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Pricing Needs to Reflect Who People Want to Be, Not Just What They Want | Harvard Business Review

When are people willing to pay a super-high price premium for something? They do, for example, for vacation properties in just the right places, like Southampton, Carmel, or Aspen; for condos in famous buildings, like 432 Park Avenue or The Millennium Tower (even if the latter might be sinking into oblivion); for signature luxury fashion pieces, like ridiculously expensive Birkin Bags by Hermes; or for cars. Do you really need a Rolls Royce Phantom for $500K, or will a Bentley Flying Spur for $250K work, or can you get by with a BMW M760 for $150K? 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.

The first reaction might be that this is just the nature of luxury goods and all the above are examples thereof. But 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. An annual subscription to Vogue, Wired, National Geographic, or Better Homes and Gardens will cost you one dollar per month or less – hardly a luxury good. And yet the prices that people are willing to pay are driven by identity.

My context for this personal ah-ha when I was working on the turnaround strategy of The New Yorker magazine in the mid-1990s with then-publisher Tom Florio and then-editor Tina Brown. At the time, 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 (who are willing to pay more if a given magazine increases the number of people who pay to read it). The pressure in this direction was especially strong at The New Yorker because it had been purchased a decade earlier by magazine-publishing giant Conde 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 this particular magazine. For our 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. They were The New Yorker people – intellectuals who were interested in what the thinking person needed to know across all The New Yorker subject areas from arts and culture, to science, to politics, to business. That is how they wanted to perceive themselves and that is how they wanted to be perceived by others. At cocktail parties and dinners, they wanted their opinion to be sought out. That was their identity.

Rather than taking newsstand and subscription prices down, we increased them and subscribers did not object. Though it is hard to say for sure, my belief was that some of them may have actually liked paying more!

I was pleased to see when I checked the current subscription rates on various websites, The New Yorker stands out decades later from the rest of the Conde Nast lineup in subscription price. As of this writing, you can get an annual subscription for $15 or less for every one of these venerable Conde Nast magazines: Vogue, Vanity Fair, Allure, GQ, Conde Nast Traveler, Bon Appetit, Golf Digest or Wired. But for The New Yorker, it is $23.50 ($6 per 12 weeks on an annual publication run of 47 issues) – almost two and half times more.

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Pricing Needs to Reflect Who People Want to Be, Not Just What They Want.