Whether they recognise it or not, the truth is that most people like to feel special.
There are many ways to meet this need, but one of them is by owning a unique, exclusive product that is not accessible to everyone.
And that is what brands that are committed to applying prestige or premium strategies to their products make use of.
Such is the case of clothing, electronics or accessories companies as recognisable as Apple, Nike or Rolex, among others. All of them have something in common: they appeal to emotions and transmit a message of exclusivity and quality.
This is not achieved overnight. They are companies that have invested heavily in both branding and marketing.
But what is a premium pricing strategy, what is the best way to do it, what are its advantages and disadvantages, and when should it be applied?
We are going to talk about all this, and much more, in this blog post.
What is a premium pricing strategy?
Let’s start at the beginning: what is a premium product?
Premium pricing or prestige pricing strategies basically consist of setting a selling price considerably higher than the cost value of the product and above the average price of other items with similar characteristics and features.
And this is done, as we have already mentioned, by shooting directly at the emotions of those consumers who are willing to pay a higher price for your product. To do this, it is essential that they perceive the product as a luxury or prestige object, either because of its quality, originality and/or exclusivity.
To achieve this, it is vital that it is not accessible to everyone. And what is the easiest and most profitable way: set the price at the top level of the market so that not everyone can afford it.
This type of business strategy has become very popular in recent years as, in a crowded market, companies are increasingly looking for new ways to innovate and differentiate themselves and maximise their revenues.
Ventajas de aplicar una estrategia de precios premium
Estas son algunas de las ventajas de una estrategia de precios premium:
Mayor flexibilidad y control sobre la fijación de precios: pueden establecer su propio rango de precios sin tener que seguir ninguna directriz o restricción establecida. Fomentar la sensación de prestigio: al fijar precios más altos que la mayoría de sus competidores, las empresas pueden crear valor y reforzar la imagen de marca premium aumentando la satisfacción y fidelidad de los clientes. Mayor margen de beneficios: al cobrar más por sus servicios y productos premium, las empresas pueden generar mayores ingresos. Posición única y diferenciación de la competencia: al establecer un nicho dentro de un mercado ya saturado, los precios premium pueden ayudarle a forjar una posición única y diferenciarse de la competencia.
Disadvantages of a premium pricing strategy
Of course, setting a premium pricing strategy also has a number of disadvantages:
Smaller target audience: by charging a higher price, the product will not be affordable for everyone. This can mean having fewer sales than expected, which can have a negative impact on the bottom line. Difficult word-of-mouth if the product is new: offering a premium pricing strategy can make it difficult to generate positive word-of-mouth marketing for your product as it will not be in the hands of as many people, at least at first. High investment in branding and marketing: for a product to be exclusive, you have to get that message across at all levels: design, quality image, packaging, advertising, etc. Not all companies can afford to make such an outlay.
When to apply a premium or prestige pricing strategy depending on the product type
When it comes to applying a premium or prestige pricing strategy, there are a few important things to consider.
First, you will need to consider the type of product you are selling. If you sell luxury products, for example, you may want to consider offering a higher price. This will help differentiate your product from the competition and generate a little more revenue. On the other hand, if you sell a more affordable product with a broader mass market appeal, you may want to move away from a premium or prestige pricing strategy and focus on creating an affordable value proposition.
In addition, the intended target market for your product will also influence whether you should pursue a premium or prestige pricing strategy. What do you hope to do: reach a smaller niche market with high-end products or appeal to a larger consumer base with affordable offerings? Depending on the approach, the most appropriate type of strategy will be different.
To give you some guidance, here we discuss what kind of products or situations are suitable for implementing a premium strategy.
Optimal product types and conditions for implementing a premium pricing strategy
Premium pricing can be used in marketing and sales to differentiate your product from others. For example:
Food products: often used to indicate that you are buying a product of the highest possible quality. High quality and/or high value items: such as cars, houses and electronics. A prestige price or price premium often indicates that it has more features and quality than other products below its price range. New or unique products: A retailer may choose to increase its profit margin by charging higher prices for a product if it has no competition. However, it must meet a compelling customer need because of its usefulness, originality and/or its manufacturing process. Ultimately, the correct use of a premium price will depend on the situation and the product-market context.
On the other hand, there are situations where applying a premium pricing strategy can be a great option. Here are 2 examples:
Launching exclusive products: when a new high-end product is launched on the market, it usually creates a lot of buzz because a strong investment has been made in its design and quality. This is the perfect situation to break down barriers to entry, attract attention and generate the general perception that it is a high-value and exclusive object. This is why it is very common to apply this type of pricing strategy for new products. Collections or limited editions: A premium pricing strategy can help increase brand loyalty among fans of the collection. You can even limit access to purchase to “repeat customers” only.
5 Requirements for implementing a premium pricing strategy
Before creating and implementing a premium pricing strategy, many factors must be assessed and, above all, we must analyse whether we have the necessary financial means to deal with this type of campaign.
So that you can put yourself in a bit of a situation, here are 5 important keys to take into account when implementing a premium pricing strategy and being able to set the final price of the product:
Thoroughly identify your potential customer.
This is the first and most important step. Without a good study, the strategy will not succeed. You have to understand him deeply. Know what he does, what he feels, what he longs for, what he is afraid of. Only then can you be sure that your product solves a need in him big enough for him to be willing to pay that kind of money for your premium product.
Take care of your branding and create the best possible marketing campaign.
The previous point is closely linked to this one. When designing the product, packaging it and selling it, it is important to always keep your buyer persona in mind. Know what you expect from him/her and make him/her feel important from the moment he/she makes the purchase decision until he/she receives the product. Everything must be consistent and work together to create a perception of exclusivity and prestige. Of course, marketing campaigns must project an image of quality and touch the right pain points of your customer to create an emotion in them that will lead them to buy your product irremediably.
Learn from those who did it first.
Study the products and the pricing and marketing strategies followed by your competitors or other brands selling high-end products.
Integrate their successes and correct their mistakes to maximise the effectiveness of your strategy.
Eliminate competitors that you want to distance yourself from.
If your product is going to be unique and exclusive, you cannot try to resemble or simulate what other brands of inferior quality do. Be it in terms of performance or service offered. Don’t waste your time on them. In any case, look only to identify how to make the gap between them and your brand bigger: highlight the points that your product has and the others do not.
Analyse and monitor your competition with a powerful price tracker.
Price monitoring software is a key part of any pricing strategy, including premium pricing. It helps you identify the right price point for your product or service, taking into account factors such as competition, customer loyalty and your overall budget.
By tracking prices over time, you can also identify trends, as well as cost increases and decreases.
This knowledge can help you make informed pricing and strategic decisions. For example, when to increase or decrease prices at the right time, improving your brand’s chances of success in the marketplace.
By following these points, you will be closer to making your premium pricing strategy effective and successful.
Examples of premium pricing
As we have already seen, premium pricing strategies are a powerful way for many brands to distinguish themselves from their competitors and capture a larger market share.
By offering high quality products or services at premium prices, these brands are able to appeal to relevant consumer segments, while earning a reputation for an elite customer service experience.
Thus, premium pricing is becoming an essential tool in the arsenal of many companies, helping them to achieve their marketing objectives and benefiting their customers in the long term.
In any case, something common to all brands that apply premium pricing strategies is their commitment to and investment in branding. Without it, they would not be able to project the image of prestige and exclusivity implicit in their product(s).
Below are some examples of brands that follow this type of strategy.
Apple
Apple is the premium electronics brand favoured by many consumers. Their products, with their flagship iPhone smartphone, have an innovative and totally identifiable design. They are one of the few brands that can justify a higher price tag, as their products regularly score top marks in performance, reliability and safety tests.
As a result, Apple can charge higher prices than its competitors and still maintain a loyal customer base.
Many people dream of owning an iPhone, even if they don’t really need one. This demonstrates the power of premium pricing, and is a very clear example of this type of strategy.
Nike
Nike is one of the most influential and successful brands in the world. Over the past decades, it has consistently found ways to stand out from its competitors and stay ahead of the market.
One of the keys to Nike’s success is the use of premium pricing strategies. They often select the best athletes or teams in each discipline to be their image.
What child or adult would not want to have the same shoe, T-shirt or sports accessory as their idol?
It is clear that, beyond being a high quality product, they are driven by the feeling of being closer to them.
Rolex
Rolex often uses premium pricing strategies to cater to a discerning clientele. By offering watches with high-end materials or unique features, Rolex is able to attract a niche of wealthy customers who prefer to spend their money on quality products and services.
Rolex is more than just a watch, it represents status and it is for this, not quality, that its customers actually pay.
Nespresso
Nespresso is a leading brand in the premium coffee market that maintains high standards of quality and design. It also invests heavily in branding.
The premium elements used in its products, such as aluminium capsules and special packaging materials, further enhance the perception of exclusivity compared to other brands.
Difference between different types of pricing strategies: premium, psychological, skimming and penetration pricing.
The types of pricing strategies that exist today are varied and constantly evolving. That is why it is essential for companies to be fully aware of their target audience and the type of product or service they intend to sell.
As a guideline, here are 4 examples of pricing strategies or different types of prices that can be applied.
Premium pricing
These types of prices have already been discussed at length in this article. These are strategies in which a premium price is set for the item or service based on the added value perceived by customers, in addition to its quality and/or performance.
Psychological pricing
Psychological pricing is a strategy used by companies to set their prices in relation to those of their competitors. This approach is based on the fact that consumers have a psychological threshold for certain products or services. Low pricing strategies can help companies to capture the attention of buyers looking for competitive prices. However, psychological pricing can also be counterproductive if the product is perceived as low quality or if buyers feel undervalued after being offered such a low price.
Price skimming
The price skimming strategy is commonly used by companies when launching a new product. The aim is to set the price as high as possible to maximise profit in the initial stages and make it exclusive (like premium strategies). Then, over time, prices are lowered as people become accustomed to these products and no longer see them as something special.
Penetration pricing
A market penetration pricing strategy is one that sets a special price for a product or service that is well below the market price. This offer is made for a limited period of time and is then offered at its normal price. Its objective is to create a competitive advantage for the company when entering the market for the first time and to hook those first users so that they will stay despite the price increase.
Examples of price penetration strategies include, among others, the start-ups Netflix and Disney Plus.
These are just 4 examples of pricing policies, but there are many more systems for pricing a product.
How to make a pricing strategy
One of the most common doubts that many e-commerce businesses have is how to price a product.
Before creating a differential pricing strategy, it is important to have a clear understanding of your costs, taking into account production costs, advertising costs, logistics, etc. Especially to be sure that you are not selling below cost price. This will help you identify where to focus your efforts, as well as identify key metrics you can use to track progress over time.
It is also essential to identify your pricing objectives. These may include driving sales through higher value add-ons, giving discounts to attract new customers, or simply reducing overhead costs to remain competitive in the marketplace.
Finally, you should develop a set of pricing strategies that will enable you to meet these objectives. This could involve developing a more expensive product that attracts a high-end customer base, providing discounts to existing customers to retain existing business, or even offering package deals that combine several products.
These are just a few criteria for pricing a product. There are undoubtedly many more, but we hope they have provided you with some guidance in learning how to price a product.
How to choose the best pricing strategy?
To choose the best pricing strategy or pricing method for your business or product, you should make a thorough analysis of your business and product. For example:
What are the prospects of your market, both nationally and within your specific niche. Study your competition and how they price their products. Consider how your pricing fits into your overall marketing plan and the overall objectives you are trying to achieve. Set the pace at which you would like to sell your product and the level of investment you need to make sure you have the right budget. In any case, the best pricing system for your products will depend on your own specific needs and objectives.
With these details in mind, it is possible to do a good product pricing analysis and put together a pricing strategy that is competitive and effective for your business.
Boardfy helps you define your premium pricing strategy
A premium pricing strategy is one that allows your company to charge more for your products or services and earn more money. You know that this type of strategy is not always good, but it can be good if it’s done right.
To help you succeed and discover how to do a price analysis, Boardfy puts all its potential at your disposal.
Don’t know how we can help you with your premium pricing strategy?
If you have an e-commerce and you don’t know us, we recommend that you take a look at our website as soon as possible to find out how Boardfy can help you sell much more and better.
And if you want to set a premium pricing strategy, here are some of our strong points:
Keep track of your costs: Boardfy constantly monitors the margins on your products to make sure you are never selling below cost. Spot your opportunities: find out in which products you have no competition to maximise your profit margins. Choose who you want to compare yourself to: eliminate all low-quality competitors and focus only on the data that interests you and gives you valuable information. Build a smart pricing strategy: our Price Intelligence helps you set an effective pricing strategy based on real data and supported by artificial intelligence. Monitor and analyse your competitors’ prices: Boardfy is the fastest price monitoring and Dynamic Pricing tool on the market. When a company decides to implement a premium pricing strategy, it must carefully evaluate the competition, assess their strengths and weaknesses and then determine how to match or beat those prices.
Try Boardfy today and see how it can help your premium pricing strategy.
Price monitoring is a vital tool for implementing a premium pricing strategy and maintaining customer loyalty.
The information obtained through price monitoring will allow you to perform a price analysis and modify the offer or even lower or increase the price of a product, in order to maintain or regain the desired position in the market.
If you choose Boardfy to help you do this, you will never be alone.
Our team of experts will help you monitor the price of your products and suggest the best way to make more profit through different pricing methods.
Contact us today and get a free demo!
