Have you ever purchased a product based solely on its quality? Whether we're thinking about purchasing the next iPhone or a new-release Nike sneaker, we often justify the purchase of an expensive item based on more than just quality -- we also factor in our perception of the product and brand behind it.
And if we do purchase one of these products, we're often left thinking, "Is the actual value and quality of this product really worth the price I paid for it?"
If you've ever found yourself with an expensive good that doesn't measure up to your expectations, it's likely it was priced using a prestige pricing strategy. This is a strategy where companies mark up the price of their product to create the perception that they're selling a high-quality product.
What is prestige pricing?
Prestige pricing, also known as premium pricing or image pricing, is when a company prices its products at a higher point to give consumers the perception that the product is high-value.
This pricing strategy is closely tied to brand perception. Companies that take this approach to pricing often have products that are recognized for their superior quality or the value they add to the lives of customers. The pricing method works based on the assumption that consumers perceive more value in the product if it's priced high, and they're willing to pay a higher price for it.
As a consumer, have you ever purchased something from a company that uses a prestige pricing strategy?
Prestige Pricing Examples
Some high-profile companies use prestige pricing to value their products. Let's take a look at examples of these businesses.
Apple: The perceived value Apple products provide allows the company to price its products well above the cost to make them. Most are multi-purpose tools you can use to complete numerous tasks (e.g. answer calls, send texts, take photos, etc.).
Nike: With celebrity endorsers (e.g., Michael Jordan, Serena Williams, etc.) and its well-recognized logo, Nike prices its products based on its image. If high-profile athletes are wearing Nike, shouldn't you?
Rolex: Would you be willing to spend thousands of dollars on a watch? The perceived quality and luxury of a Rolex watch, and the status that comes with wearing one, are a few of the reasons why it's a premium-priced product.
Prestige Pricing Strategy
A prestige pricing strategy is when companies deliberately set their prices higher than the actual cost of the product. Fashion, technology, and luxury goods are often priced with this method because they can be marketed as exclusive or rare. Commodity goods aren't unique items and a prestige pricing strategy isn't a good fit.
Prestige pricing strategies can vary depending on a company's goals for their brand and offerings. You'll want to look at competitors in your market to see how they price products that are similar to yours. With a unique value proposition that differentiates your product from the competition, you'll be able to justify a higher price point.
Another method to increase the perception of value is to round to the nearest whole number and avoid ending the price with .99 (e.g., $200 instead of $199.99).
For example, it cost $288 to make the iPhone 8. With Apple's prestige pricing strategy, the iPhone 8 was sold to consumers for $799. Apple priced the smartphone 177% above the production cost.