As it stands, the most effective premium brands enjoy a higher ROI per individual item or service purchased. Companies use a premium pricing strategy when they want to charge higher prices than their competitors for their products. The goal is to create the perception that the products must have a higher value than competing products because the prices are higher. The company is betting that the consumer will not investigate to find out if the product is truly a higher-quality item. Marketing managers want consumers to believe that the brand name by itself is enough to assure them that the product is better than the competition’s product. Premium pricing strategy is also known as image pricing or prestige pricing strategy.
- Price premium is key metric which is utilized for knowing the competitiveness of products, price strategy, promotion and sales.
- The SaaS field is intensely competitive, and like everyone else, you’re looking for a sales strategy that will help your product bring in more revenue than similar products that your competitors offer.
- Companies use different pricing strategies to introduce a product in the market depending on various factors like the target audience of the product, income level of the target audience, demographics, image of the product and company in the market.
- So far you’ve understood that premium pricing is closely connected to the company’s reputation and customer loyalty.
- Before you jump into premium pricing, make sure that you’ve evaluated all the pros and cons.
Evaluation of the Premium Pricing Strategy
Of course, marketing campaigns must project an image of quality and touch the right pain points of your customer to create an emotion in them that will lead them to buy your product irremediably. Before creating and implementing a premium pricing strategy, many factors must be assessed and, above all, we must analyse whether we have the necessary financial means to deal with this type of campaign. An interesting example of this balancing act is Trader Joe’s, which manages to combine high-quality products with relatively reasonable pricing. Together, they foster an unmatched brand strength — one that produces exceptionally high demand that makes up for their non-premium pricing. Partly premium pricing means that there are both premium and basic price plans. This approach works because customers can clearly understand that premium price comes with features that are very different from the ones available in basic price plans.
Join our newsletter for the latest in SaaS
Premium pricing—also called prestige pricing or luxury pricing—is when companies set a higher price for their products than competitors. This pricing strategy can increase profit margins and position them as premium brands. Psychological pricing is a strategy used by companies to set their prices in relation to those of their competitors. This approach is based on the fact that consumers have a psychological threshold for certain products or services.
Apple
Premium pricing is when the business charges higher prices of the product than an immediate competitor. The setting of the higher price creates psychological influence in the market that the quality of the product is higher that’s why the business is charging premium price meaning a higher price. We know the fierce competition in the ecommerce industry compels you to compete on price. Premium pricing (prestige pricing) is the perfect fit for ecommerce vendors who’d like to establish a high-end company with a stellar brand identity.
Is premium pricing the right solution for SaaS companies?
The SaaS field is intensely competitive, and like everyone else, you’re looking for a sales strategy that will help your product bring in more revenue than similar products that your competitors offer. One simple way of doing this is to just charge more for your product—also known as premium pricing.Product quality, and the perception of that quality, reigns supreme in SaaS. In a field stacked with competitors, a brilliant product priced at a premium can give your current and prospective customers a favorable impression of your business’s commitment to high quality. A premium pricing strategy has the advantages of producing higher profit margins, creating tougher barriers to entry for competitors, and increasing the brand’s value for all the company’s products. Another disadvantage of premium pricing is the high cost of marketing.
Convey how your product is different
It is an exacting pricing strategy that isn’t appropriate for every type of SaaS business. For those that can make it work, however, it can lead to untold market advantages, improved perception of your product’s quality, and tremendous profit margins. The first step in adopting a premium pricing strategy is to have a premium quality product. Identify whether there is a need for luxury products in the market or not. Then once you have all of this information, create your product and place it in the market.
That’s not a lie, but is everyone really only looking for a cheap product? There are shoppers who are actually looking for exclusiveness, and that can’t be achieved with a low price. From there, you can build a premium tier that serves up your product’s high-value features while preserving cheaper options for younger or smaller companies unable to shell out for the premium. Your profit-per-unit sold may not quite reach the heights of a premium-priced non-software option, but the cumulative effect on your bottom line will be unmistakable.
But Apple is enjoying a competitive edge over its rival by making use of premium pricing. Premium pricing can be an excellent way to achieve the financial goal of the business. The premium pricing should not be confused with price skimming as the business does not subsequently lower the price in premium pricing while price skimming lowers the price to cover price-sensitive customers as well. But before you dive right into prestige pricing, make sure you’ve really considered whether your products or business warrants a higher price. You might use premium pricing when you’ve got something special to offer—be it top-notch quality, unique features, or a brand name that carries weight.
A company that sells its products at premium prices is required to invest high in marketing to create awareness about the product. Marketing can help you to create a positive image of your company in the market. People will buy your products only if they have heard of your brand. If a premium pricing strategy is successful, it can raise barriers to entry in your industry. Other companies won’t be able to compete with your product without boasting equivalent product quality and price points. You can rapidly entrench a market advantage with a well-executed premium pricing strategy.