The Psychology Behind Designing & Pricing Jewelry
With Valentine’s Day close on the horizon and the winter holidays so recently in the rearview, it is the busiest time of the year in the jewelry industry. Two jewelry pricing strategy examples show how complex pricing is: while the materials, like gold, silver, and jewels, can be thought of as commodities and priced as such, there are many emotional and psychological factors that affect how much consumers are willing to spend on jewelry.
Take one seemingly-helpful buying “guide” provided for men by Lavari Jewelers: it explains:
“women are often good at estimating how much a particular piece is worth. They may even look to it as a sign of how you feel about her and how seriously you consider the relationship.”
This short excerpt from a jewelry website previews the psychological elements involved in our jewelry pricing strategy examples. Jewelry companies have good reason to exaggerate how much women care about the cost of the gifts they receive. Nonetheless, the price of a piece of jewelry can be seen as both an indicator of the perceived quality of the product (regardless of its actual quality), and indeed the commitment of the gift-giver.
Pricing is an important element of market strategy: it communicates value (not just to picky girlfriends), and it can determine whether someone is willing to buy a product. Below we have two jewelry pricing strategy examples. First, we will discuss how the De Beers corporation has long used price thresholds in order to sell more expensive engagement rings. Second, we will discuss a new trend in the jewelry industry, the disruptive rise of demi-fine jewelry, which we can better understand through the lens of Good-Better-Best pricing.
Pricing Strategy Example:
De Beers and the Engagement Ring Price Threshold
Our first pricing strategy example is extremely appropriate for Valentine’s Day: we will learn how De Beers used a “price threshold” to increase diamond sales. In an excerpt published on LinkedIn from his book Priced to Influence, Sell & Satisfy as well as another article in Psychology Today, business professor Utpal Dholakia describes how the De Beers Group used the pricing strategy of “price thresholds” in order to respond to some challenges they were facing when selling engagement rings. Dholakia explains that a price threshold is part of the prescreening process of making a purchase. He gives the example of a couple who want to buy some wine: they decide that they want to spend no less than $20 but no more than $25 on this wine. This is their price threshold. They will not even consider buying wines that fall outside of this range. Dholakia argues that having a price threshold in mind actually makes a consumer more likely to make a purchase with confidence.
The Price Threshold Challenge
However, Dholakia points out that in the case of engagement rings, De Beers had a challenge. On the one hand
“providing a concrete and substantial price threshold to the eager fiancé was essential to prevent them from pinching pennies and buying a ring with a small or poorly-cut diamond.”
On the other hand, because engagement rings are expensive, but they vary greatly in price:
“a ridiculously low price for one person would be a completely unaffordable price for another.”
The solution? De Beers created a marketing campaign that encouraged men to spend two months of their salary on a ring for their beloved. Dholakia explains that the two-months salary rule was the perfect solution. He writes,
“what is particularly clever about a seller-supplied price threshold is that it is substantial, flexible, and feasible all at once.”
Because the threshold was linked to an individual’s salary, it could be applied to any customer, and yet it was still a specific price threshold, which made customers more confident in purchasing (and more likely therefore to make a purchase). Franky Farmer, another marketing professional writing in Campaign Asia, agrees, explaining:
“the concept of tying the diamond ring to ‘two months’ salary’ was a masterpiece. It quantified the tangible behavior the brand was trying to encourage. It combined spending a lot of money with a life event that a huge percentage of consumers will experience.”
Farmer highlights what Dholakia describes as the price threshold being “substantial:” two months’ salary is a lot of money. Furthermore, he highlights the way in which the creation of a price threshold increases the likelihood of purchase.
For more on the business of weddings, see Connie Lopez’s recent article on the brand strategy of The Knot, an online wedding planning platform.
Other Psychological Pricing Strategy Examples
In general, the use of the “price threshold” strategy in marketing can be considered a pricing strategy example of “psychological pricing.” Other psychological pricing tactics include setting a price at $3.99 instead of $4.00, or putting the original price of an item next to the discounted price (a practice known as “anchor pricing”).
Setting a “price threshold” in marketing materials differs from these strategies because, technically, it is not about how you price the item, but about how you set customer expectations about what to pay for an item. However, when selling engagement rings, which are often custom-made, this sort of marketing can help to set a general framework in which more specific decisions about pricing strategy can be made successfully.
Pricing Strategy Example:
Demi-fine Jewelry as a Disruptive Pricing Strategy
Our next pricing strategy example combines the principles of good-better-best pricing with disruptive innovation. During the pandemic, and even as late as the end of 2022, the market for jewelry was strong. Many commentators attributed this to a kind of replacement: jewelry was replacing travel as something to spend money on, when people could not spend money on experiences.
However, by the end of 2023, wholesale diamond prices were slumping, according to an article in CNN Business. Eva Rothenberg, writing for CNN, explains:
“diamond prices have adjusted to consumers choosing services over jewelry. People are eating out, traveling and spending money on experiences rather than luxury goods.”
Enter demi-fine jewelry, a new trend described by marketing firm Netgains as “an affordable version of fine jewelry,” which “occupies [a space] between affordable costume jewelry and expensive select jewelry items.” In an article in the Business of Fashion magazine, Clay Morris explains that demi-fine brands, especially those that sell direct to consumer, are using their low prices to outcompete brick-and-mortar brands that are selling more premium products at higher prices. He writes that these brands sell:
“‘demi-fine’ pieces, which typically contain precious metals, but of a lower quality or mixed with cheaper materials.”
One brand that Morris discusses is Mejuri. He writes:
“Mejuri’s gold vermeil, for instance, is gold-plated sterling silver… The price gap can be stark: Mejuri sells vermeil rings for as little as $68. David Yurman doesn’t offer vermeil; solid 18 karat gold rings start at $650 on its website.”
Good-Better-Best Pricing Strategy Example
The rise of demi-fine jewelry can be explained better when we understand what a good-better-best pricing strategy is. In an article for Harvard Business Review, consultant Rafi Mohammed explains that companies use Good-Better-Best pricing when they create products at a variety of price points in order to attract a wider swath of consumers. One benefit of G-B-B pricing, Mohammed argues, is that it can:
“shift customers from a binary “buy/don’t buy” mentality to consideration of incremental value and spending.”
One effect is that customers:
“typically treat the Good version as a sunk cost, which makes them more amenable to upgrading.”
Insight to Action’s own Maria Gracia wrote a brand strategy consulting piece on the effectiveness of G-B-B pricing for nearly every company, with examples from Apple, Netflix, Chase and more.
How does this pricing strategy apply to demi-fine jewelry? While we typically think of G-B-B as a strategy that one company uses, creating multiple product lines, in this case we can think of the demi-fine jewelry as itself creating a new “better” category in a jewelry market that was once more polarized into “good” costume and fashion jewelry and “best” fine jewelry. By occupying this “better” slot in the market, demi-fine jewelry can draw luxury customers who are feeling the pinch of a more challenging economy, as well as customers who might want to modestly improve their jewelry. This strategy is succeeding: the demi-fine jewelry market is projected to almost double in size between now and 2030.
Indeed, price is a key element of how demi-fine jewelry brands identify themselves. When Forbes magazine asked Monica Vinader, a demi-fine jewelry designer, what the “cornerstones” of her company were, she said she aimed to provide:
“quality, design, creativity and a luxury experience at a price our customers can access.”
This quote encapsulates the pricing strategy of demi-fine jewelry: they are selling a product with some premium characteristics at a more affordable price. However, they are not simply at the lowest price range for jewelry: on her website, Vinader sells gold vermeil and pearl earring sets at prices ranging from $55 to $350 (for comparison, you can easily find gold-plated copper and pearl earrings on Amazon for $14). The difference in quality is real: vermeil jewelry is always gold-plated silver, not copper or brass, and the gold-plating is usually thicker than you would find on an electroplated piece. Again, this demonstrates how demi-fine jewelry is disrupting the jewelry industry by creating a new “better” product and pricing category.
If you need to develop a new pricing strategy for your business, Insight to Action can help. Want to learn more about pricing strategy, or other topics like market segmentation, positioning strategy, or new product examples? Our resources page has information on these topics and more, including a recent article by Connie Lopez, “3 Trends in Private Label Pricing Strategy.” Alternatively, you could keep in touch by signing up for our newsletter, your go-to source for the ever-evolving world of market strategy. Finally, we would love to meet with you during our office hours. Insight to Action believes in actionable market strategies backed by empirical evidence. We would love to hear from you.