What is Prestige Pricing and Why Does it Work?
The importance of a well-thought-out pricing strategy cannot be overstated. Today, we look at a prestige pricing strategy: what it is, who should use it, and why it works when applied correctly.
What is prestige pricing?
Prestige pricing is when a business sets their prices high, or higher than average, in order to attract customers. The thinking behind this pricing strategy is that many people associate high prices with good quality, and so to charge an average amount for their products would indicate that the product itself is average, too. For some prestigious brands, their more affordable items are regarded as inferior in quality.
Prestige pricing is a branch of psychology pricing, which is when the price point of a product is intended to influence the customers' perception of the actual product itself [1].
Who uses prestige pricing?
Many luxury brands, or those that fit into the ‘ruler’ brand personality archetype, use this pricing plan. It’s usually those who sell ‘flashy’ commodities too, like designer handbags, watches, or expensive shoes.
For example, Rolex watches cost around £10,000, but a watch you can buy from H&M, or any other high street retailer can tell the time just as well, for £25 or less.
A Peugeot 207 is an example of an extremely reliable car that can get you from A to B, but people will pay an extra ten thousand for a Mercedes Benz.
An expensive product designed by an illustrious brand is viewed as exclusive, in-demand, and worthy of a high price tag. It’s the exact same mentally behind first-class plane tickets.
Does prestige pricing work?
It works with certain brands. The psychology behind prestige pricing is ingrained within a lot of people, thanks to well-known phrases like “Buy cheap, buy twice”, or “You get what you pay for”.
Yet at the same time, a lot of people know that luxury brands overcharge, simply because they know they can. The quality doesn’t always justify the price. For this reason, we know that prestige pricing works because of the brand, not the product.
How to implement a prestige pricing strategy
This tactic, unfortunately, cannot be employed overnight. If nothing changes other than a sudden, dramatic spike in prices, it would ultimately have the opposite effect than the one intended.
Successfully implementing prestige pricing takes time. It involves a lot of brand development, and work on your overall brand image. To do this, you’ll need to have a firm understanding of brand, branding, brand image, and brand personality - four terms that are often used interchangeably, but actually have different meanings.
What is a brand?
What is a brand, or rather, what makes a brand? A popular misconception is that a ‘brand’ simply refers to a business. It’s also often mixed up with ‘branding’. The truth is, a brand is a lot more abstract than that. Your brand is how your company is perceived. It’s the thoughts and emotions that people associate with your products and services.
Businesses don’t get to decide their brands, customers do. Businesses can only try to help form this opinion based on how they act, their style, their products, their pricing, etc. But ultimately, your brand is decided based on how the customers receive these things.
Sometimes customers attach experiences and emotions to brands that go beyond the product or service itself. For example, some people attach Solero ice creams to being on holiday, even though you can buy them in your local corner shop. Or, people associate certain products with certain demographics, even if that’s not who the business initially planned to target. For example, Ugg boots are synonymous with teenagers, despite being poised towards middle-to-upper-class surfers [2].
What is branding?
Branding is how businesses communicate with their intended audience. It is the steps you take and the words you use that encourage customers to opt for your product instead of your competitors. Your branding is what informs your brand identity, and helps customers form opinions about your company.
It’s linked closest to brand personality or style and helps customers predict how your business would act in certain situations. For example, you might envision a brand like RyanAir cracking jokes on Twitter, but you mightn’t imagine Emirates doing the same.
It’s the tone of voice, the language choice, the overall attitude. If people can match a certain persona to your brand that aligns with being elite or having superior quality, then you have a higher chance of sustaining a premium pricing strategy.
What is brand (visual) identity?
Brand identity is the recognizable and consistent visual execution of your branding strategy. Basically, identity is how your business looks and communicates with potential and existing customers. It includes:
- Logo
- Font
- Colour palette
- Slogans
- Products and packaging
- Website design
Brand personality
Your business’s personality is born through your brand values, communication style, and approach to customer service. It’s also influenced by your branding and visual identity.
The brand personality archetype that a business takes on is often a direct response to their customers’ emotional needs. As mentioned, businesses that charge higher prices are often viewed as premium brands, so naturally, they’re attempting to fulfill customers’ needs to feel wealthy, successful, and in control.
Take inspiration from The Ruler archetype brands, if you’d like to apply a prestige pricing strategy. Some examples include Grey Goose Vodka, Nike, Louis Vuitton, Maserati.
Ruler archetypes want to empower their customers by reminding them to channel their inner strength and control. Rulers want to motivate others to be powerful, dominant authorities who are driven towards success and prosperity.
These brands are immediately synonymous with affluence, leadership, people with high social and financial status, and those considered the best of the best. You’ll want to find potential customers with the same mentality in order to apply this pricing strategy.
This customer base won’t mind paying more for a higher quality, luxurious product, as long as the brand is associated with confidence, superiority and status.
Get started with Epos Now
Simplify business management by investing in a powerful point of sale system. Epos Now was founded by business owners, for business owners. Therefore, we understand the challenges involved with pricing, strategic planning, and selecting the right technology for your business.
With Epos Now POS software, you can manage all aspects of pricing, inventory, sales, and purchases right from your POS screen.
- Track single item performance so you can forecast with accuracy
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Contact Epos Now to request a callback and free quote.
