers” (People Aren’t Hearing All the Music, n.d.).  When reverse-engineered, is composed of $20.18 worth of materials and production and tooling costs.  The most important component for sound quality is the metalized mylar diaphragm on the speaker drivers, which costs $1.50 each (Einstein, 2015).  Beats headphones are manufactured in China, designed in the United States, and sold as a cutting-edge, high quality sound product that gives the user an experience in which the “intensity, emotion, and excitement” of music is finally able to be enjoyed (Burud, 2021).  All of this branding and positioning accounts for their price.

How do they use customer information in pricing?

                Hermès keeps customer data to keep track of their loyal customers.  Certain products, like the Birkin bag, are only offered to loyal repeat customers.  The Hermès sales associates look at consumer spending profiles in aligning their customers with their products (Birkin Bait: Is it Loyalty to the Brand or ‘A Means to an End’?, n.d.).  Hermes prices based on the demand and the price that they luxury price that they can receive based on customers’ spending capacity.  Their strategy is always to price with premium pricing.

                Beats uses a skimming strategy as is common with electronics.  Apple is notorious for price skimming, and as an Apple company, Beats follows suit.  They hype their releases, back up their brand with prominent celebrities like Lady Gaga and Lebron James, and have made themselves a status symbol (YJ, 2021).  Beats eve launched the $300 Beats Studio headphones in a recession in 2008, when premium products were not in as high a demand.  In many ways, their pricing and positioning was ignorant of the economy.  Their pricing reached for what Apple consumers could afford (Finkle, 2018).

                Both Hermès and Beats priced based on the upper range of what discerning customers could afford. Material costs and labor for these items is insignificant in the face of the price the products are sold for.

by Art Ocain

References:

Birkin Bait: Is it Loyalty to the Brand or ‘A Means to an End’? (n.d.). PurseBop. https://www.pursebop.com/birkin-bait-is-it-loyalty-to-the-brand-or-a-means-to-an-end/

Burud, H. (2021, September 21). Beats Company Belongs To Which Country? Who Owns Beats Company? Are Beats Made In China? https://technozive.com/beats-company-belongs-to-which-country/

Einstein, B. (2015, July 8). How It’s Made Series: Yup, Our Beats Were Counterfeit (But They Cost About the Same to Make as the Real Ones). https://beneinstein.medium.com/how-it-s-made-series-yup-our-beats-were-counterfeit-but-they-cost-about-the-same-to-make-as-the-364cc6808d18

Finkle, C. (2018, October 12). Beats by Dre: A Lifestyle Brand Case Study. https://brandmarketingblog.com/articles/good-branding/lifestyle-brand-case-study-beats-by-dre/

Ginsberg, L. (2017, June 1). You know you’re rich when you buy this — a $379,261 handbag is the most expensive ever sold at auction. https://www.cnbc.com/2017/06/01/this-379261-hermes-birkin-handbag-is-the-most-expensive-ever-sold.html

How much does it cost Hermes to manufacture a Birkin handbag? (n.d.). http://www.wanttext.com/Home/list-detail/1/how-much-does-it-cost-hermes-to-manufacture-a-birkin-handbag

Hermès Birkin: where to buy one, how much it will cost you and why the bags are so hard to find – and still so popular. (2021, December 9). South China Morning Post. https://www.scmp.com/lifestyle/fashion-beauty/article/3158723/hermes-birkin-where-buy-one-how-much-it-will-cost-you-and?module=perpetual_scroll_0&pgtype=article&campaign=3158723

Hermès, Contemporary Artisans Since 1837. (n.d.). Hermès. https://www.hermes.com/us/en/story/271292-contemporary-artisans-since-1837/

Kaufman, L. (2000, November 23). The $4,800 Handbag Under the Tree; Another Jolly Season for Luxury Goods. https://www.nytimes.com/2000/11/23/business/the-4800-handbag-under-the-tree-another-jolly-season-for-luxury-goods.html

Mini Dog Carres 16mm Bag Strap. (n.d.). Hermès. https://www.hermes.com/us/en/product/mini-dog-carres-16-mm-bag-strap-H075195CC9I085/

People Aren’t Hearing All the Music. (n.d.) Beats by Dre. https://www.beatsbydre.com/company/aboutus

Schiesser, T. (2015, June 22). $200 Beats headphones actually cost just $18 to make. https://www.techspot.com/news/61060-200-beats-headphones-actually-cost-18-make.html

YJ, O. (2021, September 2). The True Value of Beats Headphones. https://www.headphonesty.com/2018/07/true-value-beats-headphones/

Super H 32 Belt. (n.d.). Hermès.  https://www.hermes.com/us/en/product/super-h-32-belt-H080044CB89S/

Published by artocain

I am a DevOps advocate, not because I am a developer (I’m not), but because of the cultural shift it represents and the agility it gains. I am also a fan of the theory of constraints and applying constraint management to all areas of business: sales, finance, planning, billing, and all areas of operations. My speaking: I have done a lot of public speaking in my various roles over the years, including presentations at SBDC (Small Business Development Center) and Central PA Chamber of Commerce events as well as events that I have organized at MePush. My writing: I write a lot. Blog articles on the MePush site, press-releases for upcoming events to media contracts, posts on LinkedIn (https://www.linkedin.com/in/artocain/), presentations on Slideshare (https://www.slideshare.net/ArtOcain), posts on the Microsoft Tech Community, articles on Medium (https://medium.com/@artocain/), and posts on Quora (https://www.quora.com/profile/Art-Ocain-1). I am always looking for new places to write, as well. My certifications: ISACA Certified Information Security Manager (CISM), Certified Web Application Security Professional (CWASP), Certified Data Privacy Practitioner (CDPP), Cisco Certified Network Associate (CCNA), VMware Certified Professional (VCP-DCV), Microsoft Certified System Engineer (MCSE), Veeam Certified Engineer (VMCE), Microsoft 365 Security Administrator, Microsoft 365 Enterprise Administrator, Azure Administrator, Azure Security Administrator, Azure Architect, CompTIA Network+, CompTIA Security+, ITIL v4 Foundations, Certified ScrumMaster, Certified Scrum Product Owner, AWS Certified Cloud Practitioner See certification badges on Acclaim here: https://www.youracclaim.com/users/art-ocain/badges My experience: I have a lot of experience from developing a great company with great people and culture to spinning up an impressive DevOps practice and designing impressive solutions. I have been a project manager, a President, a COO, a CTO, and an incident response coordinator. From architecting cloud solutions down to the nitty-gritty of replacing hardware, I have done it all. When it comes to technical leadership, I am the go-to for many companies. I have grown businesses and built brands. I have been a coach and a mentor, developing the skills and careers of those in my company. I have formed and managed teams, and developed strong leaders and replaced myself within the company time and again as I evolved. See my experience on LinkedIn here: https://www.linkedin.com/in/artocain/

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