When are people willing to pay a super-high price premium for something? The answer is all about identity. Buying these goods both helps you reinforce to yourself who you are, and encourages others come to the same conclusion about you. Decades ago I saw that the phenomenon is not restricted to luxury goods. It happens in very low-price, non luxury categories — for example, in magazines.
When I was working on the turnaround strategy of The New Yorker magazine in the mid-1990s, the magazine business was in a mode of lowering newsstand and subscription prices in order to increase paid circulation, because the bigger money came from advertisers. The pressure in this direction was especially strong at The New Yorker because it had been purchased a decade earlier by the magazine-publishing giant Condé Nast, which was probably the leading proponent of the strategy of driving down the cost to readers to increase paid circulation.
But when we took a really deep dive on the nature of The New Yorker reader, we concluded that this strategy was counterproductive. For our readers, The New Yorker wasn’t just a source of news and good writing. It was a key part of their identity. They were intellectuals who were interested in what the thinking person needed to know. That is how they wanted to perceive themselves and that is how they wanted to be perceived by others. Though it is hard to say for sure, my belief was that some of them may have actually liked paying more!
The lesson here extends beyond magazines and luxury goods to a wide array of business domains. When you’re designing a product or setting a price, don’t just think about what customers want, but who they want to be.
Written by Roger L. Martin,director of the Martin Prosperity Institute.
