Prestige Pricing

Prestige pricing is a marketing and pricing strategy where prices are consciously kept higher than normal, recognizing that lower prices will inhibit sales and buyers will associate a high price for the product with superior quality.

In other words, it is a physiological pricing strategy that the company sets 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.

• Prestige pricing is a marketing and pricing strategy that takes into account the likelihood that lower costs will hurt sales and the likelihood that customers will associate a high price with superior quality.
• This tactic might give the business a psychological marketing edge by persuading customers that their price is worth the increased value.
• It is used in various industries such as airlines, watches, diamonds, clothing and sports, automobile, and telecommunication.
• As it caters to those with class and in positions of wealth, it offers the best price in the sector. Therefore, manufacturing businesses do not necessarily need to maintain their prices competitive.

Prestige pricing 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 prestige pricing policy can manipulate the human mind incredibly because lower prices will hurt the prospective customer’s expectations rather than help sales. That is why it is also called premium pricing and image pricing.

Prestige Pricing 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 the worth of the product in terms of the price they are paying.

So, this strategy can provide a psychological marketing advantage to the company, as by this, they can be convinced that added value is there for the cost they are paying.

Prestige Pricing means the premium price to be charged for the products with superior qualities and for those who have 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 phones, etc.

However, the disadvantage can be competitive competitors who can create substitutes in a limited time. The companies that charge prestige pricing spend too much on marketing and quality assurance.

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, prestige pricing involves hiring celebrity endorsers as well. For its image and logo only, a person pays more than the amount for which they can get the same type of product from other brands.

It can be applied for quality and reputed products for which no substitute is available. Thus, prestige pricing involves some of the below mentioned areas where it is applied.

#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 the 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, people of the high class prefer the Rolex watch even with its high price as there is quality assurance, and it shows consumers' financial wealth and the class they belong to.

#3 - Diamonds

The diamond industry also applies a prestige pricing policy, as few can afford diamonds. It shows their financial status and class, and they are of superior quality. This displays the strategy of royal prestige pricing.

#4 - Clothing and Sports Equipment

There are many clothes and sports equipment brands, but Nike is the brand with superior quality with its prestige pricing. Hence those who belong to the 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. Still, the car manufactured with its brand name in limited quantity due to its superior quality and gives a company its cost advantage is the Lexus car.

#6 - Telecommunication Industry

In the Telecommunication industry, Apple sells 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 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 products high compared to other products in the industry. Hence this gives them more profit margins.
• Improves Brand Value: It is kept for branded goods with no close substitute and focuses on quality rather than price and quantity. The primary motive behind superior quality is customer satisfaction and improved faith, which automatically increases brand value and helps in prestige pricing in marketing.
• Unique Products: Prestige pricing is possible only for products with no close substitute. Hence, they focus on the uniqueness of the product to stand out from the rest of the crowd.
• Other Advantages Includes
  • Increased goodwill 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 positions or belonging to the top class, like celebrities, etc. hence the customer base is limited.
• High Spends on Marketing: The companies target top-class executives and people of the high class for royal prestige pricing. 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: Prestige pricing in marketing can create a problem for industries having tough competition, and competitors are very competitive in creating substitutes in a limited time to capture the market.
• Other Disadvantages Include:
  • Top Class People can also be price sensitive.
  • Competition and Pricing act restrictions by law
  • Prestige pricing may not work for all products and services.
  • High spending on quality checks and assurance.
  • More law compliance and certification are required.

This has been a guide to what is Prestige Pricing. We explain it with examples, strategy, advantages, disadvantages and its applications.. You may learn more about financing from the following articles –

• Limit Pricing
• Market Orientation
• Shadow Pricing
• Dynamic Pricing
• Cost Classification