Explaining Prestige Pricing: An Alternative to Back-Bending Demand

Abstract

Backward bending demand is the standard explanation that marketing textbooks give for the pricing of prestige products like fline jewelry and luxury cars. This solely demand-side explanation overlooks two supply-side considerations that all marketing textbooks acknowledge as important: 1) product promotion and 2) the market power of the firms marketing prestige goods. Incorporating these two factors, this article offers marketing educators and other marketing professionals an alternative explanation of prestige pricing that does not require them to assert that the demand for prestige goods is backward bending. Our explanation shows how promotion, demand, output costs, and business profitability are intertwined within a firm's marketing mix.

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