Premium Pricing Strategy: An Overview for Brands

Sometimes when you buy clothes from a “luxury” brand, you’re actually getting better quality for your money. Maybe the product is made with more durable materials, is more sustainably sourced, or even just looks better. And then, sometimes, a “designer” T-shirt is…well…just a T-shirt.

What’s interesting, though, is that, in the latter case, people are often still willing to pay higher prices for that product. That’s because there’s a perception that they’re getting more for their money—especially if the product is associated with a particular brand that they like. And regardless of the objective “quality” of their products, there’s a pricing lesson every brand can learn here.

By adopting a premium pricing strategy, you can leverage the power of perception to give products or services a more premium association simply by setting the price higher than your immediate competition. Since it bases your price on your competitors’ prices, premium pricing is considered a kind of competitive pricing strategy.

But is a premium pricing strategy right for your brand? In this article, we’ll help you answer that question by looking at a few major reasons to consider using a premium pricing strategy, and then we’ll go over a few drawbacks.

Reasons to use a premium pricing strategy

Even with psychology on your side, you don’t want to crank up your prices without a good reason. Remember, you have to find the balance between appearing overpriced and appearing higher quality. If you simply take an average product, increase its price arbitrarily, and offer no explanation for doing so, consumers will be a lot more likely to perceive it as being overpriced than a premium offering. You have to be able to justify your prices. Give customers a reason to believe the higher cost is worth it.

Let’s go over a few factors that may justify using a premium pricing strategy.

Yours is a truly premium offering

The most obvious reason to use a premium pricing strategy is if you have a truly premium product or service. This could be the case for any number of reasons:

  • Your manufacturing process could be better, resulting in a higher quality product.
  • Your product could be produced more ethically or sustainably.
  • You could have a longer warranty, ensuring customers that your product will stand the test of time.
  • You could offer more features than the competition.
  • Your product could be easier to use, faster, or more comfortable.

As long as you have solid explanations for why your product is better, you can justify charging more for it.

You own a patent or copyright

Having a desirable patent or copyright gives you the chance to set your product apart with something your competitors are legally prohibited from copying—unless of course you permit them to pay you for the privilege. And even once the patent expires, customers will often continue to associate that offering with your brand.

For example, when you ask for something to help with a headache, you probably don’t ask for acetaminophen—you ask for Tylenol. That’s because the patent they received gave them a head start in the market. And even though generic options are now a dime a dozen, Tylenol gets to hold onto the premium branding.

Of course consumers have to actually want whatever your patent or copyright allows you to offer. But assuming they do, you have a solid reason to charge a premium for it.

You’re introducing something new

A premium pricing strategy doesn’t have to mean that the price stays high forever. Sometimes it’s worth launching a product or service with a premium price while intending to lower the price over time. Early adopters are often willing to pay more in order to acquire something sooner than everyone else. After a few months or so, once the early adopters have had their chance, you can lower prices a bit, and you may consider doing so again a little later.

This variation on the premium pricing strategy is known as price skimming.

You have a premium option

You don’t necessarily need to apply premium pricing to everything you offer. If you have a line of products or services, you can set premium pricing for one or a few of them.

If you have the capacity to provide multiple options, this can be a great strategy because you cater to economy and premium shoppers alike. Those who just want something basic that works can choose your more affordable option, and those who want the best can choose your premium option. Everyone wins, and you don’t lose sales to either segment.

Drawbacks to using a premium pricing strategy

If getting customers to pay premium prices was easy, every brand would do it. But that isn’t always the right move. Here are a few drawbacks of a premium pricing policy.

You need to establish your premium status

As we’ve already mentioned, you can’t arbitrarily raise your prices and call it a day. That’s just asking customers to switch to another brand. If you’re going to charge a premium, you need to convince consumers that your offering is worth the higher price.

That means you’re going to have to work extra hard to explain what sets your offering apart. Make sure to highlight any features, benefits, or advantages you provide over the competition.

And it also means you need to give your customers a better overall experience. A premium product shouldn’t show up in an unmarked box surrounded by nothing but packing peanuts. Everything about the packaging, presentation, and service consumers receive should communicate that they’ve purchased something special.

You may see lower sales volume

When you charge a premium, you cut off certain customers—those who can no longer afford your prices and those who simply are not willing to pay them. Losing some customers can be fine, as long as the increased profit per sale makes up for the loss of sales volume. But you have to be careful not to raise prices too high, or your better margins could hurt your overall profits.

You’ll have to enforce your pricing policy

The need for MAP pricing enforcement isn’t unique to premium pricing. Whatever your price, you should have a pricing policy, and you absolutely need to enforce it. However, using a premium pricing policy makes enforcing your pricing all the more important.

When selling a premium product or service, your price is a vital component of your brand integrity. Those higher prices communicate to potential buyers that yours is the better option they should be considering.

But if rogue sellers are allowed to price your products too low, then consumers may stop seeing them as premium offerings. And when one seller tries to undercut your prices, others tend to follow. Before you know it, your products could be completely devalued.

Monitor your prices with Prowl

Prowl is the most advanced MAP monitoring software available. It crawls every site your SKUs appear on, comparing prices to your pricing policies. When it detects a pricing policy violation, it takes a screenshot of the violation and notifies you. You can build and customize templated MAP violation messages.

Since Prowl crawls everywhere your products appear, it can track both authorized and unauthorized sellers, helping you find new sellers you’d like to partner with or those you need to eliminate.

MAP enforcement is impossible without price monitoring. And price monitoring is impossible at scale without tools like Prowl. Be equipped to attack while running with best-in-class MAP monitoring software. 

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