Prestige Pricing Definition Example Top 6 Applications

Prestige Pricing Definition

Explanation

It 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 image pricing can potentially 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.

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How Does Prestige Pricing Strategy Work?

It 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.

Examples of Prestige pricing Strategy

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, it hires 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.

Applications

It can be applied in the case of quality and reputed products for which no substitute is available. Some of the areas where it is applied include:

#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 is also an application of such pricing as few people can afford diamonds, and it shows their financial status and class, and they are of superior quality.

#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.

Advantages

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 marginsProfit MarginsProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. read more.Improves Brand Value: : It is kept for branded goods with no close substitute, and it focuses on quality rather than price and quantity. The primary motive behind superior quality is customer satisfaction and improved faith, which automatically increases the brand value.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 goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more of the manufacturer companyLower chances of defects in the productHighly reliable products and brandsA market advantage over others

Disadvantages

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. Hence, they appoint people with 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: These strategies 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 Includes: Top Class People can also be price sensitivePrice SensitivePrice Sensitivity, also known and calculated by Price Elasticity of Demand, is a measure of change (in percentage term) in the demand of the product or service compared to the changes in the price. It is used widely in the business world to decide the pricing of a product or study consumer behavior.read more.Competition and Pricing act restrictions by lawPrestige pricing may not work for all products and services.High spending on quality checks and assurance.More law compliance and certification are required.

Conclusion

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. 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.

Increased goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more of the manufacturer companyLower chances of defects in the productHighly reliable products and brandsA market advantage over others
Top Class People can also be price sensitivePrice SensitivePrice Sensitivity, also known and calculated by Price Elasticity of Demand, is a measure of change (in percentage term) in the demand of the product or service compared to the changes in the price. It is used widely in the business world to decide the pricing of a product or study consumer behavior.read more.Competition and Pricing act restrictions by lawPrestige pricing may not work for all products and services.High spending on quality checks and assurance.More law compliance and certification are required.