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.
I am sure my writer and editor friends at The New Yorker would like to believe that is the quality premium and that may well be part of it. But I believe that to a greater extent, it is the identity premium – on a $1-2/month good. By the way, this is no slight to the Conde Nast strategy. The economics of Vogue are just fine with its huge advertising base. But at a Vogue-level $10 subscription price, The New Yorker would take a $14 million/year hit to its revenue base; a hit that it probably could not survive.
What large-circulation magazines capture an identity premium in order to break out of the $1/month price point? Only four that I turned up. Three of them I expected and one I didn’t expect – though on second thought, I should have. The first category includes the aforementioned The New Yorker at $2/month and The Economist, the identity magazine for people who think of themselves as wise in the domains of global political/economic affairs, which is charging $4/month for that pleasure. It also included HBR, with its $99 subscription price, as of this writing, for six print issues yearly. As a frequent HBR contributor, I would like to dream that the value is all about the insightful, practical, actionable content. (Editor’s note: So would we.) But it isn’t only about that. HBR helps its readers see themselves as genuinely intellectual business people, actively engaged in the world of business ideas. It reinforces an identity.
So what was the fourth magazine I found seemingly charging a significant premium? To my surprise, People magazine clocking in at over $6/month, good for second-place in this competition. I wouldn’t have guessed that its subscription price would have been higher than Vogue, Vanity Fair or GQ. Impressively, it is way higher and on a really big subscriber base of 3.4 million (as big as the circulation of those three magazines combined). It may be the exception to the rule. But more likely, I mistakenly took a snooty approach to its readership at first blush: i.e. what identity boost could People readers possibly seek? Upon sober second thought, I believe it is quite conceivable that the identity People reading helps reinforce is as a person who is up-to-date and in-the-know on celebrity in America at a time when celebrity is taking a more central place in American culture than ever before. People is uniquely positioned in the catbird seat with the second highest identity premium from its readers, plus enthusiastic support from its advertisers – all at massive scale.
The lesson here extends beyond magazines and luxury goods to a wide array of business domains, especially (but not only) those catering to consumers. When you’re designing a product or setting a price, don’t just think about what customers want, but who they want to be.
Source: Harvard Business Review, January 25, 2019.
