What is Prestige Pricing? Definition and How the Strategy Works

If you want to increase the profit margin of your E-commerce business, charging higher prices is one of the most efficient solutions. To maximize earnings, some brands implement a prestige pricing strategy; however, it is not equally suitable for all companies. This article explains how prestige pricing works and describes the psychological factors behind it. Also, it covers the pros and cons of this strategy and will help you understand whether it is appropriate for your brand.

A person with a limited budget or a corporate buyer may find a cheap price alluring, yet someone with a high social status or certain quality requirements is ready to pay extra. Prestige pricing, usually referred to as premium pricing, it is a strategy that aims at selling expensive products to higher market segments.

Companies should offer genuinely high-quality products, or at least products that are regarded as top-notch, for this strategy to be effective. The approach will fall short if people don't see any value in an overpriced item. Also, this strategy requires more marketing expenses than sales of regular goods, because the company needs to build a brand image that creates a premium perception in consumers’ minds.

A premium pricing strategy is based on the assumption that certain consumers will pay extra for a product's image, but won't further research the value of the product relative to the price they are paying. Therefore, this tactic might provide the business with a psychological marketing benefit, since it will make buyers believe that the price they are paying is worth the increased value.

You can implement prestige pricing in different ways (separately or by combining those). Below are three techniques that are widely used in E-commerce and other industries.

Associations with other high-end businesses or endorsements from celebrities who are regarded to be in the upper class themselves can make people think of your business as belonging to the premium segment.

This method of pricing entails choosing a price that consumers will unavoidably identify with a high-end item. Prices that end in the number nine, for instance $7.99, give the sense that you’re offering a bargain, while prices that end in zero imply luxury.

Even though it may seem contradictory, limiting the market's supply of your goods might eventually increase sales. The sale of limited-edition goods at a premium is a great example of prestige pricing. When combined with a top-tier brand image, these offers create the appearance of scarcity, which can heighten interest anytime you reveal a new product. This phenomenon is often used by well-known clothing fashion labels to create hype around each limited-edition collection of goods.

Prestige pricing can be applied to nearly every industry that provides goods and services to customers. Here are the most common examples:

1. Airlines. The majority of airlines offer business-class tickets with a booking price that’s 200-300% of regular tickets. They are intended for people who need top-tier services and maximum comfort during flights.
2. Watches. There are hundreds of watch brands on the market, but high-class customers still prefer Rolex despite their high price. Not only do Rolex watches ensure exceptional quality, but also exhibit buyers’ financial wealth.
3. Premium jewelry. The diamond industry is characterized by prestige pricing, since not many people can afford diamonds, and expensive jewelry highlights their financial status and wealth. Cartier and Tiffany are good cases in point.
4. Cars. The automobile industry also features a few top-tier brands with premium pricing, for example, Lexus, Mercedes, Porsche, and Lamborghini.

A price discrimination strategy can be executed in different ways. Here are some examples that will help E-commerce projects make their pricing more flexible and effective.
Prestige pricing is regarded as a psychological pricing approach because it doesn't solely rely on competitor prices or the cost/value ratio. Since this method is more intricate and heavily depends on customer behavior, it might be compared to a marketing ploy because it is reliant on your branding and marketing efforts. If you charge more, it will help to build a prestigious environment around that product, but you will have to employ other marketing strategies to emphasize it.

There is a clear correlation between the price you charge for a product and the image you create for it. You wouldn't want to damage your company's reputation by charging a low price if you have already invested in marketing that would persuade clients that you offer a premium good or service.

The first crucial point is that buyers frequently fail to distinguish between worth and price. Therefore, a product's value increases with price. How often have you heard someone claim that a Lacoste shirt is roughly equivalent in quality to one from H&M? We all can occasionally think, "These watches cost much more than the others – there must be something remarkable about their features and performance," however this isn’t always true.

If you do in-depth research, you may reveal that premium-priced products aren’t superior in quality to their counterparts from less well-known brands. Despite this discovery, you may occasionally choose a costlier alternative. Why does that happen? Because premium pricing is based on the following consumption patterns:

1. People buy a brand name when everybody around prefers it. Have you ever wondered why Apple, Nike and other giants put their logos right on their goods?
2. People buy just because they are financially capable of purchasing a prestigious product.
3. People buy something unique or very limited to enjoy the fact of owning a unique product that no one else can possess.

If used correctly, premium pricing may be a potent growth and profit-generating tactic. You can implement prestige pricing to appeal to clients who don’t just want to make a purchase, but have a certain experience and exhibit their own prestige if your company has a captivating story, a dedication to product quality, and unique selling factors.

You can position yourself as a premium brand, but if your goods fall short of what your advertising claims, consumers will eventually view them as an unnecessary expense rather than a luxury.

You should try a prestige pricing approach if you can show that your items are truly better than similar ones in terms of quality. But keep in mind that if your present clientele has poor price elasticity, raising your prices may drive some of them away. Pretty often, the product launch stage is a better time to apply this strategy.

Launching a new product that is specifically targeted at the top of your market is another method to enter the world of prestige pricing. This approach won’t impact existing customers, and might even introduce you to a new market.

If there are no comparable, high-quality alternatives for your goods, prestige pricing might be used as a growth strategy. You can charge a premium for your items if consumers receive what you promise.

Both premium and value-based pricing approaches rely on the value of the product rather than production costs. Leverage whatever distinctive qualities your items may have in order to justify their premium cost.

A luxury pricing strategy works well with limited edition items. Launching items in small batches creates a feeling of exclusivity, so adding premium pricing to the mix can make customers crave your products.

No matter how excellent your items are, you can never charge more than what your consumers are willing to spend. The demands and preferences of your consumer base must be reflected in your pricing approach.

If you're thinking about adopting a prestige pricing approach, use price intelligence to evaluate prices throughout the market and determine potential prestige pricing levels. This will enable you to set a price point that identifies you as a premium brand without being wholly removed from the reality of your market, while also being more targeted and data-backed.

A company introducing a new product or attempting to improve the perceived value of its products might profit greatly from a prestige pricing approach.

Pricing your product higher is typically done as part of a larger marketing strategy that emphasizes your status as a luxury brand that produces high-end goods. Customers won't be ready to spend a lot of money on low-quality items, but if you can support the price with a strong brand reputation, they could change their minds.

By charging more for its goods, a brand can increase its profit margin without capturing a bigger market share.

Some wealthy customers choose premium products that align with their social status. In other words, by raising the brand value as a whole, you may attract a whole new group of target clients who are seeking higher-quality goods.

Prestige pricing's main drawback is that it’s based on the assumption that your target market will buy products because of the brand image you've built. Essentially, prestige pricing only functions as a component of a whole brand image strategy, not only as a means of promoting pricey goods and boosting net profit margins. Ideally, you should be able to justify the price tag with a high-quality product and a carefully crafted brand image.

A prestige pricing strategy means charging a higher price for products with unique properties or superior quality. It is used to target customers with a high purchasing power or with a high social status. This strategy works well for well-known brands, for instance, Rolex or Apple. However, your E-commerce business can implement this pricing approach as well.

For premium pricing to work successfully, you need to make sure that the delivered product quality lives up to buyers’ expectations and use high-quality marketing that communicates your brand’s positioning.

As with any other pricing strategy, it is crucial to maintain competitive rates – and this is where automation comes in handy. With the help of Priceva’s price optimization tool, you can ensure that your premium pricing won’t compromise demand. And if you distribute your goods via resellers, MAP monitoring software can help you track their pricing policy and will notify you in case of dumping.

First, prestige pricing allows sellers to maximize their profit margin. Second, high prices create the impression of a high-quality product and help companies build a luxury brand image.

Prestige pricing is efficient only when a product's high price is justified by its superior quality or uniqueness. If customers realize that there’s nothing special about the product, you risk losing the audience and getting bad reviews. Also, competitors may come up with substitutes for your goods and get your market share if they manage to offer better prices.

Not exactly. Price skimming is only used at the beginning of the product’s life cycle: a seller charges extra when a product is new, unique, and does not have any equivalents on the market. As competitors start introducing similar products, the seller reduces prices to retain a market share. When it comes to prestige pricing, the cost of goods stays permanently high.

Indeed, Apple charges more than the majority of competitors, but in this case, the premium price is justified by innovations, high-end technologies, and the sleek design of its devices. Thanks to the superior quality of its gadgets, Apple has become a well-established brand with a flawless reputation.