Kicking off the new year, I read a very interesting / controversial post today morning on "Why are Lush Products so expensive?" at the Beauty Brains website. (Read it here). This is one of my favourite sites to solve all my cosmetic queries.
Now this is not to bad mouth Lush (who I am sure make amazing products, which a lot of you swear by) or to make anyone feel bad about buying any of the products. It is after all a free choice society. I just wanted to share my perspective on how companies work and their pricing strategies (comes easy to me, after all am a Manager :-) )
During my MBA days I did learn about this exclusive high pricing strategy adopted by some companies to give a sense of quality and exclusiveness.
The price/quality relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. The belief in this relationship is most important with complex products that are hard to test, and experiential products that cannot be tested until used (such as most skin creams, after all the sensation of soft skin is an experience that can be tested by you only after a couple of uses). The greater the uncertainty surrounding a product, the more consumers depend on the price/quality hypothesis and the more of a premium they are prepared to pay.
Premium pricing (also called prestige pricing) is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. A few examples of companies which partake in premium pricing in the marketplace include Rolex and Bentley. People will buy a premium priced product because:
- They believe the high price is an indication of good quality;
- They believe it to be a sign of self worth - "They are worth it" - It authenticates their success and status - It is a signal to others that they are a member of an exclusive group;
Not that their products are bad, but as consumers we also shell out monies for the pyschological effect of feel good, besides their stories that accompany the products are quite endearing too and quite charming enough to want you to buy everything in the store.
As the Beauty Brains site explains, and I quote: According to Lush, the Gorgeous Face Moisturizer sells for $72.00 (about Rs. 3600 /-) for 1.5 oz (about 42.5 gms). Does the cost come from the ingredients? Based on what we know about the price ingredients, the cost of ingredients for 1.5 oz of a formula like this would be about $1.00 (Rs 50/-). Ok, maybe it’s $2.00 (Rs 100/-). But it couldn’t be much more than that. That doesn’t mean the company is being dishonest, or any thing like that. As with most cosmetic products the ingredients don’t usually cost that much. The majority of the cost of the product is in packaging, shipping, advertising, manufacturing overhead, etc.
So for those of you for who enjoy Lush, go ahead and indulge.
This is just to explain pricing of products is an art that takes into account a lot more things than just the cost of the ingredients and that perfectly cheaper products can at times be just as fabulous as high end store made ones.