What is a Premium Pricing Strategy: Complete Guide

One of the most profitable strategies, premium pricing seems to be a privilege of globally acknowledged luxury brands. However, it can be successfully implemented by smaller companies if they do it right. Read this guide to find out what premium pricing is, how it benefits sellers and what risks it implies, and get pro tips on executing this strategy for maximum benefit and gaining competitive advantage.

A premium pricing strategy means charging higher prices than competitors to create the impression of a high-end product. Sometimes, these prices are really justified by better features or experiences, and sometimes the seller wants to make customers believe that the brand name itself is a guarantee of better quality.

Hence, there are two occasions when premium strategy works properly:

1. The brand produces genuinely high-quality or unique products, which makes them worth the money.
2. A company enters the market with little or no competition, and customers are ready to pay extra for products when no alternatives exist.

It should be noted that premium pricing is used alongside a well-developed marketing strategy that enhances brand perception.

These two methods involve setting high prices right from the start. However, they have a few differences:

We could take any luxury brand as an example of premium pricing. If you need a T-shirt, you can order one on Asos for $10-20: it’s of decent quality and will last for a while. On Balenciaga's website, similar T-shirts cost $450-650, and consumers are ready to pay because they perceive the product as higher quality and regard it as a status symbol.

If you need a car to commute to work, you can buy a brand-new Honda for around $25,000. However, some customers would rather drive a Lamborghini, and they are willing to pay more for it. A typical Lamborghini goes for $200,000 on average and is believed to be of exceptional quality, not to mention that it’s more of a prestige symbol than a Honda.

Premium strategy of pricing is not the easiest approach around: it requires quality management, proper marketing and detailed market research. Will so much effort pay off for your company? You need to weigh all the coadvantages and drawbacks — let us observe them in detail so that you could understand whether this strategy is applicable to your business.

There are several cases when brands charge maximum sums for their assortment. Let's discover when it is appropriate to use premium pricing.

A good case in point is Apple. Although the company uses price skimming (charges the highest amount for newly released models of iPhones and MacBooks), it also practices a premium pricing strategy. Their success can be explained by the fact that customers are looking forward to testing new features and some users regard Apple products as a status symbol.

The company invests heavily in omnichannel marketing and provides teasers and presentations that fuel interest and motivate people to buy new devices as soon as they get released. While devices from previous collections become cheaper (which is a part of the skimming strategy), many people are still eager to overpay for accessing the latest models.

Scarcity of supply is one of the things that encourages status-conscious customers to pay more because they enjoy owning exclusive items. Launching a limited collection evokes a sense of urgency in people: it creates a perception that only a few privileged buyers will be able to use the product.

The efficiency of a premium pricing strategy in this case can be boosted with the help of well-developed marketing campaigns targeted at a certain market segment, not a mixed group of customers.

As we have mentioned above, premium pricing is a very demanding approach. It’s not enough just to charge higher prices – it should be justified and properly calculated so that buyers would be willing to spend money on the product. Here are a few crucial guidelines for leveraging a premium pricing strategy successfully.

If you want to charge more, you need to justify a high price tag — no one likes being cheated and overpaying for nothing. So, what can be a reason for users to pay extra?

• Better overall quality, which results in durability and reliability of a product.
• Improved contents (often used for healthy foods and organic cosmetics).
• Unique and exclusive design.
• Innovative features and patented technologies.
• Unmatched experience and performance.

The product or service has to be outstanding so that customers will see the value they pay for.

To highlight your product’s status, it is crucial to communicate the right message visually. You need to create a premium look and feel, so that it will highlight your brand identity and build the right image. Marketing of premium-class products is more expensive, so get ready to invest more in advertising and design.

With premium price exceeding mass market ones by multiple times, customers expect some really exciting experiences for the money they pay. What does that mean?

If you have ever been to a high-end boutique, you know what sort of in-store ambiance they create: starting from elegant shop window design and finishing with interior fragrance, everything embraces the customer with a feeling of luxury.

Can the same be delivered in the e-commerce industry? Sure! Status-conscious online buyers also expect special treatment which can be expressed in:

• Highly-customized, exclusive website design that aligns with the brand’s signature visuals.
• Personalized customer support with timely response.
• Fast and convenient delivery.
• Extra quality packaging.

On the contrary, if your website is templated and lacks customization or at least decent customer service, it will impair your brand image. Think of every service detail to deliver an unmatched user experience.

All the above-mentioned points will be worthless if you choose the wrong messaging. Upper market segments have different needs than mass markets. To justify premium prices, you should ask yourself one important question: “What do my customers want?” Exclusivity, unbeatable quality, flawless customer support — these are standard expectations.

Perform in-depth research of your target audience to learn about their desires and win their hearts with your products. Don’t forget about the individual approach: personalized messages are more appropriate when it comes to premium segments.

Apart from exceptional quality, which is the bare minimum for a premium product, consumers also expect some uniqueness and status that come with the purchase. This is why you need to differentiate from competitors and introduce features that make your products special.

For the SaaS industry, these might be patented technologies. For clothing and shoes, a unique design created in collaboration with celebrities or famous bloggers. Premium foods can be 100% organic, and so on. The idea boils down to offering something that makes people feel like they’re buying the most exclusive and top-quality goods.

Many customers do not just wear and use brands — they want to show off and use these products as status symbols. From sports cars to expensive sneakers, many premium brands leverage unique attributes that make them easily recognizable. Visual identity, messaging, positioning — all these details should align with what a person aspires to be.

Upper market segments are not the kind of people who wait for weeks or months to buy a favorite product at a discount. Sales are not likely to motivate them to make a purchase. Worse than that, promotions and big discounts can remove the veil of exclusiveness from your products and kill the product’s perceived value in the audience’s eyes. With so much time and effort spent on building prestige brand associations, this pricing strategy is not worth the reputational risks — the damage might be irreversible.

Before implementing a premium pricing strategy, weigh all the pros and cons. This approach is not suitable for companies targeting the mass market unless they are able to segment their products. And keep in mind that you need to justify the price, otherwise you will lose buyers’ trust after their first purchase.

Also, be ready to compete with strong brands: premium sellers allocate a lot of resources into market research, great positioning and quality promotional campaigns. It’s not enough to offer a high price — you should be able to adjust it according to market changes. With Priceva’s price optimization software, you can figure out the best possible rates for your product categories. The tool automates price analysis and provides pricing suggestions based on elasticity of demand. Gain competitive advantage with adjusting your premium price.

This pricing strategy implies setting a higher-than-average price for products and services. There are no upper limits, but the cost should be justified by exceptional value delivered to consumers. Premium products should be of high quality or unique.

The pricing strategy delivers nice results if it is implemented in the right way. When a seller targets upper market segments and finds the appropriate messaging, it evokes a sense of exclusiveness and quality that consumers are ready to pay for. Although this strategy requires more sophisticated marketing, it pays off thanks to the higher profit margins.

There are two ultimate goals of premium pricing. Firstly, it allows the company to increase profit-per-unit and boost overall revenue. Secondly, this pricing strategy is used to build a prestigious brand image and make it associated with status and luxury.