I grew up in a country where long power outages – planned and unplanned – were the norm. If you had a test or a project report due the next day you worked through the outage with candles. The job I was hiring candles for is clear – those white long sticks that drip (leach?) were life savors for students. Without electricity, with a major test next day there is no question the candles did add considerable economic value.
But those candles were priced just a few cents for a dozen. I can explain that away with at least three reasons. One there was a supply glut, two we bought the candles well before the emergency and three there were alternatives, kerosene lamps. Nevertheless it is highly unlikely any segment would pay a price that matches the value and definitely not $65-$500 for a purely utilitarian job.
Let us now turn our attention to the case of luxury candles, a story featured in The Wall Street Journal.
These aren’t fine wines, tobaccos or perfumes. They are candles—and with complicated fragrances and prices that can approach $500, they are a long way from your mother’s vanilla
So what makes the customer pay $65-$500 and how can the players get to keep their price premium? This case study serves to showcase some of the proven pricing principles and pricing mistakes.
1. What job is the customer hiring the luxury candles for?
“Some consumers may not be up for splurging on a vacation or new car but many can rationalize the treat of a $65 candle”
“They just smell very classy,” says a customer who lights the candle to create a relaxing ambience
“People are staying home more. Candles are a kind of an antidepressant”, says a candle salesman
“I wanted it to feel expensive, to feel precious,” says a customer
“It’s not to say that a more expensive fragrance makes for a better scent experience, but it makes for a great story” – says a marketing VP for a candle maker.
It is clear by now the jobs are no where near utilitarian and even the mildly utilitarian aspect like fragrance is not the primary job here. When marketers are able to segment the customers and position the product for a job like vacation alternative, experience, image etc they are able to charge a price for that premium value. The job customer is hiring for affects the price they are willing to pay for it.
2. So what happens when upstarts simply copy the pricing by the leaders? (remember the stories about copying pricing model of 37Signals?)
“Everybody wants to do a candle, and they wind up in a price range from $50 to $80. That’s a tough price point to be in if you’re someone that nobody knows” says Mr. Carro of Candle Delirium
“The loft prices reflect the brand heritage. This is the brand of kings”, says a brand manager
The price premium candle makers charge comes from their investment in building their brands. Not every brand can expect to charge such prices without brand development. A well known luxury brand not only convinces the buyer (hedonistic consumption) but also others they are trying to impress (conspicuous consumption).
What is left unsaid here is how their overall marketing strategy works – knowing their target segment, the jobs they want to position the candles for, their buying behavior and delivering them a product at a price they are willing to pay. Simply copying the higher price without the strategy is like Mototola setting its tablet prices by copying iPad.
Increasing spend per customer while keeping near linear pricing (can you say iPod Touch, iPad, iPad mini)
Nest launched the “After Midnight” collection, three different scents meant to be burned successively into the wee hours. One O’Clock is an Oriental Orchid scent, Two O’Clock is Italian Leather and Three O’Clock is Exotic Woods. (at $32 a candle)
Go for the wallet share and employ effective positioning to create emotional want when no real need exist. Notice also that they do not give bundling discount for three candles. (See here how to price bundles). There is no reason to give bundling discount when the customers are not looking for one. Besides there is a risk that the bundling discount can erode brand value.
Effectively use utilitarian features to justify premium prices for a hedonistic consumption
Its candles are made of a “vegetal wax” blend, including soy and copra (the dried kernel of coconut), which leads to a “clean burn,” free of black smoke
Wax and fragrance have to be compatible and correctly blended, or the perfume oils will “leach” unattractively at the sides, says Karen Solari, vice president of marketing at Symrise.
candles, which are said to be “hand poured” into shiny black-glass vessels
The brands are effectively using their cost and complexity of manufacturing to justify their prices. But more likely they are giving customers utilitarian reasons they can use to rationalize their splurge (irrational purchase?), assuage guilt and tell a story to others.
And about setting high price anchors, offering entry level products, showing a upgrade path
Los Angeles “luxury lifestyle” store sells a $6,400 black patent-leather wingback chair and $575 sets of Antique French Washed linens, has a collection of 10 candles priced at $85 each. The candles, are a strategic offering in the store, Ms. Tobin says. They allow customers to “buy into the brand” with a less expensive product.
For those who are willing to spend $6,400 on leather chair, $85 on a candle is likely a trivial add-on purchase (Relative price). For those who visit the store just for the experience, the $85 candle is positioned as “affordable” luxury they can buy into. Either way the store comes out ahead.
Overall great example of effective pricing.
How do you set your pricing? I take it you start with customers and not decide to simply copy this pricing by candle makers.