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Prestige Pricing
Darren GilbertJun 4, 2018 5:00:02 PM7 min read

Prestige Pricing 101: Here’s What You Need To Know

Prestige Pricing

The pricing strategy you choose has a ripple effect on the rest of your business. Choose to price your products too low, and you could find yourself understating your value. Meanwhile, select a strategy such as Prestige Pricing, and your business could find itself reaping the rewards.

Of course, you do need to find the balance. As noted in a previous article around price points, that involves looking after your business' bottom line while also considering the needs of your customers.

What is prestige pricing?

Prestige Pricing, also known as Premium Pricing, is a psychological pricing strategy. It aims to price products high to give customers and shoppers the impression that they are of better quality. That’s why you’ll also hear retailers refer to it as “Image Pricing” since it also seeks to portray an image of exclusivity.

In that, it’s easy to know which products or brands follow such a pricing strategy. You’ll find many of them in high-end retailers across the world. Think jewellery, fashion and perfume brands, and various cars manufacturers.

That said, it's worth pointing out that following a pricing strategy other than prestige pricing will cause damage to a luxury good or premium brand. You only need to consider what happened to Tiffany & Co in the 1990s for proof. The luxury jewellery and specialty retailer decided to offer a cheaper jewellery line to appeal to a broader audience.

They did just that, and it proved popular. In fact, too popular. While sales and profits soared, the brand soon lost its exclusivity and suffered. They’ve since learnt their lesson, raised their prices, and the brand has recovered.

Of course, they’re not the only brand to have done this. There are many stories of premium brands attempting to appeal to a broader audience, only for it to backfire. In following the wrong pricing strategy, such a brand can become nothing more than a commodity product.

On the other hand, lowering the price of a product could hurt sales of a premium brand. Because the value of some goods is so high, any price decline will reduce demand for them. These are known as Veblen goods, where demand increases as prices rise.

When should your business use this pricing strategy?

While a prestige pricing strategy is most commonly used for premium brands that convey luxury, that doesn’t mean its exclusive to high-end retailers. In fact, there is the argument that in some instances, this pricing strategy can work for small retailers. We’ll explain why we say that below.

For now, we’ll look at a few situations where a prestige pricing strategy is most useful:

          1. When you’re first launching your product

When introducing a new product into the market, prestige pricing is a useful strategy to use. That’s because no one knows much about your product and so it’s the perfect time to establish it.

Of course, you can supplement this strategy with any marketing campaign to further “whet the appetite” of shoppers. If you've done this right, you’ll have created a perception that the quality of the product justifies the price you're offering.

That said, you do need to think about your ideal customer and price your product accordingly. It comes back to that balance. In other words, find the highest price you can ask where your shoppers won’t baulk or hesitate before buying. You can use retail analytics here to help you.

As a side note, you do need to ensure that any quality promises about a premium product aren't just marketing speak. Your customers will quickly find out, damaging the reputation of your brand. More importantly, shoppers will think twice about buying from you in future.

          2. If your product is unique and there is no substitute

If you sell or manufacture products that are unique, and therefore shoppers can’t find them elsewhere, you’re well positioned to follow a prestige pricing strategy. In fact, speak to any retailer, and we’re sure they would all agree.

To maximise your sales and profits for such a product, you should aim to follow this strategy.

Take note; it’s in this instance where this strategy can work for you if you’re a small retailer looking to differentiate yourself. That’s because selling a unique product gives you the bargaining chip. If you match the higher asking price with high quality, and you establish a good reputation, you’ll be in an even stronger position.

That said, going the legal route - trademarking your product - will further strengthen your position. In fact, we’d recommend this. That’s especially true if you’ve just launched a new product and it becomes so popular that others want to copy your success.

          3. If there is a limit to how many products you made

While selling a unique product allows you to hike your prices and follow a prestige pricing strategy, it works just as well, if not better, if you place a limit on how many products are available.

In fact, nothing says “exclusivity” more than a limited supply. After all, in limiting the number of products manufactured, you’re letting your customers know that if they purchase it, they’ll have something that only select few have.

It’s no wonder why there are so many specials and new products with the word ‘Limited Edition’ attached to them. There is power in these words. Of course, it can lose its meaning if only used as marketing speak. But that’s a conversation for another time.

That said, the result of limiting the production of a high-quality product is that you can label it as a ‘superior good’. For the sake of clarity, a superior good, which is described as such because it’s both scarce and priced high, isn’t synonymous with ‘normal goods’. Neither is it the antonym of ‘inferior goods’.

Regardless of the reason for pricing your products high or choosing when to do so, the rule, as we stated in a previous article about measuring GMROI, is to create enough value around the product to justify its price. If you can’t do that, you need to rethink your pricing strategy.

Advantages and disadvantages of following a prestige pricing strategy

As with any strategy you take, there are pros and cons. In the case of prestige pricing, these benefits and drawbacks do go a way to indicating why larger retailers are better off utilising such a strategy.

That’s not to say that if you’re a small retailer, you can’t use this strategy. As we’ve noted above, there are plenty of situations where you should at least attempt it.


          1. Increased visibility

If you want to stand out from the rest and draw the crowd in to buy your products, premium pricing can help you do just that.

The reason for that is simple: by advertising that your products are more expensive, you’re creating a perception in your customers’ minds that your products are of high quality. Also, there is a psychological association between luxury and premium pricing that you can’t ignore.

That said, even if you haven’t entirely convinced shoppers of the quality, many will still enter your store or pick up a product to see what all the fuss is about.

          2. Increased profit margins

The obvious result of increasing the visibility of your product, and improving its brand image, is an increase in your profit margins. While you might make fewer sales, you’ll undoubtedly make up for that with more profit per sale.

Of course, you do need to ensure that you’ve found the perfect price point. That’s because this strategy costs you a lot in terms of marketing spend, so you need to balance your books. More about that below.


          1. Increased marketing spend

While this pricing strategy allows for increased profit margins, it does come with a high-cost factor. This is where it can become a hurdle for small retailers. Since your customers won’t buy a product they’ve never heard about - especially a high priced one - that makes it tougher.

Of course, given the variety of different marketing channels available, if you are a small retailer with a limited budget, you might be able to get around this barrier in the short-term. And, if you’ve invested in the right channels and you have high profile individuals endorsing your products, in the long-term you may not have to worry about this.

          2. A limited customer base

A premium brand or luxury product is marketed to a few people. The result is you’ll have a limited customer base. That doesn’t mean you can’t expand your customer base to include more people.

However, you need to expand sideways to encourage more of your target market to buy your products rather than grow to include a broader audience. After all, if you offer exclusive products, or at least want to appear to, you wouldn’t want to be in the same situation as any other luxury brand who lost its identity. 


Darren Gilbert

Darren Gilbert joined in 2017 and is the content manager. He has a Bachelor of Arts in International Studies from the University of Stellenbosch.