Do you ever question the prices of Nike shoes higher than those of Reebok? Is it all because of the difference in quality or because people perceive Nike to be more prestigious than Reebok?
Yes, it is because of the pricing strategy of Nike.
There are many premium brands out there charging higher prices even though there is not much difference between their quality.
However, this is not the case every time, and there are times when the premium brand actually provides products superior to those of other brands.
Can you also apply prestige pricing to your products? Will people buy your products at such prices?
Let’s have a look at all about Prestige Pricing:
When you price your products in such a way that the products are much more expensive than the average-priced product in the market, this pricing strategy is called Prestige Pricing.
In this way, you make the customer believe that yours is a premium brand and deserves this price.
SSENSE, a designer brand, sells each handbag for $1595 or more. They say that the handbag is made up of real lizard leather. You might be thinking that it would be durable and, thus, worth it. Let's have a look at another one.
Taylor Thomas offers its shoes at four-folds more than the average market price as it’s 100% vegan.
Think about it, is quality the only reason behind such high prices? If not, what is the logical reason behind it? Can you apply the same pricing strategy for your brand?
Prestige pricing- an effective pricing strategy
Consumers are willing to pay for such expensive products and services due to the intangible emotional benefits they acquire by buying those products or services. The consumers connect their emotional value with prestigious and premium products even though there isn’t much difference in the quality of the products.
What makes a brand premium?
According to brand literature, your brand's image will always precede its quality. When you set high prices for your products, and people perceive your brand as a high-end brand, you are a premium brand. That's it.
When your customers consider your products as high-end products that are worth the value, they'll not hesitate to even pay four or five times the average price.
Let's suppose you want to go to buy an iPhone. Would you even consider the other brands as an option for a lower price?
No, like not at all. You want to pay high-price in return for the emotional satisfaction you will acquire after buying the phone.
There are researchers who have proved that they relate the price of products and services they are using to their prestige. So, if you set your prices high, it will automatically improve your brand image.
Use cases of prestige pricing:
1. Opening a new store :
When you are opening a new store, consumers will perceive your brand to be prestigious when they get to know that you have adopted prestige pricing. So, consumers will be curious to visit your store and lay their hands on your premium and exclusive variety of products.
2. Coming Up with a new product:
When your brand is coming up with a new product, its prestigious price creates hype in people perceiving that it is exclusive. The people loyal to your brand would definitely get the product at such a price happily.
3. Availability of Limited Stock:
When there is limited availability of a particular product launched, people can't wait to buy such a product even at a very exclusive price.
Let’s take the example of trainers,
Adidas and Berliner Verkehrsbetriebe (BVG) were partners in the manufacturing of these trainers. These were highly-exclusive or premium, where only 500 pieces were made available in only two stores of Berlin.
People were actually standing in front of those stores four days before the product launched to grab these exclusive trainers.
So, this is how prestige pricing works.
How Can Retailers Be Benefited From Prestige Pricing?
1. INCREASE IN PROFIT MARGINS:
Simply put, a higher selling price means more profits and increased margins. Although fewer people will buy your product, a single sale will yield your four-folds profit as compared to the other products.
Apple iPhones sell fewer phones than Xiaomi but have greater profit margins.
2. IMPROVED BRAND VALUE:
Prestige Price and Brand Value reciprocate each other and, thus, have an interdependent mutual relationship. As your brand value increases, it will enable you to put prestige pricing into action, and in turn, prestige pricing leads to improvised brand value.
What Are The Problems I May Face With Prestige Pricing?
1. PERSUASIVE MARKETING COSTS:
As a prestige brand, it is necessary to show your brand as a premium one with high-quality goods and services. For this, you will have to incur high costs to present your brand before your potential customers.
2. LIMITED BASE OF CUSTOMERS:
When you are a prestigious brand, and you sell premium products, there are many people lured towards you, but the actual customer base who are loyal towards your brand and can actually afford you are limited.
If you really want people to believe that your brand is prestigious, the prices should also go hand in hand. People presume that high prices provide better quality.
This is the reason why many brands offer their products at such prices. You can also make your brand premium with a combination of prestige pricing and high-quality products and services.
Even when luxury brands enter the market they need a competitor monitoring software to track the stock and promotions of their competitors. Some might think prestige pricing does not require a price tracking system.
However, in reality, every type of retailer needs a price comparison software in place. For a luxury brand adopting a prestige pricing must be aware of the products they have a competitive edge on. As much as prestige pricing provides increased net margin there is a good chance that competitors can compete for the market share.
Since the customers for such luxury products with premium pricing are limited, a company has to formulate the products for which they can set prestige pricing based on the various factors.
To analyse and implement they need a competitor monitoring system to survive as a premium brand and build a legacy. As the leading price comparison software in the UK pricechecker offers a custom solution for luxury brands to set prestige pricing yet keeping the market share intact.