Prestige Pricing Definition
Prestige pricing is a marketing and pricing strategy where prices are consciously kept higher than normal, recognizing that lower prices will inhibit sales and that buyers will associate a high price for the product with superior quality. In other words, it is a physiological pricing strategy that is set by the company for luxury products to the expectations of the niche class of customers who pay a high price for these products in return for the high quality as for them, their association with that quality image links to their perception of self-worth.
It is a strategy where companies mark up the price of their product to create the perception that they’re selling a high-quality product. This is the image pricing that has the potential to manipulate the human mind incredibly because lower prices will hurt the prospective customer’s expectations rather than helping sales, and that is why it is also called as premium pricing and image pricing.
How Does Prestige Pricing Strategy Work?
It states that some of the customers in the market will pay a high amount of the prices for an image of the product and won’t further investigate about the worth of the product in terms of price they are paying. So, this strategy can provide a psychological marketing advantage to the company, as by this, they can convince that added value is there for the cost they are paying.
Examples of Prestige pricing Strategy
For example, Nike is a perfect example of companies using a pricing strategy. Nike prices its products based on its image. To promote its brand, it hires celebrity endorsers as well. For its image and logo only, a person pays the amount more than the amount for which they can get the same type of product from other brands.
It can be applied in case of quality and reputed products of which no substitute available. Some of the areas where it is applied include:
#1 – Airlines Industry
In the airline industry, many companies provide airline services. But star airlines target top executives and business class people with fewer seats and best services. Hence its booking price is almost 200% of regular flights, and as the business and top-class people want the best services without any worry of pricing; therefore, they prefer star airlines even with prestige pricing.
#2 – Watches
As there are many brands of watches in the market but people with high class prefer Rolex watch even with its high price as there is quality assurance, and it shows consumer’s financial wealth and the class they belong to.
#3 – Diamonds
The diamond industry is also an application of such pricing as diamonds can be afforded by few peoples, and it shows their financial status and class, and they are of superior quality.
#4 – Clothing and Sports Equipment
There are many brands of clothes and sports equipment, but Nike is the brand with superior quality with its prestige pricing. Hence those who belong to high society class prefer Nike brands instead of other brands.
#5 – Automobile Industry
In the Automobile industry, there are many cars like Toyota, TATA, Santro, etc. but the car which manufactures with its brand name in limited quantity due to its superior quality and which gives a company its cost advantage is Lexus car.
#6 – Telecommunication Industry
In the Telecommunication industry, Apple is selling its mobile phones with prestige pricing and superior quality. Hence it is accepted as a top and superior brand in the telecommunication industry.
This type of pricing is applicable if the product is unique with no substitute and which represents the class with superior quality and luxurious products.
- High-Profit margins: It gives the pricing benefit in the industry as it targets the people with class and having the top financial position. Hence keeping the price reasonable is not the basic need of manufacturer companies. Therefore they keep the price of product high as compared to other products of the industry. Hence this gives them more profit marginsProfit MarginsProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. .
- Improves Brand Value: It is kept for branded goods with no close substitute, and it focuses on quality rather than price and quantity. The primary motive behind superior quality is customer satisfaction and improved faith, which automatically increases the brand value.
- Unique Products: Prestige pricing is possible only for products which have no close substitute. Hence, they focus on the uniqueness of the product so that it can stand out from the rest in the crowd.
- Other Advantages Includes
- Increased goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price. of the manufacturer company
- Lower chances of defects in the product
- Highly reliable products and brands
- A market advantage over others
- Limited Customer Base: Here, the manufacturer focuses on quality instead of quantity and targets only people with high financial position or belong to top class like celebrities, etc. hence the customer base is limited.
- High Spends on Marketing: The companies target top class executives and people with high class. Hence, they appoint people with a high social status to advertise their products. And they charge a very high amount of advertising. Hence companies have to spend high on marketing.
- Competition: These strategies can create a problem for industries having tough competition, and competitors are very competitive in creating substitutes in a limited time so that they can capture the market.
- Other Disadvantages Includes:
- Top Class People can also be price sensitive.
- Competition and Pricing act restrictions by law
- Prestige pricing may not work for all products and service
- High spends on quality checks and assurance
- More law compliance and certification required.
Prestige Pricing means the premium price to be charged for the products with superior qualities and for those who are no substitutes available. It targets customers with high financial positions or having a high social status. It is only possible for branded products with high fame in the market like Rolex watches, Apple Cell phone, etc. The disadvantage can be competitive competitors who can create substitutes in a limited time. The companies that charge prestige pricing spends too much on marketing and quality assurance.
This has been a guide to prestige pricing and its definition. Here we discuss examples, application, and how does prestige pricing strategy work along with advantages and disadvantages. You may learn more about financing from the following articles –