Luxury brands aren’t just selling products; they’re selling dreams, status, and exclusivity. To maintain this aura, they employ clever tactics that go beyond simple supply and demand. Let’s look at two key strategies: artificial scarcity and selective selling.
Artificial Scarcity
Artificial scarcity is when brands deliberately limit the availability of their products, even when they could produce more. This creates a perception of rarity and increases desire.
Examples:
- Hermès Birkin Bags
Hermès is the master of artificial scarcity. They’ve made their Birkin bags so elusive that:- You can’t simply walk into a store and buy one
- There’s a mysterious waiting list
- The company claims they don’t know when new stock will arrive
This strategy has turned the Birkin bag into a status symbol, with some models selling for over $300,000 in the resale market.
- Rolex Watches
Rolex limits the production of their most popular models, like the Daytona and Submariner. This creates long waiting lists and drives up prices in the secondary market.
- Supreme
This streetwear brand releases limited quantities of products once a week. Their items often sell out in minutes, creating a frenzy among fans.
Selective Selling
Some luxury brands go a step further by only selling their top-tier products to clients with a substantial purchase history. This practice:
- Rewards loyal customers
- Creates an air of exclusivity
- Encourages more spending to reach the “inner circle”
Examples:
- Ferrari
This illustrious brand is notorious for its selective selling practices. To buy their most exclusive models, like the LaFerrari:- You need a history of Ferrari ownership
- You must be invited by the company
- Sometimes, you need to own multiple Ferraris
The retired comedian and avid car collector, Jay Leno, was once asked why he refuses to purchase a new Ferrari and he responded by saying that the Ferrari dealership experience is like visiting a dominatrix.
- Hermès (again)
To be offered a Birkin or Kelly bag, clients often need to:- Build a relationship with a sales associate
- Have a significant purchase history with the brand
Why Do Luxury Brands Use These Tactics?
- Maintain Exclusivity: By limiting access, brands preserve their exclusive image.
- Create Desire: Scarcity makes products more desirable. As the saying goes, “We want what we can’t have”.
- Control Brand Image: By choosing who can buy their products, brands can ensure their items are associated with the “right” people.
- Drive Up Prices: Scarcity allows brands to charge premium prices and resist discounting.
- Generate Buzz: Limited availability creates talking points and free publicity.
- Encourage Loyalty: The promise of access to exclusive products keeps customers coming back.
How These Tactics Benefit Luxury Brands
- Higher Profit Margins: Scarcity justifies higher prices, leading to better profits.
- Brand Value Preservation: By avoiding oversaturation, brands maintain their prestige.
- Customer Lifetime Value: Selective selling encourages repeated, high-value purchases.
- Secondary Market Control: Scarcity drives up resale prices, indirectly benefiting the brand’s perceived value.
- Marketing Efficiency: The mystique created reduces the need for traditional advertising.
Conclusion
While the tactics used by luxury brands might seem frustrating to consumers, they’re incredibly effective for the brands. By masterfully manipulating supply and access, these companies create an aura of exclusivity that keeps their products highly desirable and valuable.
However, it’s worth noting that this strategy isn’t without risks. Brands must balance exclusivity with accessibility to avoid alienating potential customers or creating too much frustration. For entrepreneurs, there are valuable lessons here about creating perceived value, managing supply, and building customer loyalty. While most businesses can’t adopt these exact tactics, understanding the psychology behind them can inform your own marketing and sales strategies.
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Unconventional Business Wisdom for the refined entrepreneurial mindset - by James D. Roumeliotis 