What Is Premium Pricing ?
Premium pricing (also called prestige pricing or image pricing) is a pricing technique of setting much higher price for the product/service compared to similar products in the market. The main objective of adopting this strategy is to generate high profit and to enhance the brand value. It is suitable for high quality products having unique features and luxuries products. In this post we are going to discuss some major pros and cons of prestige pricing.
Advantages Of Premium Pricing
The main advantages of premium pricing method can be highlighted as follows:
1. Profit Maximization
By adopting this pricing strategy firms charge highest possible price for
their products or services. So, companies can generate more revenue due to
the high profit margin. There, it is more profitable than other pricing
techniques.
2. Increased Brand Image
Premium pricing attracts high class and price insensitive customers who are
willing to pay high price for better quality products or services. So, it
helps to increase brand perception and image of the company.
3. Entry Barrier
Another advantage of premium pricing is that it may create entry barrier
for the new companies to enter the market. Because of high brand value, and
improved customer perception, rival firms hesitate to enter the
market.
4. Applicable For
This method is suitable for luxuries, unique and innovative products having
distinct features and better user experience.
Disadvantages Of Premium Pricing
Some of the notable disadvantages of premium pricing can be pointed out as
follows:
1. High Production And Marketing Costs
A firm requires huge investment to produce and market the product or
service. High quality raw materials, modern technology and specialized
production process require to produce high quality goods. It requires high
marketing cost to create awareness and promote the brand.
2. Smaller Market Segment
This pricing policy targets top-tier customers who are willing to pay the
premium price. So, it ignores large segment of buyers that decreases the
market share.
Also Read Advantages and disadvantages of penetration pricing Advantages and disadvantages of price skimming Advantages and disadvantages of price discrimination Advantages and disadvantages of value based pricing
3. Not Applicable
Another disadvantage of premium pricing is that it is not applicable for
all types of products. It is not suitable if the demand of the good is
elastic. This method does not work for the products of daily use.
4. Difficult To Lower The Price
It is very difficult for the company to reduce the price of the product
after adopting this technique. Buyers may feel cheated if the firm reduces
the price later. It may hamper the brand image and goodwill of the
company.
Pros And Cons Of Premium Pricing In Brief Pros * It generates significant amount of profit with fewer sales * It increases the brand perception * It creates entry barriers for new competitors * It is suitable for innovative products and services Cons * It requires high manufacturing costs * Not suitable for all types of products and services * It limits market expansion opportunity because it ignores price sensitive customers
