Did you know that charging more can increase your sales? It’s a common belief that your sales will roar if you lower your prices, but is this a sustainable solution on the long track? How about the opposite strategy- raising prices can bring you some benefits if you do it the right way – and this is called prestige pricing.
In the following paragraphs, we are going to explain what is prestige pricing and the psychology behind this pricing and marketing strategy. After that, we will list some real-life examples of prestige pricing to understand it better.
Prestige pricing is when a company prices a product or service at a higher price point to create an impression of a higher quality. This pricing strategy is also known as image pricing and can be also considered a marketing strategy.
Prestige pricing can be referred to as premium pricing as well. As you can see, all of the names are very descriptive, so what can we get from the names?
Prestige and premium are used to describe products that are top quality and not only that. Those products represent some sort of a symbol, not only a product and this is why they cost more. Word “image” is also very descriptive – this implies that you are using the price to create some image for your brand – if you are picking the highest price points you are trying to establish your brand as something not everyone can have.
Two successful men from emerging businesses meet in the street. One says to the other: “Look, I bought a new watch. Paid $8000!
“You fool” the other answered, “just around the corner you could buy the same watch for $12000!”
This is a famous joke that depicts what we are talking about here. Although it was made for a laugh, it lays on the correct premises. Let’s explain!
Prestige pricing is considered to be one of the psychological pricing strategies, and this is for a good reason. While some other strategies are relying solely on the competitor’s prices or some cost-benefit analysis, it’s different in the case of prestige pricing. This strategy is more complex and relies mostly on the consumer’s behavior, so it can be considered a sort of a marketing trick since it is very dependent on the branding and marketing activities you conduct. There is a direct connection between the price you charge for a product and the image you create for it – if you charge more, it will help in creating a prestigious atmosphere around that product, but you will have to use other marketing techniques to underline that, and vice versa, if you invest in marketing which will convince customers that you offer a premium product or service, you wouldn’t want to ruin that image with a low price.
The first important fact is that people often make no difference between the price and the value. So, the higher the price, the higher the value of a product. How many times have you heard a person saying that a Ralph Loren shirt has more-less the same quality as an H&M shirt? Not many times – but on the other hand it happens to all of us to think “this phone costs much more than the others, there must be something special about its qualities and performances”. However, if you put the numbers on paper, it will often turn out to be pretty much the same as a less expensive version from a less famous competitor. However, from time to time, you are still going to proceed and buy the more expensive option, regardless of what you saw when you compared the two products. This is perfectly normal because what you are buying is not only the product itself, it’s a few additional things:
Recent research has shown that “traditional, well-known and renowned brands are authentic and legitimate to charge premium prices for their merchandise across all categories compared to their counterparts.” So, does this mean that if you are running a smaller and less-known business can’t use the prestige pricing strategy? No! You can use it, but you have to bear in mind that those companies invested a lot of time, energy, and money to establish themselves as luxury brands and make it possible to charge extra for most of their products. So, you should do the same – invest in your branding. Furthermore, you might want to consider using the prestige price for just a couple of your products that you feel comfortable about. This way, you will not lose a lot if the strategy turns out to be bad for you. You will also see the benefits of pricing anchoring with this approach, since, now when you have a product with such a high price, your products with regular prices will not seem that expensive to the consumers.
There are many examples of prestige pricing. Some of the most common industries where this strategy found success are automotive, fashion, airlines, and technology. We are going to name examples that cover the most common scenarios for prestige pricing:
So, is it ok to charge more? Absolutely yes! However, you need to be careful and plan your pricing strategy. If you decide to represent your brand as a luxury one, it’s not enough just to raise prices. You need to offer your customers something special – a unique experience of buying and owning one of your products. This is not a single action, but rather a process. On this journey, the best allay for you is a price monitoring tool. If you are a brand, you would want to keep an eye on your resellers to ensure that they are not ruining the image you’ve established by lowering the price. For this purpose, a MAP Monitoring feature would be of great help. Price2Spy has a long history of helping brands with protecting their image – and the best thing of all, you can try it free for 30 days!