Key Takeaways
- Prestige pricing strategy uses price as a signal of value, quality, status or exclusivity, not simply as a higher markup.
- Brand reputation, perceived quality, scarcity and customer experience can strengthen customers’ willingness to pay.
- A higher price can improve profit margins and pricing power, but it can also reduce the addressable market and increase customer expectations.
- Prestige pricing works best when the premium is supported by genuine differentiation and a clear value proposition.
- Businesses should assess willingness to pay and monitor price, volume and margin before assuming a higher price will improve profitability.
>Download Now: Free PDF How to Drive Pricing Strategy to Maximise EBIT Growth
Oftentimes, customers are willing to pay more than you think. For example, customers justify the purchase of an expensive item every day, whether it be a Nike sneaker or a new-release iPhone. They base the purchase on more than just quality. They consider the reputation of the product and also the brand behind it. But more than this, they desire it so much they throw all logic out the window and just pay the price.
It’s no secret that pricing and the psychology behind why people buy are very important components of a successful prestige pricing strategy, whether you’re selling a product or a service. Understanding how people buy your product is the essence of great pricing strategy. Without knowing your customers, you’ll never get the price premium you deserve regardless of the quality of your products.
This is where prestige pricing comes into play.
How Does Prestige Pricing Strategy Justify Higher Prices?
A prestige pricing strategy justifies a higher price by making the premium feel connected to value, rather than simply adding a higher markup. The strongest approach combines several factors:
- Perceived quality: Customers need to see the product or service as worth more, even when the functional difference is relatively small.
- Brand reputation: A trusted brand can support a premium because customers already associate it with quality, status or reliability. Apple and Rolex are examples of brands where reputation supports premium pricing.
- Scarcity and exclusivity: Positioning a product as limited or exclusive can make a higher price feel like access to something desirable rather than an arbitrary markup.
- Consistent positioning: Premium brands need to protect the differentiation and exclusivity that support their price. Broadening the customer base through cheaper products can weaken this positioning.
- Clear pricing: Showing the price confidently can reinforce the perception that the business believes in the value of its offer.
Ultimately, customers are more willing to pay a premium when the higher price is supported by a clear value proposition, strong brand perception and a customer experience that matches the price. These factors help explain why prestige pricing is common among luxury, fashion, technology and other premium brands.
You’ll find prestige pricing being used in high-end stores across the world. In fact, it’s easy to spot which brands follow such a pricing strategy. These are the fashion and perfume brands, jewellery, several car manufacturers, etc.
Having said that, using prestige pricing helps in establishing a good name for your brand and company. However, you could lose it too when you sidestep from it by offering cheaper products to appeal to a broader audience. Take, for example, Tiffany & Co‘s efforts to broaden its appeal during the 1990s. The luxury jewellery retailer expanded its marketing to reach a wider audience and make some products more accessible.
The example illustrates the potential tension between increasing sales and protecting exclusivity. For a prestige brand, broadening the customer base can create a risk of weakening the scarcity and exclusivity that support premium pricing. Tiffany’s experience is therefore a useful historical example of the trade-offs involved in expanding a luxury brand.
In this article, we will talk about the prestige pricing strategy and provide you with some examples to better understand the method. We will share with you a case study of Apple that effectively used a prestige pricing strategy. In addition, we will explain why companies should use a prestige pricing strategy. Finally, we will provide you with the advantages and disadvantages of implementing a prestige pricing strategy in your business.
We assert that choosing a prestige pricing strategy will help your business reap the rewards it deserves. Of course, you have to find the balance… that involves looking after your business’s bottom line, at the same time considering the needs of your customers.
Table of Contents:
I. Prestige Pricing Strategy: Best Approach to Justify a Higher Price Point
II. Prestige Pricing Strategy: How Industry Giants Achieve Profit Increases of Millions per Year
III. Premium Pricing Strategy: Can You Really “Just Charge More”?
Capability Building Programmes For Pricing & Sales Teams!
Prestige Pricing Strategy: Best Approach to Justify a Higher Price Point 💎
What is Prestige Pricing?
Prestige pricing, also known as premium pricing or image pricing, is a psychological pricing strategy that appeals to a buyer’s psyche. It is when a company sets prices for its products at a higher point to provide customers with the impression that the product is high-value.
This type of strategy is closely related to brand perception. Businesses that employ this pricing method usually have products that are not only known for their superior quality but also for the value they provide to customers. The pricing approach is based on the notion that customers perceive more value in the product if it’s expensive, and that they’re willing to pay even though it’s priced higher.
Fashion, luxury cars, technology, perfume brands and other luxury products are typically priced using this method because they can be marketed as exclusive.
Prestige pricing strategy varies based on a firm’s goals for their brand and offerings. A business can justify a higher price point if it has a unique value proposition that makes its product distinctive from the competition.
Examples of Prestige Pricing
Several large businesses use prestige pricing to strengthen their brand positioning and support premium prices. The following examples illustrate how this strategy works in practice.
- Nike: Nike sets its prices for its products based on its image. High-profile athletes such as celebrity endorsers Michael Jordan and Serena Williams are wearing it. Certainly, you’d want to wear a pair too, wouldn’t you?
- Apple: What allows the company to price its products way above the cost to make them is the perceived value that Apple products give. Mostly, they are multi-purpose tools such as answering calls, sending texts, taking photos, etc.
- Rolex: Why is a Rolex watch a premium-priced product? It’s the status that comes with wearing one and the perceived quality are some of the reasons why Rolex is a high-priced luxury watch.
Are Brands still valuable to consumers in 2022? 🛍️ Podcast Ep. 104!
Apple: A case study of a successful prestige pricing strategy
Apple’s transformation from a struggling technology company in the late 1990s into one of the world’s most valuable companies is one of the best-known examples of premium brand positioning. Today, Apple generates hundreds of billions of dollars in annual revenue and has built a powerful global brand around its products, ecosystem and customer experience.
Apple does not need to dominate global smartphone unit sales to capture significant value from the market. Its premium positioning, product ecosystem and brand strength have historically allowed the company to generate substantial revenue and profit from a relatively smaller share of smartphone shipments.
We then ask, why? It’s prestige pricing. Apple smartphones are more expensive than any other smartphones. Apple’s iPhones are positioned across the premium end of the smartphone market, with higher-priced models reinforcing the brand’s premium positioning.
Apple continuously sets its prices for its smartphones and gadgets higher compared to its competitors. Under Steve Jobs, Apple developed a distinctive approach to product design, brand positioning and customer experience that helped establish the company as a premium technology brand.
- Focus on offering superior quality products
- Offer only a limited number of luxury products
- Make profits a priority over market share
- Use a “halo effect” marketing strategy so people will be desperate for new Apple products
Then-Apple CEO Tim Cook told Bloomberg Businessweek, “We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost.”
However, Cook reveals that Apple’s phones are not low-cost but they are “great” and that customers are rewarded with a “great experience.” This plays to a customer’s subconscious. Paying more means, getting great value.
Read more about pricing strategies that really drive sales and EBIT growth. Click here.
Why Use Prestige Pricing Strategy?
Research indicates that buying luxury products has intangible advantages known as emotional value. That’s one of the reasons why customers show a willingness to pay more for the top-of-the-line products. It doesn’t matter whether the differences in quality and price don’t always align. So, what makes them high-end products?
More importantly, brand image can be more powerful than product quality. Instead of focusing only on functional quality, businesses must also consider how customers perceive the brand. Prestige pricing is all about the perception of a brand and how customers view the reputation of a company.
As a result, if a customer perceives an intangible benefit, they may be more willing to pay a premium price for that product. In the same manner that when you buy an Apple product, you don’t look around to check if you can find a cheaper substitute because you already know that you can. However, what you are purchasing is the value of Apple.
Interestingly, researchers also believe that high prices are an indicator of prestige. In other words, simply setting higher prices can also improve brand image.
As a matter of fact, some reputable brands can set higher prices based on the power of their brand. Because they know that some customers are more than willing to pay more money for a brand just because it has the “it” factor.
For example, Nike shoes. There are a lot of shoe manufacturers that offer the same quality for less money. But Nike is perceived by many as one of the prestigious brands, thus, consumers don’t mind paying more money. Consequently, Nike can charge more for its products. Higher prices reinforce the belief that Nike is a more distinguished brand.
Benefits and Drawbacks of Prestige Pricing Strategy
Prestige pricing can help businesses increase margins, strengthen brand positioning and differentiate their products from competitors. However, the strategy also comes with trade-offs, including a smaller customer base, higher customer expectations and greater investment in the brand. Here are the key advantages and disadvantages businesses should consider before implementing a prestige pricing strategy.
Advantages
1. Greater Differentiation and Competitive Advantage
Prestige pricing can help businesses differentiate their products from competitors that compete primarily on price. By positioning the offer around quality, design, exclusivity, service or brand reputation, businesses can compete on perceived value rather than entering a price war.
2. Stronger Brand Positioning
A premium price can reinforce perceptions of quality, status and exclusivity, particularly when it is supported by a strong brand and customer experience. Over time, consistent premium positioning can strengthen brand equity and help customers associate the product with higher value.
3. Higher Profit Margins
Prestige pricing can increase the profit earned on each sale, even when fewer units are sold. However, businesses need to assess whether the additional margin outweighs any reduction in sales volume before assuming that a higher price will increase overall profitability.
4. Greater Pricing Power
When customers perceive a product as differentiated, they may be less sensitive to price and less likely to switch to a cheaper alternative. This can give businesses greater flexibility to adjust prices while protecting margins, although pricing power depends on maintaining the value that supports the premium.
5. Access to Higher-Value Customers
Prestige pricing allows businesses to focus on customers with a higher willingness to pay rather than trying to maximise market share across every customer segment. A smaller customer base can still be commercially attractive when those customers generate stronger margins, higher lifetime value or greater loyalty.
6. More Resources for Investment
Higher margins can provide businesses with more resources to invest in product development, marketing, customer service and the overall customer experience. These investments can strengthen the factors that support the premium price and create a stronger value proposition over time.
Disadvantages
1. Higher Marketing and Brand-Building Costs
Prestige pricing often requires greater investment in marketing and brand building to communicate why a product deserves a premium price. This can be particularly challenging for less-established businesses that have a strong product but limited brand recognition.
2. Smaller Customer Base
Higher prices can exclude price-sensitive customers and reduce the overall addressable market. While a smaller customer base is not necessarily a problem, businesses need to ensure that the remaining customers generate enough value and margin to compensate for lower sales volumes.
3. Higher Customer Expectations
A premium price creates higher expectations around product quality, service and customer experience. If the experience does not match the price customers have paid, dissatisfaction can be greater and may damage the brand’s reputation.
4. Risk if Perceived Value Declines
Prestige pricing depends heavily on customers continuing to perceive meaningful value in the product or brand. Changes in customer preferences, competitor offerings, technology or economic conditions can reduce willingness to pay and make the premium harder to sustain.
5. Discounting Can Weaken the Premium
Frequent discounts can undermine the exclusivity and perceived value that support a prestige pricing strategy. If customers regularly see the product offered at a lower price, they may begin to question the standard price or delay purchases until the next promotion.
6. Doesn’t Work for Every Product or Service
Prestige pricing is more difficult to sustain when customers see a product as a commodity or can easily compare it with similar alternatives. Businesses therefore need meaningful differentiation, such as superior quality, performance, brand, service or experience, to give customers a reason to pay more.
Pricing Recruitment For Pricing Managers!
Implications of Prestige Pricing
- Higher prices can lead to higher profits when customers perceive sufficient value. Though it’s tempting to set low prices, Apple, Rolex and Nike show that prestige pricing can be effective.
- People assume that the lowest prices mean the lowest quality. However, by setting higher prices, there’s a possibility that you can improve perceptions of your brand’s image and quality. It’s better if higher prices are coupled with improved performance and quality.
- A company can make it difficult for new entrants to offer similar products by investing in premium products, forcing competitors to spend more on marketing to compete at similar prices.
- Additionally, prestige pricing can help companies to save money by not producing a high volume of goods. Because the business is limiting the number of units sold, making the products become more exclusive, thus, becomes more desirable in the eyes of customers.
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Conclusion
As a business owner, you’re certainly curious about what price to set for your products. The answer is not black and white, as it largely depends on your industry and your rivals. The marketing costs associated with such a strategy are very high.
However, if you have the funds to handle the necessary marketing expenses and you believe your products deserve prestige pricing, launch them at a higher price point. Invest in advertising and building a brand, and you’ll surely see your revenue grow as a result.
One of the reasons why customers show a willingness to pay more for luxury items is that luxury products have intangible advantages known as emotional value.
Capability Building Programmes For Pricing & Sales Teams!
Prestige Pricing Strategy: How Industry Giants Achieve Profit Increases of Millions per Year 🏭
Have you ever wondered why some competitors defy the odds and win more profitable deals without losing customers, revenue or volume regardless of market conditions? Did you know that companies that consistently dominate their industry tend to have a dedicated pricing and revenue management function developing a prestige pricing strategy for them on an ongoing basis, including the best pricing strategy examples, options, tactics, and associated trade-offs?
Introduction to Value Culture 💡 Podcast Ep. 96!
Let me explain…
Over the past 20 years, many large businesses with revenue above $1B have invested in dedicated pricing teams. These teams help generate profitable revenue growth through better go-to-market strategies, price models and analytics.
Industry-leading companies across sectors such as manufacturing, industrial distribution, technology, financial services, telecommunications and retail have invested in dedicated pricing and revenue management capabilities to improve pricing decisions and drive profitable growth.
This covers both ASX-listed and privately owned businesses with revenues from $100M+.
In this article, we will explain how companies gain profits through prestige pricing strategy. We will differentiate the three economic profit curves. In addition, we will discuss what world-class pricing teams do and how they drive profitability in tough markets. Furthermore, we will answer why companies use prestige pricing strategy.
Why Prestige Pricing Strategy?
Group 1
Billion-dollar brands like some of the companies listed above (i.e., the top 1 per cent of businesses globally) are early adopters to strategic pricing. They are keen to pursue a prestige pricing strategy. An overarching business strategy, operations, and culture are usually aligned with a prestige pricing strategy.
Leading businesses have increasingly developed dedicated pricing capabilities as pricing has become a more strategic function within the organisation. They were at the top of the economic profit curve back then. What’s more, they continue to sit at the top of the economic profit curve in their respective industries now using a range of different types of pricing strategies.
They don’t just implement a cost pricing strategy to stay ahead of the competition. They have a value-based pricing strategy business plan, which very often integrates the latest dynamic pricing analytics and systems.
A high level of pricing maturity is great for bottom-line profitability. The latest pricing strategies and teams bank millions of dollars in profit every year. Their pricing teams have a strong strategic intent and focus on driving an overarching pricing strategy that leverages the economic value of these businesses’ industry position and scalability.
Some prestige pricing strategy examples are:
- Budweiser pricing strategy
- Nike pricing strategy marketing
- Freemium pricing strategy Atlassian
- Apple pricing strategy analysis
These pricing organisations differ from most businesses because they don’t take chances with their pricing. They all have a clearly defined global pricing strategy. Staff and customers alike understand their unique value proposition in their industry. Customers receive the right level of value in return for the price they have been charged (or perceived value).
Group 2
Then, there are companies that sit in the middle of the economic profit curve. For these businesses, pricing is often more ad hoc and inconsistent. Resources across sales, marketing and finance may be stretched to cover pricing tasks, and there may or may not be a dedicated pricing team in place.
Roughly 90% of businesses are the ‘mid-to-late majority’ to adopt better pricing. They make almost no economic profit and miss a lot of revenue and margin opportunities. They are in defend-and-protect mode, needing to de-risk earnings and maintain their market price position. However, they often risk earnings by rolling out fixed price increases across the board and relying on a cost-pricing strategy. For these companies, falling to the bottom of the profit curve is a strong possibility.
It is not uncommon to find businesses in Group 2 misaligned on the value they deliver to their customers at all levels of the business, despite the importance of a value-based pricing strategy.
Group 3
Then, there are businesses that sit at the bottom of the economic profit curve under severe margin pressure from multiple angles. These businesses are often laggards in pricing management and tend to invest in pricing capabilities only once margin pressure becomes difficult to ignore.
- Their operations are costly and largely inefficient
- SG&A is incredibly high
- They’re grappling to stay afloat financially
- Product price promotions and distribution strategies are a mess and largely fragmented
- They are in urgent need of pricing expertise to help make enough EBIT dollars before the profit curve gets too steep to climb
It’s sink or stay buoyant for as long as possible for these companies. A pricing team is a lifeline to making money quickly and staying in the game as long as possible.
What’s a world-class pricing team anyway?
For those of you that may be new to the concept of a pricing team, a world-class pricing team is a revenue-making machine for all types of businesses that want to implement the most effective pricing strategy for their business. Their sole purpose, capability and intent are to build more flexible pricing strategies. They also build systems and structures that drive profitable growth in the safest way possible. In a way, they aim to build a profit-sharing ecosystem that the whole value chain can benefit from rather than a zero-sum game.
What does a world-class pricing team do?
A world-class pricing team is a well-kept secret that your competitors don’t want you to find out about. They de-risk earnings and capture revenue and margin opportunities. They do this by taking a measured, scientific approach to pricing and profitability.
With their unique skills and expertise, a pricing team …
- Studies the market as a scientist would. They’ll bring together all the right data and knowledge from within your business to study what’s happening in the market at a transactional level. They will set up market intelligence systems to get an objective read of changing market conditions and analyse scenarios. They’ll listen carefully to the pressures and concerns of the sales teams to adjust pricing tactics. They’ll also listen carefully to the strategic intentions of the executive team to re-calibrate market pricing positioning.
- Analyses data, tests and price trials to cross-tabulate their findings, offering a reliable 3-, 6- and 9-month forecast and outlook on the industry. They want to know what different customer groups are willing to pay for and how the market is responding. This also leads to testing and applying what they’ve learned about the market to inform segmentation. You then receive pricing options that don’t damage your brand or price positioning in the market.
Pricing teams develop sophisticated strategies, tools, processes and analytics to track elasticities for different segments, SKUs and services
- Pricing teams verify, calibrate and adjust price points for different products and customer groups. They use customer, shopper and market data to support these decisions.
- They pay close attention to detail and then step back to review. They’ll be figuring out what demand and value drivers are creating the most purchase utility for the business by customer and product and under different industry scenarios.
- They’ll do all of this and more, however, their overarching intention is always to improve prices for profitable revenue growth while giving customers what they want, need and value.
Why do you need a pricing team to do this?
A world-class pricing team is quite unlike other teams and departments already existing in the business (i.e., sales, finance, and marketing). They have a unique set of pricing skills, styles and capabilities that enable them to:
- Make informed pricing decisions
- Drive advanced pricing systems and toolsets
- Choose the right pricing actions
It is not uncommon for businesses without a pricing team to leave pricing the way it is (ref. Group 2 above). Although doing nothing seems like a good or less disruptive decision at the time, legacy pricing can seriously impact the bottom line (and your position on the economic profit curve as described above).
Here’s why…
However, people in businesses can often feel that changing prices is risky. In some cases, though, leaving prices unchanged can be even riskier. Some deliberately avoid doing anything because they feel changing prices will jeopardise chances of hitting targets or meeting budget. Others play the short game, focusing on pricing performance in the next couple of quarters in the knowledge that they likely won’t be running their division afterwards.
A pricing team, however, is an impartial and objective voice at executive team meetings. Their job is to raise the big issues and inform you when geographies or segments are underperforming. They will evaluate the causes of underperformance at an SKU and segment level rather than just attributing weak performance to one-off events such as weather, restructuring efforts, a regulatory change or market generalisations.
We’ve heard people argue that a dedicated pricing resource is too expensive or unnecessary when developing a prestige pricing strategy.
However, having an informed voice of reason on what is often a highly emotional topic gives executives room to mitigate bias and avoid margin loss with open eyes.
Egos, careers, bonuses, and status in the organisation all depend on how convincingly people present their strategies and business prospects. Generating an uplift in your end of year profit results, however, depends on how teams are working together to achieve shared outcomes.
You need competent people who care and know enough about pricing to give you informed and reliable pricing options that serve the best interests of the company and customer base (rather than the self-interests of a few).
Why do companies need dedicated pricing support or prestige pricing strategy when they already have a sales and marketing team?
Well, as you can see, there’s a lot more that goes into price-setting than relying on a standardised markup on costs or matching/undercutting competitor prices or taking a blanket price rise.
Meanwhile, markets have become more fragmented. Customer preferences are changing, while costs and exchange rates can fluctuate almost daily. As a result, a simple cost-based pricing approach can be fraught with error in volatile pricing conditions. Businesses tend to overcharge or undercharge their customers or undersell their offers using traditional cost-plus pricing. This is why you need a prestige pricing strategy based on value and detailed analytics.
World-class pricing teams make more revenue and margin for their business because they know that a prestige pricing strategy is not just based on competitive activity or cost, but rather, largely a function of customer value, scalability and industry.
How does a pricing team benefit your customer base?
A structured and rigorous methodology to set and manage price in your industry helps produce accurate prices to customers. You can feel confident you are not overcharging them or underselling yourself.
You can also learn whether the offers you are selling to your customers are things they want to buy. Many companies work so hard and spend so much time making and selling products and services that their customers don’t want or value. A 2019 McKinsey study found that 80% of executives believed their product stood out against the competition, while only 8% of customers agreed.
Pricing Recruitment For Pricing Managers!
Implications for Pricing Teams
Your industry has a significant influence on your pricing power, which means businesses need the skills and capability to think carefully about where and when to compete for market share and when to prioritise margin.
Pricing teams that take a scientific approach to develop a prestige pricing strategy defy the odds and slaughter the competition. They make millions of dollars in profit every year by literally studying the market like a scientist. This generates price points that will optimise revenue without sacrificing your hard-earned volume or margins.
You need competent people who care and know enough about developing a prestige pricing strategy to give you informed and reliable pricing options.
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Conclusion
Many large businesses have invested in dedicated pricing teams to generate profitable revenue growth and improve pricing decisions for the business.
The role of industry in a company’s position on the power curve is a critical variable in a company’s price-value equation. There is a clear business case to develop more effective pricing strategies to leverage and scale your position on the profit curve.
Capability Building Programmes For Pricing & Sales Teams!
Premium Pricing Strategy: Can You Really “Just Charge More”?
More often than not, customers usually ask after buying an expensive item, “Is the product really worth the price I paid for?” Though they’re not sure whether it was worth it or not, they’re still willing to pay more for that high-priced product.
Why is this so? It is because of the premium strategy used by the companies which is premium pricing. These companies use a premium pricing strategy where they mark up the price of their product to create the perception that they’re a premium brand selling premium products.
Premium pricing can help companies cash in on their products/services. Businesses that target consumers with a taste for luxurious or high-quality products use premium pricing as a strategy to convey those attributes. For this strategy to be effective, companies should have the highest quality product to offer or at least one that gives an impression as such. The method will fail if the quality perception is low.
In reality, though, the quality doesn’t actually have to be excellent. Customers simply have to think that it is. Needless to say, you can’t just slap them with a higher price to increase sales. There are some steps you have to follow to make premium pricing work.
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. We will also share with you when you can best use a premium pricing strategy.
Introduction to Price Optimisation 💰 Podcast Ep. 74!
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. Cars do not have the variety they once did.
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.
Premium pricing means the idea that the product has a higher value than the competition. The management is keen to impress upon its customers that the brand name of leading products is synonymous with quality and superior to that of other brands.
The advantages of this strategy are:
- More profit
- Creating barriers to entry for competitors
- Optimising brand value across all products
A good example is the Rolex pricing strategy. Rolex is a useful example of how brand reputation, scarcity and status can support premium pricing. People are willing to pay more just for the privilege of wearing one
When is premium pricing best used:
- Introducing a new product. This strategy can be particularly effective for new products.
- One of a kind. Standout product attributes can justify a higher price when they provide meaningful differentiation.
- Luxury appeal. Buyers think the product is of high-end quality and consider it a luxury item.
- Limited edition. Limiting the production of the product makes it rare and buyers will go to great lengths to acquire it.
- No copying. Competitors cannot legally copy the product when the company has exclusive rights to its design.
- Patents. Any company that copies a patented invention may face legal action for patent infringement if it markets the invention as its own.
Establishing Premium Pricing
In order to establish a premium pricing strategy, you need to highlight key attributes of the product. Identify the customers using it, and understand what motivates them to buy. Once you have established these essential points concerning the product and customer usage, you can use these customer insights to advertise and market the products in-store and online.
Some tips are:
- Give a demonstration of why it is so expensive and worth the price based on the problems the product fixes.
- Add something more enticing to the buyer aside from the product.
- Don’t be afraid to show the price. If they don’t like it, they can go elsewhere.
- Financial stability. People would be more at ease knowing the company will still be there if the product needs maintenance or an upgrade.
Restricting the entry of competitors. Investing heavily to market a product as premium forces competitors to spend just as much to compete, and smaller companies with limited cash flow often can’t keep up.
An interesting article in Forbes 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 a prestige pricing strategy.
An extreme example of companies that use premium pricing is the contrast between a Toyota and a car with a clear premium pricing strategy, such as an Aston Martin, “the tiny European city runabout known as the Aston Martin Cygnet. When it was introduced, the Aston Martin Cygnet was priced at more than $45,000 in its most basic version.
The car is actually made by Toyota, and a comparable Toyota model was priced at less than $17,000 at the time. On an apples-to-apples comparison, which shows a price discrepancy of more than $31,000.”
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; it also needs to reflect some differentiation such as high quality, advertising, brand value vs similar products, etc.
Luxury products do not happen by accident; they 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.
Pricing Recruitment For Pricing Managers!
Implications of Premium Pricing
- Premium pricing can increase the pride of a product even if it has similar features to competitors’ products.
- It concentrates on the standalone feature that makes it unique from other products.
- Smart marketing ploys can make products appear to be more luxurious than they actually are.
- People are willing to pay the high price if the product brings them prestige, and sometimes when the price is high.
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Conclusion:
- 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.
- If people perceive it as a luxury item, they may be willing to pay a higher price.
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