This article was originally published in July 2021. we're reposting it now, as it was one of our most popular articles of the year.
The price tag on a new Hermès Birkin Bag starts at a cool $35,000. It is perhaps the most sought-after handbag in the world and at the original store in Paris — 24 rue du Faubourg Saint-Honoré — millionaires line up hours before sunrise just for the chance to purchase one.
If you can believe it, the store does not take appointments.
Fifteen minutes before the doors open each morning, an associate emerges from the store to assign times to those waiting out front. Time slots are given in order, and if you find yourself near the end of the line it’s reasonable to expect that there won’t be any bags left over by the time it’s your turn to shop.
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Just to be clear here: people wait for hours on end merely for the privilege of spending tens (or sometimes hundreds) of thousands of dollars on a purse. That’s marketing! The best luxury brands in the world excel at this, and I think there’s a lesson here for those of us who work in more pedestrian pursuits, like bars and restaurants.
Luxury vs. Commodity
Really what we’re talking about is the difference between a luxury and a commodity. A commodity item is a basic good, like flour, sugar, milk, eggs. If I need to bake holiday cookies, it doesn’t really matter which AP flour I grab. To a certain extent, they are interchangeable.
All things being equal, a consumer will make their decision based on familiarity, convenience, or price. If I’m in the supermarket deciding between six or seven different brands of flour, which one am I reaching for? It’s either the one that I know, the one that’s closest or the one that’s cheapest.
That’s why, with commodity goods, it often becomes a race to the bottom (cost-wise). In contrast, a luxury is judged not by its necessity, but by its desirability. No one needs a $34,000 bag, but they sure do want one.
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When it comes to marketing, we must always ask the question: what makes one thing more desirable than another?
Forget About Margins
I live in New York City and there is no shortage of pizza in this town. If I walk out my front door, I can find dozens of options within a few blocks of my apartment. Decent enough, but all are rather unremarkable. Pizza, in many ways, is the very definition of a commodity good.
I am however, just three avenues away from one of the most famous pizza places in all of New York City: DiFara Pizza. While an average cheese pizza costs about $17 in my neighborhood, DiFara charges $30 for theirs. Why?
Because they can.
There is an important lesson to be learned from luxury brands. They don’t charge based on margins, they charge what they can get away with. Reportedly, the famed Birkin Bag costs less than $1,000 to make. Why then is it so expensive? They are charging what the market will bear. The markup has to do with the story they tell, and the way they market themselves to their target audience.
Why Would Someone Pay Extra?
Did you know that the average craftsman will train for a decade before getting the chance to work on a Birkin bag? Each bag is handcrafted from beginning to end by a single worker. On average it takes about thirty hours to complete one bag, which means at most a worker can only put out about five bags a month. Especially in a world of mass-produced goods, this is an incredible story — a bit of mythology that illustrates exactly what kind of company you’re buying from. And make no mistake: stories sell.
In a world of commodity goods, I challenge you to think like a luxury brand.
Not that you’re going to charge $35,000 for a cheese pizza. But ask yourself: what makes someone pay $30 instead of $17? What would make someone cross the street to go to your sandwich shop, or wait in line for your coffee, even though it’ll make them late for work?
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You need a product that’s not only better than the competitors, but differentiated. Make something that can’t be gotten anywhere else. Why cross the street? Because it’s worth it. Why wait in line. Because it’s worth it? Why pay extra? Because it’s worth it.
The Luxury Lesson in Practice
A client of mine runs a small breakfast spot just outside San Diego, CA. Unpretentious, unassuming, and absolutely unbelievable. They’ve got more than 800 five-star reviews on Yelp and one of their breakfast wraps was recently named as one of the Top Ten Breakfast Sandwiches in the US. Getting their name on that list has brought a huge boost in business, and as we reworked their menu, we spent a lot of time discussing price.
“This sandwich should be two bucks more expensive than all the others,” I suggested.
“But it doesn’t cost any more to make,” the owner responded.
“Who cares?” I said, “The luxury mindset says you should charge what you can.”
Ten minutes later I won that argument, and two weeks after that the owners were thanking me for it. Their hard work got them onto the list, and that list then got them the attention they deserved. The pricing however, gave them a way to tell their story.
“Why is this one more expensive than the others?” people started to ask.
“It’s our signature,” the owner would reply, “recently named Top Ten Breakfast Sandwich in America.”
“I’ll take it!”
Give them the Wow
People are looking for a good time. They want to be wowed.
If I go to your restaurant and you tell me that this one is more expensive than the others, but that I’m absolutely going to love it, then fine! I’ll order it because I’m hungry and I want something I’m going to love.
Make a great pizza, charge extra for it, and your customers will thank you for it. They will wait in line and brag to their friends. And in time you will have a very profitable business on your hands.
Swap out the commodity mindset for something more luxurious… Don’t just charge what you think you should; charge what you can get away with.
Chip Klose is based in NYC, where he runs the marketing agency Chip Klose Creative, working with chefs and restaurant owners to help them grow their brand presence and increase revenues. Klose is also the host of a weekly marketing podcast, Restaurant Strategy, where he talks about many of the strategies and tactics he uses day-to-day in marketing restaurants. To learn more, visit ChipKlose.com.
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