Premium Pricing Strategy: Can You Really “Just Charge More”?
Premium Pricing Strategy: when pricing professionals are having introductory conversations with non pricing specialists such as General Management or CEOs – the question of whether pricing is more than simply “increasing prices” comes up.
Of course, if you are a regular reader of this blog – you will know that pricing optimisation is infinitely more intelligent than that.
However, in this blog we will look at a major industry sector where companies seemingly do “just charge more” for almost identical products and do not seem to be following a perfect market of competitive based pricing.
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How re-badging shows a real world premium pricing strategy in action
You may sometimes ask yourself why many modern cars – even with different brands, labels, countries of origin etc end up looking so similar. It is often said that cars do not have the variety of yesteryear.
In many ways, your suspicions may be correct, as in many cases – almost identical cars are branded with different badges. There have even been cases when the cars have been identical except the badge.
This is known in the auto industry as re-badging.
An interesting article in Forbes magazine gives a good overview of the phenomenon : “Rebadged cars are identical in all respects, except perhaps for some tiny cosmetic distinctions such as the placing of the headlamps or the shape of the trunk.
They not only come from the same factories but are in many cases made by the same workers on the same production lines. Yet their prices can vary significantly depending on which maker’s badge is on the grill.” This can be known as prestige pricing strategy.
An extreme example is given of a Toyota and a car with a very clear premium pricing strategy – an Aston Martin: “the tiny European city runabout known as the Aston Martin Cygnet. In its most basic version it sells at more than $45,000.
The car is actually made by Toyota and a Toyota version (identical except for some interior accoutrements) can be had for less than $17,000. On an apples-to-apples comparison, Which? reckons the average price discrepancy is more than $31,000.”
We highlight this instance – as it brings up many questions; what are people actually buying when they purchase a car i.e. a way from A to B or a status symbol, a luxury consumer item or perhaps thinking about resale value, ongoing service and maintenance.
It clearly highlights that when a move away from commoditisation (and cost plus pricing) is backed up by a strong brand and marketing, as well as a clear value offer – a seemingly identical product can be sold at markedly different prices.
See our blog on price increase strategy.
See our blog on what Santa Claus can teach us on business models.
Premium pricing can of course be applied to any products or services – from luxury cars – to coffees and even SEO agencies.
Setting the optimum price point is not just about having higher prices – but will need to reflect some differentiation such as high quality, advertising, brand value vs similar products etc.
Luxury products do not happen by accident – and are often the result of an expensive marketing strategy that enables premium products or premium brands to follow a premium pricing strategy and boost profits. See our related blog on the concept of price skimming.