Premium pricing is a strategy that involves setting the price of a product higher than similar products to create the perception that the product is of higher quality or value. This pricing strategy is often used to establish a product as a high-quality product in the minds of consumers. Premium pricing is also known as image pricing or prestige pricing.
Advantages of premium pricing include producing higher profit margins, creating tougher barriers to entry for competitors, and increasing the brands value for all the company's products. However, a company engaging in this strategy must attain sufficient volume to offset the hefty marketing costs associated with it.
Factors that influence the profitability and sustainability of premium pricing include information asymmetry, where buyers have no independent basis to test claims of "exceptional quality" for a particular product, and the tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.
Examples of premium pricing include luxury brands, high-end restaurants, and exclusive clubs.
