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Premium Pricing – Definition, Advantages And Disadvantages

by Joanna Foyle on 18 Sep 2020
Topics pricechecker Share:

Premium Pricing – A Façade Or Reality?

Premium pricing is a kind of tactic wherein a high selling price is set in accordance with other competitors. This can give the impression that the product is qualitative or superior compared to its competitors. This is what we call prestige or image pricing. Customers feel that the product is a premium one and unique and, thus, would be ready to pay the price for it.


When a company brings in a new product, the marketing team has the huge responsibility of planning how to position the product and what kind of pricing tactic to use. They consider several factors – the target customer, the price point, the psychological image, as well as the marketing budget. Some marketing teams might think that initially, a low price would work well so that the market can be penetrated. While on the other end of the scale, the marketing team might decide to set up a high premium price. Marketing teams expect consumers to consider that the brand by itself would be enough to show them that the product is better than others.

Such a tactic can bring in high-profit margins and create a tough barrier for competitor entry. It’ll also enhance the brand value.

Now, that you know what premium pricing is – let’s make it clearer with some examples –

When should you use Premium Pricing?

Premium pricing works well if the product is newly introduced in the market. It also is a good idea for small businesses when they have unique products to introduce, and they expect to differentiate their product with the right kind of image. With premium pricing, consumers naturally comprehend that the product is a luxury item and is maybe an exclusive design with high quality. The seller of such products can also create exclusivity of the product by limiting the numbers available in the market. They can also make it a little tough on competitors by taking some legal steps so that similar products do not appear in the market. Also, copyright or patent on the design or any unique feature makes it difficult for similar competitor products entering the market.

It’s natural to point towards the competition’s weak points. However, when a company takes up premium pricing, they should be concentrating on making their product worth that high price. The product genuinely needs money, time, and effort to make it worthwhile. Every tactic naturally has its pros and cons. So does premium pricing! Let’s take a look at them and then see for yourself whether it would suit your company or not –

Advantages –

Disadvantages –

It is quite natural to concentrate on the competition’s weaknesses. However, premium pricing can work well only if the product is made worth the price. The consumer will need to be convinced that the product is worth it.