Not long ago, about the same time Dolce & Gabbana made a hoo-ha by saying it was lowering prices by 10 to 20 per cent for next spring/summer, I got a distraught phone call from a young designer I know, a crafter of luxurious accessories and ready-to-wear. She said she had been contacted by a very powerful editor, who urged her in no uncertain terms to follow Dolce & Gabbana’s lead by reducing her prices. The implication was that if she didn’t, there would be trouble, both from the editor, who was looking to promote fashion’s sensitivity in times of crisis, and consumers, who wouldn’t spend.

“Do you think I have to?” asked the designer. “I don’t know if I can.” She has no economies of scale.

At the time I wasn’t sure what to say, there being a number of competing theories floating around regarding luxury and pricing. Some, for example, backed the powerful editor and Dolce & Gabbana, saying consumers weren’t prepared to spend any more, so dropping prices was the only way to remain viable. Others argued that high-end buyers were still happy to pay if they felt they were getting something ultra-special. And yet others were saying (and this is what I am hearing a lot nowadays) that luxury consumers, who were not spending much at the beginning of the year for fear of looking crass, were now bored of being abstemious and were ready to spend again.

Recently, though, I’ve come across something that indicates the answer may ultimately not hinge on any of the above.

Last month a new denim company, Reco Jeans, which sells only jeans made from recycled denim and is targeting the mass fashion market, decided to ask consumers how much it could legitimately charge for its products. The company, which boasts celebrity eco-warriors Woody Harrelson and Alanis Morissette as investors/ ambassadors, held a four-week online “Dutch auction” (ie, a bidding process that determines the highest price at which a producer can sell all its stock) for 300 pairs of jeans, offered in a boxed set along with a Reco iPod case and a certificate of authenticity. On its website, www.recojeans.com, it provided information on its special manufacturing process, as well as information on competitors’ pricing (J Brand jeans, for example, range from $158-$271; Diesel, from $150-$340, and Energie from $189-$439). The idea was that the bids would determine the cost to the buyer when Reco starts general sales in the autumn.

Call me cynical but I thought this idea was nuts. Leave pricing to the people? Rely on their goodwill instead of their desire for a deal? In this economy? I mean, Alanis Morissette’s song “Underneath” has lyrics that go: “Look at us form our cliques in our sandbox./ Look at us being cruel kids with both our hearts blocked./ Look at us turn away from all the rough spots./ Look at dictatorship on my own block.” And she thinks her customers will think not about their own wallets when bidding on jeans but about fairness and the global denim world?

. . .

“We knew it was a gamble, but we really thought people would be serious about it,” said Natalie Nordblom, Reco Jeans’ marketing director, when I (tactfully, kind of) mentioned my scepticism. She paused and a note of triumph entered her slightly spacy voice – the kind of voice sardonic people like me associate with hippie dreamers. “We were right!” she cried.

Turns out, as of last Saturday when the auction ended, Reco received 2,300 bids from consumers worldwide. The highest bid was $384, with most of the winners bidding between $100 and $200, right in the middle of the price bracket Reco was aiming for (all bids will be posted on the site, so winners and losers can measure their estimates against those of their peers). Which is not so surprising, given the information the company provided on its website about its rivals.

In holding an auction and “offering” such numbers as examples, Reco may have intended altruism, but it demonstrated something else: not the goodwill of the market but the market’s instinct to latch on to whatever number it is given and work from there – what the cognitive psychologists Amos Tversky and Daniel Kahneman called “anchoring”.

After all, it is significant that neither Levi’s (average price $80) nor Balmain, with its £1,060 jeans, was mentioned by Reco on its website. Instead, it proffered a range of prices that were similar to what its end goal was, effectively “anchoring” those prices in bidders’ minds. According to Reco’s chief executive Tom Cards, the idea was to discover what being “price-friendly” meant to his customers, but he and his colleagues also discovered something else: not, as Natalie Nordblom said, that the recession “isn’t affecting so much what people want to wear” but rather that it’s not affecting people’s susceptibility to suggestion.

Which is something it may benefit my young designer friend to know. I think I’ll suggest it to her.

vanessa.friedman@ft.com
More columns at www.ft.com/friedman