Many e-commerce owners like to give off the impression that they sell high-quality products.
But how do they go about doing that?
Well, the most obvious way to do it is to create a high-quality product.
But another way to do it is to adopt a prestige pricing strategy.
Prestige pricing is a pricing strategy that allows you to appear as though you’re a premium brand selling premium products.
In this post, you’ll learn what prestige pricing is, how you can implement it into your e-commerce store and how to make sure it works with you rather than against you.
What is prestige pricing?
The best way to understand prestige pricing is to look at an example. If we look at Apple, for example, they’re a much more reputable brand than Chuwi.
If the cost of an Apple product is $1000 and the market price is $1000 + 50%, Apple could keep their price at $1000 + 20% matching the price of Chuwi, but this would lower the brand value as Chuwi is a lesser known brand.
However, if Apple kept its price at $1000 + 50%, its brand image continues to increase too.
Prestige pricing is all about brand perception and how your customers view the image of your company.
If your customer thinks your brand has some innate value, they’ll be happy to pay a premium (prestige) price.
In many cases, this pricing strategy works well because when a customer already perceives the value of a product, they rarely look to shop around with your competitors.
Think about it, if you’re prepared to buy an Apple product, you rarely look around to see if you can find a cheaper alternative. You already know you can, but what you’re buying is the value of Apple.
When should you use it?
Prestige pricing has a number of use-cases. In this section, we’ll go through them all individually.
You’ll be then be armed with enough intelligence to see if prestige pricing works well with your store.
When your store is first opening or you’re launching a new product
If you’re launching a new store or product, there’s always a certain degree of hype around it. People are keen to get their hands on the latest and greatest things.
Think about why people give so much money to Kickstarter campaigns.
For example, in the campaign below, you can see that this company raised £18,873, £10,000 over their target.
And all they’re selling is socks. This is why prestige pricing works so well. Customers buy into a high-priced product when it’s new because they want to be seen as early adopters.
10 people even went as far as to spend $150 on just 20 pairs of socks as well.
When there is a limited amount of the item
What happens when a company releases a limited number of items? There is hype around the product and the launch.
Think about trainers.
Many trainer companies release limited edition trainers where they’ll only create a set amount of trainers.
This way, when they’re sold, they’re sold.
Souce : https://rebrand.ly/adidasreleasesb37f9
These trainers, made in partnership with Adidas and the Berliner Verkehrsbetriebe (BVG) public transport system were super exclusive.
Only 500 pairs of shoes were made and they were only stocked in two Berlin stores.
According to local newspapers, people queued up for up to four days before the launch to grab themselves a pair.
The trainers only cost 180 euros but could generate up to 3,500 euros in resales. This is all down to the prestige value of the items.
When there is no alternate
What happens if you’re selling a product with no competition? You’re free to charge what you want.
If you think about it, when a customer has a need and you have the (only) supply, the only way they can get your product is to buy through you.
If you’re the first mover of a product, then you’re able to charge what you like for it because those who need it will be happy to pay for it.
As you’re the only ones selling it, the value of the product increases exponentially.
However, with the rise of e-commerce, there are few (if any) products that have absolutely zero competitors.
If you do want to use prestige pricing in this way where there are no competitors, the best way to do it is to increase the value of your product by adding features that your competitors don’t have.
Why people use it
As we’ve mentioned before, prestige pricing brings with it a certain view of your products.
If you think about Apple or sports brands like Nike. You know it doesn’t cost them $50 to produce a pair of $60 t-shirts, but you’ll happily buy the product at that price regardless.
Because of this, these companies are able to significantly increase their profits. Think about it.
If it costs you $1 to make your t-shirt and you can sell that t-shirt on for $60, you’ve made a significant amount of profit.
In the example above we can see that it only costs Yeezy $76 to make the trainers, yet they sell them on for over $300.
Again, this is all due to the perceived value of the products and prestige pricing.
Why people avoid it
Although customers are able to increase their profits by using prestige pricing, they often lose some of that profit increase through their marketing spend.
Remember, as a prestige brand, you need to make it seem like your products are high quality and that means marketing your products in such a way.
Brands like Nike or Adidas will spend millions per year on marketing and advertising. The thing is though, it works.
Just look at the views on these adverts above. What’s more, these videos weren’t even uploaded by the brand itself.
So although, with prestige pricing you lower the number of people you can target, you increase the number of adoring fans you have. Dedicated fans who will (in some cases) only wear or use your brand.
These sorts of customers act as brand advocates and provided you give them good service, will always support your brand.
How to make the best use of it
So you’ve decided you want to improve your brand to start to focus on prestige pricing. That’s great news, but before you jump right in, you should learn what steps you should take to ensure it goes without a hitch.
Now, if so far you’ve been known as a discount store, it’s going to be hard to raise your prices significantly.
Your customers will wonder why and question your authority.
If you do plan to implement prestige pricing, then it would be helpful to provide your current and potential customers with reasons for your price increase.
Talk about the new supplier you have. Talk about why the quality is better. Talk about the new guarantees you have on offer. Talk about the exclusivity of it all.
Further to that, you need to decide what audience you want to target. People who aren’t prepared to pay over $1000 for a MacBook probably won’t be convinced otherwise, especially if the features they need they can get for a $300 laptop.
Likewise with your e-commerce store. You have to understand that now you’re increasing your prices to support a prestige pricing strategy you will alienate some of your customer bases, but gain more.
If you’re wanting to market your product as prestige or premium, you should have the prices to go with that.
In general, people assume high prices are synonymous with high-quality.
Because of this, brands are able to charge a premium for their products.
Why not see if your brand could increase profits using a prestige pricing strategy!