Prestige Pricing

Prestige pricing is a strategy where marketers set the price of a product much higher than the market average. In some cases, brands that pursue this strategy are truly superior to their competitors. Usually, however, the level of quality difference between the premium brands and the others doesn’t truly reflect the difference in their prices. Rather, even if the products are similar, prestige prices are significantly higher than the market average.

Not for all, but prestige pricing might be the best strategy for at least some of your products. That’s why in this post, you’ll learn what prestige pricing is, its importance, how you can implement it into your ecommerce store, and how to make sure it works with you rather than against you.

Why Prestige Pricing is Important

Research suggests that the consumption of luxury products has intangible benefits which can be identified as emotional value. That’s why shoppers are willing to pay a lot more for high-end products, even if the quality difference doesn’t match the price difference. But then, what makes them high-end products in the first place? Instead of focusing solely on product quality, we should also direct our attention to the brand image. 

Brand literature claims that brand image dominates the quality of the products under it. Prestige pricing is all about brand perception and how your customers view the image of your company.

If your customer thinks your brand has value, they’ll be happy to pay a premium (prestige) price. Think about it, if you’re prepared to buy an Apple product, you rarely look around to see if you can find a cheaper alternative. You already know you can, but what you’re buying is the value of Apple.

Consumers attribute high prices to quality. Interestingly, scholars argue that they also perceive high prices as a positive indicator of prestige. Meaning, merely setting higher prices also improves the brand image.

Factors Influencing Prestige Pricing

Launching a New Store or Product

If you’re launching a new store or product, implement prestige pricing to generate a certain degree of hype around it. It can generate a feeling of exclusivity and prestige. People are keen to get their hands on the latest and greatest things.

When There is a Limited Amount of the Item

If a supplier has launched a limited number of a new product, and you managed to get your hands on that limited stock, you should apply prestige pricing. Think about trainers. Many trainer companies release limited edition trainers, where they’ll only create a set amount of trainers. Let’s assume a brand can release only 500 pairs of shoes, and they are only stocked in two stores. The trainers only cost 180€ but could generate up to 3,500€ in resales. This is all down to the prestige value of the items.

Advantages of Prestige Pricing

Improved Profit Margins: Needless to say, if you increase the sale price of a product, you’ll obtain higher profit margins. Even if fewer people can afford to buy iPhones than a Xiaomi phone, Apple’s smartphone profits are four times larger than those of its closest follower, Samsung. Meaning, you can make more profit with fewer people.

Improved Brand Value: As mentioned above, brand value and prestige price have a mutual relationship. While a high brand value allows a brand to implement prestige pricing, in turn, prestige prices improve a brand’s value.

Disadvantages of Prestige Pricing

High Marketing Costs: As a prestige brand, you need to convey that your products are high quality, and that means marketing your products in the same manner. Brands like Nike and Adidas will spend millions per year on marketing and advertising. The thing is though, it works.

Limited Customer Base: Although with prestige pricing, you lower the number of people you can target, you increase the number of adoring fans you have. Dedicated fans who will (in some cases) only wear or use your brand. Furthermore, they promote your brand without any expectations.

Wrap Up

If you want to market your product as prestige or premium, you should have the prices to go with that. In general, people assume high prices are synonymous with high-quality. As a result, brands are able to charge a premium for their products. Why not see if your brand could increase profits using a prestige pricing strategy!