The pricing dilemma – premium or luxury?

How do you set price for a high-quality offering? At this end of the product/service spectrum understanding unstated customer need is critical.  Pricing sends a clear message of quality but how do you differentiate between premium and luxury pricing? What is the difference between the two?

Premium pricing strategy is primarily based on product cost as it takes greater resource (labour, materials, research and development) to build a more reliable, more refined, higher touch offering. Luxury pricing strategy, includes premium pricing as a base, then factors in a significant customer experience, sales, marketing, brand and activation component focused on meeting unstated higher-order customer needs – think Maslow’s Hierarchy of Needs. The decision on which strategy is critical in early business growth as the market segments require different strategies and pricing is critical.

I’m helping out a good friend at the moment who is facing this classic dilemma. Here’s his story which presents some great food for thought.  If you’re into premium audio equipment, you’ll find particular relevance. Enjoy.

Nicolas Hulgich

Nicolas Hulgich is a brilliant man. He’s an industrial designer, born in Argentina and migrated to Australia, with a huge heart, incredible attention to detail and an obsession with sound that’s bordering on unhealthy. Nick, as he prefers, spent five years, as a hobby at first, now a full-time focus, extracting the most accurate reproduction of sound possible from a pair of speakers. His range of speakers are unbelievable.

My introduction to his craftsmanship came at the South Australian launch of his speakers two weeks ago, in a beautiful mansion in North Adelaide. Upon entering the building there were several rooms around the entrance. On one side someone was playing the piano, it was beautiful, the sound was soft, delicate and seductive. I imagined it was a woman with slender toned fingers entertaining a private audience. I moved on looking for Nick but to no avail. I went back to the room with the pianist and feeling embarrassed peered into the room. There were rows of seats, the audience sat silently and appreciatively enjoying the recital. I then saw a brochure on the table at the back with Hulgich Audio on it. I was surprised, amazed.

The room was largely full of men who were clearly engrossed in the sound coming from a pair of speakers at the front of the room. I was to learn later that this group were passionate audiophiles. They were here to listen to the sound of what was recently awarded Australia’s best sound at the StereoNet National Show.

What they were listening to was the sound of a premium product. Australia’s best sounding speakers. Nick went on to play a number of different pieces to showcase the quality of the sound, inviting the audience to suggest pieces that would appease their taste.

I was so impressed. I organised to catch up for a coffee with Nick to learn more. Apparently he was receiving positive feedback from audiophiles all around the world following the national show. The problem was that the compliments were not leading to orders. Upon further questioning it became clear that Nick was talking to people who could really appreciate his product, but were confused.

You see Nick’s speakers, at $12,000 a pair are priced too cheap and that sends a confusing message. These are speakers (sounds wrong using such a generic word to describe them) that use the worlds leading components, were four years in the making with thousands of painstaking measurements, crafted by hand here in Australia from timbers and finishes selected for grain, texture and acoustic resonance.

These $12,000 speakers were beating $40,000 and $80,000 speakers. Due to Nick’s personal drive for quality, his production runs will remain small – up to six pairs can be produced per month to his standards. Each set requires six weeks to produce, so he can’t mass produce without compromising quality.

So the big question…is Nick selling a premium or a luxury product?

From a cost base perspective I would argue that Nick has a premium product. His speakers are best in class, best sound in Australia. That’s premium. Why doesn’t Nick sell his speakers for $40k each? Marketing.

Nick doesn’t spend a cent on advertising or marketing his product or his brand to consumers. He built his own website which looks beautiful, because he’s a designer. Unless you’re an audiophile, you will not have heard of Hulgich Audio, even though, they are the best speakers in Australia.  No-one who hears his speakers will then go and buy a $40k pair of speakers…except if they care more for brand value than audio value.

Luxury products satisfy a need for the buyer to have something that others don’t or more importantly, can’t afford. Luxury is exclusive, it communicates wealth and financial success of the customer. The peak value of luxury is to satisfy ego and esteem.

My topline advice to Nick was to at least triple the price of his speakers and spend every cent of that on high quality venues for product launches, beautifully crafted promotional materials, an expensively furnished space to exhibit, exquisite video’s showing his attention to detail, advertising in luxury magazines and placement in exclusive venues.

So at $12k right now you get the best sounding speakers in Australia, at $40k your wealthy friends will know it – that’s the key difference between a premium and luxury pricing strategy.

Of course, if you crave the best and prefer to lead than follow, then being first to spot a highly undervalued premium product is priceless. You can dine on that one for years!

If you want to support this amazing master craftsman check out www.hulgichaudio.com.au.  I’d recommend moving quick, unless you’d prefer to buy a luxury product, in which case I’d wait a few months and buy them then.

Need some help with your business growth strategy? I’m here to help and will deliver on your needs, with a premium or luxury service of course.