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What to consider when using a premium pricing strategy 

Not only is it important to understand your target market when considering your pricing strategy, one must consider their brand’s positioning and the image people associate with it. 

What to consider when using a premium pricing strategy 
[Gorodenkoff/Adobe Stock]

As a business owner, you’ll have many things to determine when considering your competitive advantage. What is my position in the marketplace? What does my target market care about when considering a purchase? If it’s how many nickels and dimes they are going to save, then competing on price may be something you want to implement.

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However, I want to discuss the opposite end of that spectrum. In other words, how do I price my product or service at a premium because of the quality, value, and experience associated with it?

Consider a Bently vehicle for example. Not only is it a vehicle full of impressive high-performance features, exquisite and luxurious handcrafted interior, but it also gives its owners a feeling of prestige or of higher status.

Not only is it important to understand your target market when considering your pricing strategy, one must consider their brand’s positioning and the image people associate with it.

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An advantage of premium pricing is that it plays into a long-term strategy—people buy from you because they are in it for the long haul. Let’s lay out a few other advantages and disadvantages when considering your pricing strategy.

ADVANTAGES

Increased profit margins: Perhaps a no-brainer, but something to seriously consider when weighing cost per lead. Perhaps you’re only seeing half the amount of customers on a given day, yet you’re still making more profit due to the profits you’re making. Other obvious reasons might be that due to a higher quality product or better service, you’re spending less time putting out fires and cleaning up “less than perfect” items sold.

Positive perception: As discussed above, items that are higher priced are associated with higher quality, and thus denote an increased status symbol. People want others to know they are willing to pay more for an item as it says, “I have the money to spend—I choose quality over everything else.” Before a prospect even inquires about the details of your product, if they know you are more expensive, they’ll atomically assume you’ve got the goods to justify the price.

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Keeps you above the competition: When your competitors note that you’ve moved in on their market (at least from a solution standpoint), they’ll be left with one of two choices. They’ll have to increase the quality or value of their product or service or continue their business strategy but double down on the number of customers. The point being, if you establish yourself as a tier above, it keeps competition at an arm’s length.

DISADVANTAGES 

Increased cost per conversion: What does it take to get buy-in from someone spending twice as much on a product or service? Not only should you consider upfront marketing costs such as digital advertising or other channels, but how long is the start to close process? For example, you might find you spend three times as much with prospects, on multiple calls, to finally convert them.

Narrowed target markets: As you go up in price, your pool of potential customers will drop. You have to be OK with not being able to serve every customer—some people simply won’t be a good fit. Things you might want to consider are offering payment plans so customers who want to pay (but need to do so over time) can make it happen.

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Competitors will undercut you: You’re able to price your product or service at a premium because you provide more value to your customers in more ways than one. However, your competition will take notice and make attempts to copy your “value-adds,” even if it isn’t of the same quality. Establish your product or service as the real deal. Prove to your customers that copy-cats will never serve the same amount of value.

PRICING STRATEGIES REQUIRE CONSTANT MONITORING

There are so many different factors to consider when implementing a pricing strategy. Your target market’s spending habits, desire to solve their problem, and the value comparison from a competitive standpoint, to name a few.

The best thing you can do is be flexible and constantly monitor the competitive landscape as well as your target market’s feedback and behavior patterns. A premium pricing strategy cuts out a large portion of customers, but once you’ve firmly established your place in the market, you have a strong chance of succeeding.

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Solomon is a sales and marketing guru who has built a number of successful companies over the last decade. Read more at Thimothy.com.

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