How Premium Pricing Strategy Works (Pros, Cons & Top Examples)

Launching a product or service into the market requires many considerations.

Towards the top of the list is the pricing strategy.

This strategic decision should consider factors such as the target market, the positioning strategy and the brand’s perception.

One brand may choose to lead with a low price strategy for early market penetration while another brand might choose a premium pricing strategy for enhanced brand perception and long-term advantage.

In this article, you’ll learn what a premium pricing strategy is, how it works, the pros and cons of this approach, and some of the best premium pricing examples.

Launching a product or service into the market requires many considerations.

Towards the top of the list is the pricing strategy.

This strategic decision should consider factors such as the target market, the positioning strategy and the brand’s perception.

One brand may choose to lead with a low price strategy for early market penetration while another brand might choose a premium pricing strategy for enhanced brand perception and long-term advantage.

In this article, you’ll learn what a premium pricing strategy is, how it works, the pros and cons of this approach, and some of the best premium pricing examples.

What Is Premium Pricing Strategy? (Pros, Cons & Best Examples)

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What Is Premium Pricing?

Premium pricing (or prestige pricing as it’s also known) is a pricing strategy used by businesses and brands to elevate the perception of the brand and increase their profit margins by pricing their products higher than the competition.

Higher prices are associated with higher quality and when this message is amplified through integrated marketing, it helps to shape the perception and reputation of the brand as a premium choice.

Why Use A Premium Pricing Strategy

There are many reasons a business might choose to use a premium pricing strategy when setting their prices in the market.

One of the most obvious is the association with quality.

As people, we’re still quite primitive and many of our buying decisions are made in our subconscious

How the premium pricing strategy works illustrates our primitive nature which you’ll understand through your own buying experiences.

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The Psychological Impact Of Price

Generally speaking, when we see a higher priced product, we associate that product with higher quality.

In reality, this isn’t always true, but our brains have been making short-cuts for millions of years to help us survive and this is an engrained shortcut that we’re all hardwired with.

Now of course, the closer we get to that buying decision, the more we’ll use our neocortex to analyse other aspects of the buying decision, though the high price-point instantly aligns the brand with higher quality.

This also comes with plenty of emotional benefits as well including peace of mind, excitement through experience and a sense of elevated status.

And we create this image based among other things on the price tag attached.

When To Use Premium Pricing

Premium pricing isn’t always an applicable strategy and in some cases, it may very well be the wrong strategy depending on the target market and desired position.

Premium pricing may be used in the following scenarios

Luxury Association

Brands that want to establish a sense of prestige and luxury will most likely leverage a premium pricing strategy with higher prices compared to their closest competitors.

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First Mover Advantage

Brands with first-mover advantage or early introduction of a new product or approach can set the benchmark with premium pricing in the category.

Exclusivity

Where production is limited (for example they can only produce a set number of units per year), brands can set premium pricing to establish a sense of exclusivity.

Patented Process

Brand’s that are able to protect their unique process with patents can establish a competitive edge and set premium prices without fear of being undercut.

High Barriers For Entry

When a business has access to extensive funds, they have an opportunity to create products with high quality that competitors will struggle to compete with.

In this case, the added cost is passed on to the consumer through a premium margin is also expected.