The Psychology of the $14,000 Handbag

How Luxury Brands Alter Shoppers' Price Perceptions; Buying a Keychain Instead

What is too much to spend on a suit?

The question weighed on Barry Schwarz as he scanned the racks at Boyds men's store in Philadelphia, which were laden with $3,000 Brioni suits. "Their prices were just out of the world," recalls Mr. Schwarz, a professor of psychology at Swarthmore College.

We've all been there: A window display or a recommendation lures us into a store -- and we face unexpectedly astronomical price tags. It seems to happen more often these days as many luxury brands -- selling everything from $14,000 Ralph Lauren handbags to $899 Bugaboo baby strollers and $6,900 Beefeater barbecue grills -- push their top price points higher than they've ever gone before. What's priced below falls into that ever-expanding category: "affordable luxury."

Some people cut and run when confronted with prices that seem crazy. But many of us experience a sudden emotional-mathematical transformation. We set a new ceiling for a "reasonable" price. Disinclined to go all the way to buy the trophy, we instead settle for a consolation prize. Mr. Schwarz, a jeans-wearing type, walked out of Boyds with a suit that cost merely $800 -- the most he'd ever spent on an item of clothing.

"If you're in that world long enough, $800 stops even feeling like a lot of money," Mr. Schwarz says.

This concept is one of the reasons for the proliferation of $300 designer sunglasses these days. The fact that Ralph Lauren is charging $14,000 or so for an alligator "Ricky" handbag makes it easier for a consumer to justify in her mind paying $300 for a rather simple sweater. Many Chanel sunglass owners are actually would-be owners of Chanel suits. Something similar has happened to many owners of Tiffany keychains, Prada legwarmers, Coach wallets, and Frette tea towels.

When shoppers are confronted with prices they can't afford, a smart retailer will "move you right along to where you can salvage your pride," says Dan Hill, president of Sensory Logic, a Minneapolis consulting company that helps companies explore their sensory and emotional connections with customers.

Pride, Mr. Hill points out, "is a mixture of anger and happiness." That pretty much describes the whole shopping experience at those moments when we're outpriced (anger), then soothe ourselves with a smaller splurge (happiness).

In Mr. Hill's case, this played itself out in the purchase of a sweater when what he actually wanted was a certain pair of Jesus Jeans. A friend of mine remains sheepish about a smashing pair of high-waisted black Prada pants that seemed sensibly priced at $500 only after she had spent an hour eyeballing more expensive versions with the encouragement of a salesman at Barneys.

And yes, it's time to concede to my husband that I spent $87 on that T-shirt at Lost & Found in Los Angeles because I couldn't bring myself to spend $395 on a certain dress.

Given that accessories like sunglasses, fragrances, and logoed belts drive the sales of companies like Gucci and Louis Vuitton, such consolation prizes account for a very sizable chunk of the luxury business these days.

Indeed, this ploy is the soul of Las Vegas -- a town built on people who roll in on Southwest Airlines expecting to play $2 blackjack until they see the high rollers at the $200 tables. Next thing you know, they wake up in the baccarat lounge with their own private casino host and a stack of IOUs. After a while, it just doesn't seem like real money.

As for Prof. Schwarz, with his $800 suit, "I got sucked in. And I knew what was happening," he says. Mr. Schwarz has since written and spoken about this phenomenon to roughly 75 industry groups with audiences of as many as 8,000 over the past three years. He has found eager apostles in Microsoft, Google, the National Restaurant Association, General Electric, the Marines, Time Warner, the Dutch government, several health insurers, and Lehman Brothers.

Mr. Schwarz calls the top-priced goods "anchors." Anchors, he says, set the ceilings on prices of objects that don't have a clear value.

That is just about everything in luxury goods and fashion. In fact, that's one reason why some in the luxury fashion industry are irritated with retailers like Target and Zara: They're seen as setting the ceilings too low.

Retail-consulting guru Paco Underhill says, "This has been a strategy that goes back to the 17th century. You sold one thing to the king, but everyone in court had to have a lesser one." Today, we have Hermès, Fendi, Louis Vuitton, and Gucci. "There's the $500 bag in the window, and what you walk away with is the T-shirt," says Mr. Underhill. "It's the same strategy as putting the sports car in the window to sell the sedan in the back."

Still, luxury brands today have fine-tuned the strategy. The folks at Coach are masters of this. Look for a notably expensive bag in one of the company's flagship stores. Only one or two of them are available for sale, a company spokeswoman pointed out to me. But scores of similar, smaller, less-elaborate bags are nearby, primed to walk out the door. And if you can't even go that far, try the wallet or the keychain.

As convenient as it might be to accuse these manufacturers of gouging when they set prices so high on their top goods, there's nothing nefarious going on here. Clothing is one of the most democratic marketplaces around. There's always another store, another pair of pants to turn to.

• Email Christina.Binkley@wsj.com