Premium Pricing
Premium pricing is also known as Prestige pricing. It is a strategy to keep prices higher than the competitors to differentiate your product on the basis of price. This also creates a perception that the product is of high-quality and thus the prices are high. It works best in 2 scenarios:
- No competitors are present in the market and consumers are willing to pay higher prices to get the product
- The product is premium in nature as high quality, high perceived value etc…
Benefits of Premium Pricing
Premium pricing can lead to higher profit margins. It also creates a positive brand image and perception in consumer minds. It also raises the barrier to entry in the industry as companies will have to create a similar quality product and similar pricing to compete. A low price product is considered of cheaper quality.
Cons of Premium Pricing
A higher-priced product must have a unique value proposition to consumers. The product must be able to differentiate itself from the rest of the competitors. Thus, a major chunk of costs is incurred in product research and development. Premium pricing also limits the company’s ability to sell in mass-market; owing to higher prices. Also, if similar products are available in the market at lower prices, then premium pricing might not work.
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