What Determines a Louis Vuitton Bag’s Price?

What determines a Louis Vuitton bag’s price?

Companies in today’s world have realized that they do not only have to manage their tangible assets, but also the intangible ones. There are several factors that affect the consumer sentiments towards a brand; Brand’s values, personality, and heritage are a few of them. Consumers make purchases that help them achieve a certain social position i.e. status, and also that satisfies their needs and wants which is fulfilled by the good’s physical traits or quality of the particular product. One element of brand equity is price, regarded as price premium and described as the boost that a brand name adds to the price of a product beyond that is justified by the quality of it. According to the classical microeconomic theory, price is a variable in the function of margin, cost and demand. From the marketer’s perspective, the main objective of a pricing strategy is to figure out the point where maximum profit can be achieved. On the other hand, from a customer’s point of view, the utility theory in microeconomics offers the prototype to explain individual buying behavior where the customer believes the value of money he/she pays is equal to or exceeds the value of the goods he/she will get (Du, 2009) . Usually, price is not considered as a variable that contributes to the brand equity, but in real, a brand’s price plays as important and integral role as any other factor that consumers weigh against their feelings towards a brand. Price should be a source of identity for the brand, not a separate countervailing factor (Wolinsky, 1987).

When we talk about luxury brands, it is where when price is recognized as a crucial portion of a brand’s association set. The price at which it is sold is what underpins the status of a brand such a Louis Vuitton. Louis Vuitton bags are one of those products whose name is only enough to influence their stages of consumer acceptance. The high price that is associated with them not only sets them apart, but also makes them exclusive, which makes it a vital and central part of its equity. Consumers enjoy the high price that is tagged with such kind of products. Louis Vuitton is considered as the world’s strongest and most valuable luxury brand (Badenhausen, 2013). The LV monogram that is adorned on a bag is what increases its value. Just the brand name is a treasured asset, prized by its owners and envied by the competitors.  

The selective use of brand names is considered to be a profitable means of price discrimination. In a stylized market for a differentiated product, such as LV bag, the customers differ in the potency of their preferences. Some strongly prefer particular brands while others attribute less importance to the differences among brands. A seller, in such a market would like to sort out the buyers who strongly prefer his brand and charge them a higher price. This becomes possible when the buyers are imperfectly informed in the sense that, prior to purchase, they cannot identify the different brands without the aid of an identifying label (brand name). In this case if a seller markets his product with a label that is identified by the buyer who strongly prefer that brand may be willing to pay a higher price, while others may rather buy a cheaper unlabeled brand whose identity is uncertain (Wolinsky, 1987).

The nature of LV bags is such that they are differentiated from other labeled and unlabeled bags with respect to some measure of vertical quality such as safety and durability about the desirability of which consumers agree, though they still differ in the potency of their preferences.  The choice of price as the strategic variable in the market seems appropriate, since a firm like LV that markets a labeled product wants it to be distinguished from the labeled and unlabeled product of the other firm. Consumers who attribute more importance to quality buy the brand name product, while others buy the less expensive unlabeled product (Wolinsky, 1987). The high quality LV bag producer sells some of its product with a label and at a high price since he does not wish to lower the price of its brand.