What Is Prestige Pricing?
With 2023 approaching its final chapter, your mind is probably on your goals for the new year. And speaking of the year ahead, are you thinking about how to increase your profit margins?
Let’s talk about the simplest way to achieve this goal!
Raising your prices, of course, will accomplish this. Consider this: a mere 1% increase in your prices can lead to an impressive 11% improvement in your profits. Not a bad proposition, is it?
Only, some might argue that there’s more to this than playing with numbers.
We agree. It’s not just high prices. It’s better pricing.
Check out our complete pricing guide to find out how you can excel in the art of pricing.
And now, for the topic of our conversation.
Prestige pricing, the monetization technique behind the saying, It’s better because it costs more. So, let’s dive in and discover:
- What Is Prestige Pricing?
- The Pros & Cons of Prestige Pricing
- 3 Prestige Pricing Examples
- 4 Prestige Pricing Best Practices
- Is Presting Pricing Right For Your SaaS
What Is Prestige Pricing?
The prestige pricing strategy leverages higher prices to convey the idea of quality and exclusivity. But there is more to this technique than simply having a higher price point.
Businesses employing prestige pricing must continually reaffirm the value of their products to their target customers and establish a better brand perception. And they must do so in a manner that resonates with their audience.
In essence, the reason why prestige pricing works lies in the audience’s belief that they are receiving enhanced value for their investment.
The Pros & Cons of Prestige Pricing
While prestige pricing strategies are widely used in both B2B and B2C realms, it’s important to recognize that every coin has two sides.
Understanding the advantages and disadvantages of this approach will empower you to determine whether prestige pricing aligns with your SaaS offering.
The 3 Pros Of Prestige Pricing
Improved Brand Value
Prestige pricing is also known as premium pricing, and for good reason.
You see, when employing this monetization strategy, raising your prices is only one step of a larger marketing strategy designed to position your business as a premium brand.
Once you succeed in cultivating a strong brand image that justifies the higher price tag, convincing customers to pay for your services is easier.
Additionally, a polished brand image will always be a consumer magnet. And that’s always good for business.
Increased Market Revenue Share
In the eCommerce market, the traditional approach to achieving a higher profit margin is capturing a greater market share.
However, when embracing the prestige pricing strategy, you need to adopt a different metric for business success: value.
With the prestige pricing strategy, your revenue will actually come from charging fewer customers more.
Greater Target Market
It’s important to keep in mind that the prestige strategy heavily relies on psychological pricing. Unlike other methods, this approach hinges on how potential customers perceive your products in order to achieve your desired outcomes.
As long as you put sufficient effort into cultivating a sense of value, you will win a new audience group, appropriately called your premium segment.
And, as you know, there is strength in numbers.
The 3 Cons Of Prestige Pricing
Increased Marketing Costs
Just like Rome wasn’t built in a day, establishing your offer as a premium product takes time. And in business, time often means expenses.
Investing in techniques that allow you to create the impression of value and maintain it over time may prove to be quite expensive, and higher prices might turn against you.
Complex Pricing Schemes
Offering these price points to different customer segments means utilizing a very complex pricing structure.
Often, the existence of multiple pricing tiers, while necessary if you decide to use prestige pricing, can confuse customers.
A way to solve this challenge is to clearly communicate what each pricing tier offers and whether these are additional features or other benefits. In this context, exploring three-tiered pricing strategies can be particularly effective.
Price Sensitivity
The last few years have gifted us with a crucial insight.
In challenging times, consumer spending behaviors undergo transformations. During such shifts, price-sensitive consumers wield considerable influence over your business.
Reluctant to pay premium prices, your sales might go down, and with it, your business’s profitability.
Automatically sticking to lower prices will not solve the problem. Such a move may inadvertently alienate another type of audience: your premium customers.
Read on to discover 3 prestige pricing examples on our blog.
