Seth Godin had an interesting post over the weekend on the difference between luxury and premium pricing. While I think he is on target with his definitions, I think he misstated some of the reasons.
He says, “price is related to scarcity” and “a $20,000 gown is not a premium product. It’s not better made, it won’t hold up longer, it’s not waterproof or foldable. It’s just artificially scarce.” Taken together these two statements seem to imply that scarcity is more of a factor in pricing than it really is.
There are plenty of things that are scare that have little or no value:
- My son’s first drawing
- Old golf clubs (unless they belonged to JFK)
- Latin scholars
- COBOL programmers
- Pink-crayon-signed copies of Ron Baker’s books
I will grant that price is related to the perception of scarcity, but price is not determined solely or even mostly on scarcity. It is is determined by the perception of the customer.