This post is in partnership with Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania. A version of the article below was originally published at knowledge.wharton.upenn.edu.
The eyeglass company Warby Parker has a lot going for it—including stylish retro-hip frames, a slick website, terrific service featuring a home try-on program, free shipping and returns, and anti-establishment buzz that’s been building for years. Another obvious selling point for consumers is price: The vast majority of Warby Parker glasses sells for a reasonable — and curiously uniform — rate of $95. (Titanium frames are $145.) But perhaps what’s most remarkable of all is that the price of Warby Parker glasses was almost set at $50 cheaper.
The National Association of Vision Care Plans puts the average price of eyeglasses at $263.
“As customers, we’re so used to being ripped off: We don’t know the difference between a pair of $300 glasses and a pair of $400 ones,” says Simon Blanchard, a marketing professor at Georgetown University’s McDonough School of Business.
Beyond offering better prices, Warby Parker strategically uses a uniform pricing system that comes as a relief to overwhelmed consumers. “When all of your products are priced the same, people focus on something else,” adds Blanchard, who notes that Swatch Watch was successful with a similar strategy. “In the case of Warby Parker, customers focus on the glasses that best reflect their personality and style.”
The decision to price glasses at $95 comes with a back story. Wharton marketing professor Jagmohan Raju recalls that when the founders broached their idea to him, they originally planned to sell their glasses at half that price. “I really liked the idea overall … but after examining their analysis, I told them it’s not going to fly. [At $45 a pair], there’s no money [left over] for brand building; there will be no money in it for you and no money for investors.”
In addition to squeezing the business, a price tag of $45 was “too low” to be seen as credible to customers, according to Raju. “It would have put [Warby Parker] in a category I believed they did not want to be in. There are many companies selling cheap eyeglasses. Anyone can go on the Internet and buy two pairs for $99. But there is a perception among customers that the quality is not as good.”
The goal was to create a new price point that was still reasonable, but not low-end. David Bell, professor of marketing at Wharton, served as an advisor to the founders in an independent study about pricing models and demand analysis. He recalls conversations around the social-psychological reasons for staying under $100. “There was a bit of discussion about what happens [psychologically to the customer] when you get to three digits,” he says. “[At the same time], $99 gets you a little bit of extra margin — $4 — but it doesn’t feel quite as classy. A price tag of $93 sounds more like a Walmart price: There’s too much exactitude there.”
The price had to be right for another important reason: For every pair of glasses Warby Parker sells, it gives a pair to someone in need. (According to the company, almost one billion people worldwide — 15% of the global population — lack access to glasses.) TOMS, the shoe manufacturer known for its simple cloth espadrilles made with recycled vegan materials, is perhaps the best known company that employs a buy one/give one business model.
That approach increasingly speaks to customers. According to a study last year by Nielsen, the customer information company, 46% of global consumers are willing to pay extra for products and services from companies that have programs to give back to society. A little over 60% of consumers are under age 40, and they say they consult social media when making purchase decisions and are most concerned about environmental, educational and hunger causes, according to Nielsen.
The buy one/give one approach is not just the standard lip service to corporate social responsibility (CSR), according to Bell. “These founders, who are in their late 20s and early 30s, are not traditional managers. They are a new generation of managers who are more globally aware. It’s a generational thing. This is not CSR business as usual — where we pollute the environment and charge customers a lot of money for goods but we also give a bit of money to the local Little League. They are trying to change an industry.”