What is a Premium Pricing Strategy? (Pros, Cons, Best Examples)

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What is a Premium Pricing Strategy? (Pros, Cons, Best Examples)

In recent years, e-commerce has become a huge part of our daily lives, with online stores and big brands making millions with digital sales. But, interestingly, even small-time entrepreneurs can create their online store and start selling.

One of the biggest questions is the pricing of your products and services. Premium pricing, for instance, is one of the strategies you can take. Hence, here’s everything you should know about premium pricing, its advantages and disadvantages, and some examples of the used strategy.

What Is A Premium Pricing Strategy?

Simply put, the premium pricing strategy reinforces the quality of goods and services by artificially pricing them higher. Also known as “prestige pricing” and “image pricing,” luxury brands often use this technique from industries such as supercars and fashion.

When starting your online store, the premium pricing strategy could work in your favor or against you. Big names like Gucci and Apple can pull it off precisely because of their popularity (and because their products are known for their quality), but a small business will have a harder time with this technique.

If done right, the premium pricing strategy can be incredibly effective and help you achieve various business and marketing goals. However, like with any other e-commerce technique, you should consider different advantages and disadvantages before using this strategy.

The Pros of a Premium Pricing

First and foremost, premium pricing can significantly increase your revenue. Because you are pricing your goods at a significantly higher price than the standard market value, you will be making way more with your sales than you would with a lower pricing tactic.

Another way premium pricing can be useful is that all the revenue you bring in will help you grow and develop your business. Expanding into new markets will be much easier than it would have been with a smaller budget.

By pricing your products and services higher (while keeping their quality high), you will develop a positive brand image for your company. Customers will expect to get high-quality products and will be glad to pay more to have such products.

If you are successful and your business becomes a big player in your niche, you will raise the entry barriers into this niche. But on the other hand, this means that you can expect fewer competitors, allowing your business to expand even more.

The Cons of a Premium Pricing Strategy

While there are many great things to say about the premium pricing strategy, there are some drawbacks. Walter Moore, an expert from the custom writing reviews site Writing Judge, explains it this way, “The premium pricing strategy is a psychological one. This means its success depends on various factors that can’t always be predicted with absolute certainty.”

Using the premium pricing strategy, you can expect higher product development costs. This is because you must have a unique selling point to persuade your customers to purchase your products and services to justify the higher selling price. Therefore, such development costs could seriously impact your profits later on.

In addition, the premium pricing strategy is usually used for luxury goods, which means you won’t be able to sell to the mass market. Of course, this might not be an issue for some niches. Still, small business owners must be careful with the premium pricing strategy if their primary target audience is directly connected to mass-market appeal.

Lastly, you can expect to be more vulnerable when using the premium pricing strategy. When you price your products and services higher, your competitors could start using undercutting tactics that could seriously harm your business.

Examples of a Premium Pricing Strategy

Now that you know everything about the pricing strategies, it’s worth looking at examples of how brands are already using them. These examples will give you a better idea of what the strategy looks like in practice and how different companies approach the strategy in slightly different ways.

As mentioned earlier, luxury brands often use this pricing model—for instance, Rolex prices their watches at tens of thousands of dollars. While the quality is certainly there, such prices will sound ridiculous to most people. Yet, Rolex is one of the most well-known brands in its niche and is still very popular.

Similarly, luxury car brands also use the premium pricing strategy. For example, Bentley cars are priced at hundreds of thousands of dollars because of their quality and because people interpret the theme as a status symbol. Driving a car like this (like wearing a Rolex watch) shows you are wealthy and have a high and stable position in society.

Apple is the most well-known example of premium pricing done right in the tech world. The company continues selling its products at very high prices while appealing to the mass market. As a result, Apple has the kind of brand loyalty that many other companies aspire to build someday.

SaaS companies aren’t always successful with the premium pricing strategy, but they can still profit from it when doing it right. For example, Salesforce uses a combination of premium and regular pricing by offering plans like “Unlimited” and “Essentials.” In addition, an interesting technique Salesforce uses is the availability of free trials for all plans – a way to build brand equity that is often necessary for successful premium pricing.

Final Thoughts

Overall, the premium pricing strategy can be an effective one. However, if you don’t know what you are doing when you start using premium pricing, you could risk losing your investments simply because of the misuse of this strategy.

Consequently, you must use the tips in this article when applying the premium pricing strategy to your online store. It’s a great way to achieve your business goals and prevent possible challenges that you could encounter when using premium pricing.

Wanda Lafond
Wanda Lafond

Wanda Lafond is a professional content writer, copywriter, content strategist, and communications consultant. She started young with her writing career as a high school writer to a university editor. Now, she is a writer in a professional writing platform, Best Writers Online, and Writing Judge— her years of expertise have honed her skills to create compelling and results-driven content every single time.

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