We get it. Pricing can be tricky! As a business owner, you sure want high demand for your products, and striking the right price is crucial. But, do low prices drive this demand? Not always.
Did you know that a customer’s opinion of a product’s value is not always tied to its market price? Instead, it may often have more to do with the product’s ability to satisfy the buyer’s needs and less to do with the price tag.
Some companies consciously set their product prices higher than normal. This pricing strategy is called the prestige price strategy or premium pricing strategy.
In this article, we walk you through a detailed explanation of prestige pricing and a few real-life examples of prestige pricing implementation. Let us get started.
What is Prestige Pricing?
Prestige pricing is a strategy in which companies price their products high so that consumers perceive those products to be of high quality.
Prestige pricing makes target consumers perceive that:
The high price of a product equals the premium quality of the product, leading to an increased demand for the particular product by a niche premium community.
Apart from the value of the products, customers pay a premium based on the respective brand’s strength and status in the market. Rolex’s prestige pricing strategy is an excellent example here. Besides quality, Rolex watches are known worldwide for their luxury appeal and high prices. As you can understand, the company communicates its brand’s value through its premium product prices.
Therefore, prestige pricing gives companies the ability to leverage a psychological marketing advantage by convincing consumers that:
- One brand’s product is of higher quality (than companies that sell similar products).
- There is an added value for the additional costs the consumers are paying.
Let’s consider the example of high prices in the global personal luxury goods industry. Despite the high prices, you can observe the year-on-year progression in the value of the personal luxury goods market worldwide (except during the pandemic). A variety of other factors, including the brand’s strength in the market, might influence the growth of the luxury goods market.
Companies that use this strategy are known for adding status through their offerings, giving them an edge over their competitors.
Now, here’s the big question.
Does bringing a premium product to the market imply higher production costs?
That is not necessarily true. Take a look at Nike’s prestige pricing strategy. The pie chart depicts that a $100 shoe takes $22 to produce. You can also see how the company earns a $50 profit margin despite maintaining the top product quality standard.
To give you a better business perspective, we have listed down 10 premium brands that have been accentuating their prestige pricing strategy with creative marketing tactics.
Here’s How These 10 Premium Brands Are Enhancing Their Prestige Pricing Strategies
A successful prestige pricing strategy is a potent brew of multiple aspects; marketing being one of the most important. Here are 10 tried-and-tested strategic ways by some major brands:
- Influencer Marketing: Nike
- Brand Experience: Apple
- Innovation: Tesla
- Limited Edition Offerings: Tiffany & Co.
- The Unique Experience Factor: Lovers Deep, Luxury Submarine Hotel
- Compelling Storytelling: Gucci
- Unparalleled Digital Shopping Experience: The Watches of Switzerland
- Hyper-Personalization: Le Labo
- Consistent Brand Communication: Chanel
- Brand Heritage Marketing: Louis Vuitton
1. Influencer Marketing: Nike
Whether their Air Jordans or Kanye’s Yeezys, Nike is a master of using promotions to build hype for their upcoming launches. A critical part of Nike’s prestige pricing strategy is to create a powerful image of their products with the help of celebrity endorsements. Therefore, impactful promos are one of their most significant strategies for winning the game.
2. Brand Experience: Apple
Gone are the days when brands would only stick to the traditional design of brick-and-mortar stores to sell their products. Nowadays, premium brands like Apple aim to design multifunctional spaces, such as their Apple stores, to create brand experiences.
Apple communicates brand beliefs through Apple events, exhibitions, and collaborations. These stores function more as experience centers for discerning consumers. Consumers do not mind paying extra as Apple sells quality and uniqueness through its offerings.
3. Innovation: Tesla
Instead of mass-producing affordable electric vehicles (EVs), the brand focussed on creating a compelling luxury electric vehicle with top technology and design. The company led the way in innovating revolutionary touch features, partial self-driving capabilities, etc., and an overall simplified, modern in-car experience.
No wonder Tesla’s all-electric cars have become the green energy favorites despite being high-priced compared to hybrid and traditional vehicles. Research shows that the company boosted the demand for electric cars in the automotive industry.
By 2022, the Tesla Model 3 has become the highest-selling electric vehicle, with 296,392 units sold in the American market.
Today, consumers do not mind paying premium prices for cars that come with sleek designs, innovative technology, and high performance.
4. Limited Edition Offerings: Tiffany & Co.
The world’s most expensive jewelry brands, such as Tiffany & Co., have a limited range of unique offerings, ultimately serving as the epitome of exclusivity.
This exclusivity lets the brand set premium prices irrespective of their competitors in the industry and still drive high profit margins. As of 2021, Tiffany & Co. has outranked other jewelry brands such as Cartier and Harry Winston with a net worth of more than $15,000MM. Take a look at the chart below to check out the top-ranking jewelry brands worldwide.
Similar to Tiffany & Co., many other brands offer limited edition products to optimize their prestige pricing strategy.
5. The Unique Experience Factor: Lovers Deep, Luxury Submarine Hotel
Did you know that the luxury industry is projected to rise to $33 billion over the next five years? Although earlier known as an expression of fine craftsmanship, the industry has redefined luxury over the past few years. Luxury consumers are now increasingly inclined toward meaningful and novel experiences.
For instance, the most expensive hotel in the world is not present on land; but in a submarine underneath the ocean in St. Lucia, in the eastern Caribbean Sea. A study by Wealthygorilla reveals that staying at this luxury submarine hotel, Lovers Deep, costs about $150,000 per night.
Whether in terms of value or experience, the world’s costliest hotels, such as The Palms, Hotel President Wilson, etc. stand out from their competitors. This gives them the edge in the pricing game. Although prestige pricing can lead to fewer sales, the increased price can compensate for the reduced sales.
6. Compelling Storytelling: Gucci
Today’s digital era has made the human touch scarce and desirable. Luxury brands are tapping into this need and brand stories are a great way to merge this gap.
Brand stories help companies strike the right balance between retaining the brand heritage and modernizing communication through various digital channels.
For example, Gucci’s 100 campaign beautifully weaves the fashion house’s 100th year in the industry with the key musical moments of the century. Rooted in nostalgia, the ad serves as a reminder that Gucci is here to stay.
It is also a classic example of luxury ads supporting prestige pricing strategies. Such ads employ modern marketing, data, and design strategies to reach a luxury brand’s target audience across mediums and platforms. These ads tend to serve well in showing the brand value alongside meeting consumers’ esteem needs.
Gucci’s brand value took a hit post-pandemic but was revived in 2022. Smart brand narratives, among others, have been instrumental in helping Gucci reach an all-time high brand value of $18,110MM.
7. Unparalleled Digital Shopping Experience: The Watches of Switzerland
Following a steep decline in their sales in 2020, the luxury watch retailer, The Watches of Switzerland Group, made customers’ shopping experience a priority. While their offline stores are popular for offering attentive, personalized, in-store experiences, the pandemic forced the company to make new moves.
Moreover, a McKinsey study shows that nearly one-fifth of luxury sales will happen online by 2025. With about 80% of luxury sales today being digitally influenced, brands are quickly adapting to the new reality.
To create an unparalleled virtual experience, the popular luxury watch brand created an online boutique using the Vee24 technology. From video chat options to co-browsing, representatives assist the consumers at each step. The representatives also handle pre-sales inquiries via face-to-face video calls.
This led to a surge in sales growth by 6.9% in 2021. The company also stated that this robust multichannel business model, among others, has helped them set a higher standard for serving customers online and boosting sales.
8. Hyper-Personalization: Le Labo
Did you know that the global luxury goods market is set to grow at a compound annual growth rate (CAGR) of 4.6% by 2027? Yes. A Forbes analysis revealed that millennials are expected to make up over 50% of luxury markets by 2025, thereby radically transforming the industry.
Naturally, luxury brands have come to place high importance on their relationship with their new-age customers. Alongside preferring elite and exclusive products, young customers also love a personal touch on the products they buy. Hyper-personalization has thus become a game-changer.
Le Labo, a perfume brand, is a powerful example of a brand offering both hyper-personalized experiences and solutions. Using the premise that a perfume’s quality deteriorates over time, Le Labo created a one-of-a-kind customer experience.
Each of their perfume bottles is hand-blended and prepared right in front of the customer. In addition, they print the date and name of the customer on the glass container, making it an exclusive experience for the customer.
Read more: Amazon Customer Buying Behavior in the US
9. Consistent Brand Communication: Chanel
Brand strategy highly contributes to Chanel’s high brand loyalty. A brand strategy includes brand image and brand awareness, both of which are instilled by consistency. This is also visible in Chanel’s steady-growing brand value from $4,317MM in 2017 to $13,240MM in 2021. The company strives to achieve consistency in both intrinsic (modern, artistic collections) and extrinsic aspects, such as visual icons (monograms, brand symbols, patterns, images, colors, etc.).
Although its garments have much higher prices than those of competitors, the brand created its own identity in the fashion world to sustain the premium price. Besides keeping it chic & modern, this luxury fashion house stood out from the rest by adding more historical art connotations into its styles.
Moreover, Chanel has iconized its brand as a symbol of luxurious fashion. When one thinks of Chanel, one immediately recalls intertwined C’s, strings of pearls, and colors black and white.
The brand has repeated these symbols and design elements consistently in the collections to embed brand recall and create a sense of luxury attached to them. For instance, the face of the watch in Chanel’s Première Collection is the same shape as the stopper of the Chanel No. 5 perfume.
10. Brand Heritage Marketing: Louis Vuitton
Brand heritage marketing plays a key role in how a brand is perceived by the target audience. Such brands enjoy an edge in consumer loyalty and pricing due to their years of heritage. They are also relatively difficult to compete with owing to their uniqueness in craftsmanship.
Louis Vuitton capitalized on the brand’s century-old backstory underlining value and commitment. Founded in 1854, Louis Vuitton boasts a rich brand heritage. The company developed ‘Voyagez’, an exhibition aimed at displaying iconic pieces and giving customers an insight into the history of the brand (1854 to the present day).
The company started off by making ‘signature flat-top trunks’ and continues to communicate and market its products likewise by weaving the ‘spirit of traveling’ into the brand identity. Besides the brand’s strategic positioning, the company also shares more information about how, where, and when a product was made, which attracts many young global consumers.
Moreover, Louis Vuitton has managed to achieve consistency in delivering the same message through its marketing efforts. From short films to celebrity brand promotions, every campaign revolves around the idea of traveling and adventure.
With many luxury brands competing for the biggest share of the market, it can be advantageous to maintain credibility and avoid discounts that may hurt your business’s premium status. An intelligent way to evaluate the competitor landscape and set your pricing strategy is with the help of digital shelf analytics.
Check out: The Ultimate Guide to Competitive Pricing
Enrich Your Pricing Strategy With Comprehensive Data
One key consideration for luxury brands in the e-commerce realm is to spot the MAP violators. Advanced digital shelf solutions such as MetricsCart not only empower you with pricing intelligence but also help you act on MAP violators on time. Moreover, monitor your competitors’ changes in product prices, product offers, stock availability, and more.
Reach out to us today to optimize your pricing strategy and enhance your brand’s digital footprint.
