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The premium pricing strategy is one of the four strategies used by marketing managers when it comes to positioning their products and services in the marketplace.
The Pricing Strategy Matrix
There are four main positions that products and services fall under when they’re being priced. The matric below shows the different pricing strategies used based on the price of the product and its quality.
This strategy is used when the price, as well as the quality of the product, is high.
What Is The Premium Pricing Strategy?
Have you ever wondered why some pieces of art are worth millions of dollars while others aren’t? Of course, this has got a lot to do with historical value but that’s not all. When it comes to art, branding, or anything that you can’t understand the quality of just by looking, price takes control.
Let’s say you just created a piece of art and you wish to sell it. You initially think “hmm.. I guess I’ll sell this for $5”. Maybe you think that if you reduced its price, people might be more inclined to purchase it. Chances are, no one will buy it from you. Ironically, the chances that they buy your artwork would increase if you raised the price. Shocked? Well, there’s a scientific reason behind it.
The human brain tends to assume that the costlier an item is, the higher its quality. Therefore, if you were planning on selling an artwork, the chances of you selling it might be higher if you raised its price point.
Premium Pricing Strategy Examples
1. Casio vs Rolex
A Casio watch is able to tell you the time and even has a few more functions within it. But you’d still pick a Rolex over a Casio any day. This is because Rolex set itself inside the customer’s minds as a status symbol rather than just a timepiece.
2. Toyota vs Lamborghini
A regular Toyota can get you from point A to point B and solve all of your daily transport hassles but people still choose to travel in a Lamborghini. This is because just like Rolex, Lamborghini has set itself in a certain standard where owning one is quite a prestige and will do a lot more than take you from place to place.
3. Forever 21 vs Gucci
Forever 21 has a lot of decent pieces of clothing for anyone and probably has a lot more options compared to Gucci. However, people crave to own Gucci products way more than Forever 21 products because Gucci is a lot more expensive than Forever 21 and owning one shows that you’re well-off.
The Premium Pricing Strategy Situations
There are different situations where one can make use of the premium pricing strategy. Making sure that you’re in one of the following categories before making use of this strategy can increase the overall effectiveness.
1. Early Introduction
If your product is brand new in the market, premium pricing could be an advantage to you. If you enter the market at a premium price, people are more likely to accept the price point rather than if you increase it later on. As a plus point, people will get the general idea that your products or services are of high quality just by glancing at the premium price.
2. Limited Production
If your products are limited edition, or if they are only produced in limited amounts, it is a very good opportunity to make use of the premium pricing strategy. The limitedness of your products justifies the premium price point and hence, people are more likely to purchase the products.
3. Luxury Products
If you want your customers to view your products as a luxury brand, pricing them at a high price point might be just what you need. Like I mentioned previously, when quality is difficult to differentiate, people tend to use the price as a marker.
If you have a product or service that is different from everything else that currently exists in the market, you can make use of the premium pricing strategy. Unique products are generally known to have a higher price point and hence, will justify yours.
If you have a product or service that you have the patent for, you have a huge advantage over your competitors. You are the only one who can create and sell your products. This means that you’re in a perfect position to price your products at a premium price point.
How To Use The Premium Pricing Strategy
There are a few necessary steps to take when it comes to pricing your products with this strategy. How successful you are at making sure that you follow these steps will define how effective your pricing strategy will be.
1. Identify the features
It is important that you do good market research to identify the exact features that your product or service needs in order to stand out from the rest. Find out what the market is willing to pay more for if they can get it in better quality.
2. Justify the Pricing
It is important that you justify the price point that you have chosen for your product. If you can prove to your market that you have more than enough reason to charge your customers a premium price for your product, they are more willing to purchase them.
3. Add Extras
Everyone loves getting anything extra. If you’re charging a premium price, make it a point to give something a little extra to your customers. You can even go a little further and accessorize the product a little bit more. Going for a more luxurious packaging or adding extra layers of protection to secure the product can go a long way.
4. Maintain Price Point
No matter what, do not reduce the price point of your products. This is mainly because if you do, they will either assume that you aren’t using high-quality materials to make your products anymore, or that you simply have been ripping them off all along. Other than when you give small discounts to your long-time loyal customers, try to keep this one steady.
5. Project Stability
Customers love to see a company that will be around for a long time. So, always try to show the market that your company is doing well by maintaining financial stability and coming up with continuous improvements to your products and services. A stable company is one that any customer would love to support.
So there you go! This is all you need to know about the premium pricing strategy. If you’re starting a business, doing research, or simply just reading through, knowing this strategy will help you a lot. If you found this article useful, leave a comment and remember to check out my other articles! Do remember to follow us on social media – Smartiac and Smartiac Finance.
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