“We cost $50 to make. Let’s sell for $100.” This is Cost-Plus Pricing. It is safe, logical, and completely wrong for luxury brands. Cost-Plus ignores the single most important variable in economics: Perceived Value. If you find a diamond ring for $50, you don’t think “What a bargain.” You think “It’s fake.” In this context, a lower price actually reduces demand. This violates the basic Law of Demand, a phenomenon known as a Veblen Good.

Pricing is not an accounting exercise. It is a psychological one. It is the art of signaling status, quality, and scarcity through a number. At Maison Code Paris, we advise brands to stop pricing for “Fairness” and start pricing for “Desire”.

Why Maison Code Discusses This

We are a technology firm, but we build Transactional Engines. The goal of our software is not just to load pages fast; it is to maximize Average Order Value (AOV) and Lifetime Value (LTV). We see the backend data of high-growth brands. We see the A/B tests. We know that changing a font size on a price tag can increase conversion by 4%. We know that removing a currency symbol can increase spend by 8%. We discuss this because engineering a checkout flow without understanding the psychology of the price presented in that flow is malpractice.

1. The Anchor Effect: Everything is Relative

The human brain is terrible at valuing things in a vacuum. How much is a 1978 Château Margaux worth? You have no idea. But if I put it next to a $5,000 bottle, and price it at $1,200, it suddenly feels “approachable”. If I put it next to a $20 bottle, it feels “insane”.

This is Anchoring. The first number the customer sees becomes the baseline against which all other numbers are judged.

Strategic Anchoring in E-commerce

Steve Jobs was the master of this. When he launched the iPad, a giant “$999” appeared on screen. He let it sit there. The audience groaned. “Too expensive.” Then he smashed it. “Actually, it’s just $499.” The crowd cheered. If he had started with $499, they would have said, “That’s pricey for a big iPhone.” Because he started at $999, $499 felt like a gift.

Actionable Tactic:

Always display your Most Expensive SKU first on the Collection Page.
If the first bag a user sees is $5,000, the $850 bag (your bestseller) feels “sensible”.
If the first bag is $100, the $850 bag feels “outrageous”. You control the context.

2. The Decoy Effect: Engineering Choice

You are at the cinema.

Small Popcorn: $3.00
Large Popcorn: $7.00 Most people buy Small. “I don’t need that much, and $7 is a lot.”

Then, the cinema adds a Decoy:

Small: $3.00
Medium: $6.50 (The Decoy)
Large: $7.00

Now the consumer thinks: “Wait, the Large is only 50 cents more than the Medium? I’d be stupid not to take the Large.” The Medium exists only to make the Large look like a deal. Nobody buys the Medium. It is an Asymmetric Dominance tool.

Application in SaaS and Subscriptions

Monthly: $30/month.
Quarterly: $85/quarter (Wait, that’s $28.33/mo - barely a deal).
Yearly: $300/year ($25/mo - Huge savings).

The quarterly plan is the decoy. It pushes users to the Annual LTV bucket. We often build “Decoy SKUs” into the product matrix purely to steer demand to the higher margin items.

3. Charm Pricing vs Prestige Pricing

The 99 Cent Rule (Charm Pricing) We read from left to right. $19.99 feels closer to $10 than $20. The brain encodes the “1” before it processes the “99”. This is standard for Walmart, Amazon, and fast fashion. It signals “Discount”.

The 00 Rule (Prestige Pricing) Luxury brands never use .99. Go to the Louis Vuitton website. It is $2,500. Decimals signal “Penny Pinching”. They imply the seller is negotiating. Whole numbers signal “Confidence”. They imply “Take it or leave it.”

The Rule:

Utility / Bargain: End in .99 or .95.
Luxury / Gift: End in .00.
Exception: High-end tech sometimes uses .00 to signal precision, but Apple uses .00 for hardware and .99 for apps.

4. The Pain of Paying (Neuroscience)

Spending money triggers the same region of the brain as physical pain (the Insula). Your goal is to reduce this Transactional Friction.

Currency Symbols (The Cashless Effect)

Research from Cornell University showed that guests spent 8% more in restaurants when the menu did not have dollar signs ($).

Bad: $24.00
Good: 24 The symbol $ is a visual trigger for “Cost”. The number 24 is just a number. (Note: In EU/UK, legal compliance usually requires currency symbols, but you can make them smaller or lighter font weight).

Pre-Payment vs Post-Payment

Uber feels “free” because the payment is invisible. It happens in the background. Taxi feels “expensive” because you watch the meter tick up and physically hand over cash. Subscriptions reduce the pain of paying to once a month, rather than every transaction.

5. Discounting: The Brand Killer

“20% Off” is a drug. It gives you a short-term revenue SPIKE, but a long-term brand CRASH. If you discount regularly, you train your customers to wait for the sale. You devalue your product. “It wasn’t largely worth $100. It was really worth $80.”

The “Gift with Purchase” Alternative

Instead of discounting, add value. “Buy the Serum ($80), get a free Jade Roller ($20 value).”

You protect the $80 price point (Brand Equity).
The customer feels they got a “Free” gift (High Dopamine).
The Jade Roller only costs you $3 COGS. You gave away $3 to save the sale, instead of giving away $16 (20% of $80). Math: Gift with Purchase is almost always superior to % Off for margins.

6. The Veblen Good Phenomenon

Thorstein Veblen (1899) identified that for certain goods, Demand increases as Price increases. This applies to:

Art.
Vintage Wine.
Luxury Handbags (Hermès Birkin).
High-End Consulting.

If Hermès lowered the price of the Birkin to $500, demand would collapse. The value is in the price itself because the price signals exclusivity. If you are building a luxury brand, your pricing strategy is your marketing strategy. “We are expensive” is the feature.

7. Dynamic Pricing: The Algorithmic Trap

Amazon changes prices 2.5 million times a day. Airlines change prices every second. Should Luxury Brands do this? No. Luxury requires Stability. If a customer buys a bag for $2,000 on Tuesday, and sees it for $1,800 on Wednesday, they feel cheated. Trust is destroyed. Avoid “Smart Pricing” apps that fluctuate based on demand. Set your price. Hold your line.

8. Scarcity and Urgency (The FOMO Engine)

(See Scarcity Strategy). If something is abundant, it has low value (Air). If something is scarce, it has high value (Gold). You must manufacture scarcity.

Quantity Scarcity: “Only 3 left in stock.”
Time Scarcity: “Order within 2 hours for tomorrow delivery.”
Exclusivity: “Available to Members Only.”

9. Conclusion

Pricing is the highest leverage activity in your business. A 1% increase in price usually yields an 11% increase in profit (McKinsey). Yet, founders spend 99% of time on Product and 1% on Price.

Stop guessing. Stop looking at your competitors (“We will be $5 cheaper”). Start looking at your customer’s psychology. Price is a story. Make it a good one.

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