Setting the right price for your product or service is crucial for success. However, many businesses make the mistake of focusing solely on features and benefits when determining pricing strategies. A more effective approach recognizes that pricing needs to reflect not just what people want, but who they aspire to be. This identity-based pricing model taps into the psychology of consumer behavior and can lead to higher perceived value and willingness to pay premium prices.
The Power of Identity in Consumer Decisions
When it comes to luxury goods and high-end products, consumers are often willing to pay astronomical price premiums. They do, for example, for vacation properties in just the right places, such as Southampton, Carmel, or Aspen; for condos in famous buildings, such as 432 Park Avenue or The Millennium Tower (even if the latter is fading into obscurity); for signature luxury fashion pieces, such as Hermes' ridiculously expensive Birkin Bags; and for automobiles.
But what drives this willingness to pay such high prices? The answer lies in identity. Purchasing these goods serves two key purposes for consumers:
- It reinforces their own sense of identity and who they believe themselves to be
- It signals that identity to others, shaping how they are perceived
Purchasing these items allows you to strengthen your identity while also encouraging others to do the same.
The New Yorker Case Study: Pricing Based on Reader Identity
A prime example of identity-based pricing comes from The New Yorker magazine. In the mid-1990s, the magazine's leadership team took a deep dive into understanding their readership. What they discovered was eye-opening:
"When we took a really deep dive on the nature of The New Yorker reader, we concluded that for readers The New Yorker wasn't just a source of news and good writing. It was a key part of their identity as a person."
This insight led to a fundamental shift in how they approached pricing and marketing. Rather than simply selling a magazine, they were selling an identity - that of the sophisticated, intellectual New Yorker reader. This allowed them to command higher prices and foster deeper loyalty among subscribers.
Applying Identity-Based Pricing Across Industries
While luxury goods and media provide clear examples, the lesson of identity-based pricing extends far beyond these sectors. The lesson here applies beyond periodicals and luxury items to a wide range of business disciplines, particularly (but not exclusively) those serving to consumers.
Here are some ways different industries can leverage identity in their pricing strategies:
Technology Products
Tech companies can price based on the identity of being an early adopter or tech-savvy consumer. Apple's premium pricing for iPhones taps into the identity of being innovative and design-conscious.
Fitness and Wellness
Gym memberships and fitness products can be priced to reflect the identity of being health-conscious and disciplined. Peloton's high-priced bikes and subscriptions appeal to those who see themselves as committed to fitness.
Food and Beverage
Organic and artisanal food products command higher prices by appealing to identities around health, environmental consciousness, and refined taste.
Fashion and Apparel
Beyond luxury brands, even mid-market fashion can use identity-based pricing. Athleisure brands like Lululemon price higher by tapping into identities around an active, yoga-inspired lifestyle.
Education
Online courses and degree programs can price based on the aspiration to be seen as knowledgeable or expert in a field, rather than just the practical skills gained.
Strategies for Implementing Identity-Based Pricing
To effectively use identity in your pricing model, consider these key strategies:
Understand Your Customer's Aspirational Identity: Conduct in-depth market research to uncover not just what your customers want, but who they aspire to be.
Align Your Brand with That Identity: Ensure your marketing, messaging, and overall brand experience reinforce the aspirational identity.
Create Exclusivity: Limit availability or create membership tiers to enhance the sense of belonging to a select group.
Use Storytelling: Craft narratives around your product that allow customers to see themselves as the hero of that story.
Offer Identity-Affirming Extras: Provide additional services or perks that reinforce the desired identity, justifying higher prices.
Leverage Social Proof: Showcase testimonials and user stories that emphasize how your product aligns with and enhances customer identity.
Continuously Evolve: As societal values and aspirations change, be prepared to adapt your identity positioning.
The Risks of Identity-Based Pricing
While powerful, this pricing strategy is not without risks:
Authenticity Concerns: If the identity you're selling doesn't align with your actual product quality or values, customers may feel deceived.
Exclusion: By strongly aligning with one identity, you may alienate potential customers who don't relate to that identity.
Market Shifts: Identities and values can change rapidly, potentially leaving your brand out of touch.
Pricing Pressure: Competitors may undercut your prices while still appealing to similar identities.
The Future of Identity-Based Pricing
As consumer behavior becomes increasingly driven by personal values and self-expression, identity-based pricing is likely to become even more critical. The rise of social media and personal branding has made identity more important than ever in purchasing decisions.
Looking ahead, we can expect to see:
- More sophisticated data analytics to understand and segment customers based on aspirational identities
- Increased use of AI and machine learning to personalize pricing and marketing based on individual identity signals
- Greater integration of identity-affirming experiences into product offerings
- The emergence of new identities tied to evolving social and technological trends
Effective pricing strategies must go beyond features and benefits to tap into the core of consumer psychology - identity. When creating a product or selecting a price, consider not only what your customers desire, but also who they want to be.
By understanding and appealing to the aspirational identities of your target market, you can create stronger emotional connections, justify premium pricing, and build lasting brand loyalty. In today's crowded marketplace, this identity-based approach to pricing may be the key differentiator that sets successful businesses apart.
Remember, you're not just selling a product or service - you're selling a vision of who your customers can become. Price accordingly, and you may find that consumers are willing to pay far more than you ever imagined for the privilege of embodying that identity.
