Prestige pricing
| Prestige pricing |
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A prestige pricing is setting prices at an artificially high level to convey an image of quality. Prestige pricing is used particularly when buyers associate a higher price with higher quality. Standard product categories in which selected products are prestige priced include cars, perfumes, liquor and jewelry [1]. Prestige pricing set retail prices that are high, relative to competing marks. The higher price suggests higher product quality, congruent with the strength of the price-quality association in consumers' minds. It can also provide the product with a measure of prestige or status relative to competing marks [2].
Prestige objectives
"The final category of pricing objectives, unrelated to either profitability or sales volume, is prestige objectives. Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness that appeals to status-conscious consumers. Such objectives reflect marketers' recognition of the role of price in creating an overall image of the firm and its product offerings. Prestige objectives affect the price tags of such products as Waterford crystal. Alfa Romeo sports cars, Omega Watches, and Tifanny jewellery. When a perfume marketer sets a price of $400 or more per ounce, this choice reflects an emphasis on image far more than the cost of ingredients. Analyses have shown that ingredients account for less than 5 percent od a perfume's cost. Thus, advertisements for Joy that promote the fragrance as the "costliest perfume in the world" use price to promote product prestige. Diamond jewellery also uses prestige pricing to convey an image of quality and timelessness" [3].
Pricing of products
The pricing of products is mainly based on the following factors [4]:
- What are customers prepared to pay
- What are the competitors charging
- What do the individual components of the products cost when added together
- Will the product make a profit
Examples of Prestige pricing
- Cars: Some luxury vehicles are prestige priced, such as the Lamborghini Aventador, which has a starting price of $400,000.
- Perfumes: High-end perfumes, such as Chanel No. 5, are often prestige priced.
- Liquor: Certain types of liquor, such as Louis XIII cognac, are prestige priced, with a bottle costing up to $2,500.
- Jewelry: Diamond jewelry, such as a diamond necklace, is often prestige priced, with the cost depending on the quality of the stones and the design.
Advantages of Prestige pricing
Prestige pricing can be a beneficial strategy for businesses because it can help to:
- Increase brand value and recognition - Prestige pricing can help brands to create an image of exclusivity and luxury, which can draw in consumers who are seeking to purchase a product that conveys a certain status. This can also help to increase customer loyalty and brand recognition.
- Increase profit margins - Prestige pricing can help businesses to increase their profit margins on certain products, since consumers are willing to pay higher prices for items that are perceived to be of higher quality.
- Attract customers - Prestige pricing can be an effective way to draw in customers who are willing to pay a higher price for a product that they view as more luxurious or exclusive. This can help businesses to increase their sales.
Limitations of Prestige pricing
Prestige pricing has certain limitations that must be considered when deciding to use this pricing strategy. These limitations include:
- High prices may exclude certain segments of the population that cannot afford the product or service. If a company chooses to use prestige pricing, they must be aware that they may be limiting their potential customer base.
- Prestige pricing may be viewed negatively by customers. Some customers may see the high prices as a sign of greed or a lack of value, which could result in a negative perception of the brand.
- Prestige pricing can also limit the ability of a company to reach profitability. Prices that are too high may reduce demand, resulting in low sales and low profits.
- Finally, prestige pricing can be difficult to sustain over time. Competitors may choose to undercut the pricing, which can lead to a price war and reduce profits for all involved.
A one-sentence introduction to the list is as follows: Other approaches related to prestige pricing include:
- Product Bundling – This involves combining two or more products into one package, resulting in a higher perceived value of the product, which can command a higher price.
- Scarcity Pricing – This involves creating a sense of urgency for customers to purchase a product by limiting the number of items available, which can help to drive up the price.
- Branding – This involves creating a brand identity to differentiate a product from its competitors, which can help to increase the perceived value of the product and help to command a higher price.
- Advertising – This involves using advertising to create an impression of a product’s quality and appeal, which can help to drive up the price.
In summary, prestige pricing is a pricing strategy where prices are set artificially high to convey an image of quality. Other approaches related to prestige pricing include product bundling, scarcity pricing, branding, and advertising.
References
- Blythe J. (2012), CIM Coursebook Marketing Essentials, Routledge, USA.
- Finch J. E., Odgen J. R., Ogden D. T., Chatterjee A. (2013), CLEP Principles of Marketing, Research & Education Association, USA.
- Kurtz D. L., Mackenzie H. F., Snow K. (2009), Contemporary Marketing, Cengage Learning, USA.
- Paxson P. (2002), Media Literacy: Thinking Critically about Advertising, J. Weston Walch, USA.
- Pride W., Ferrel O. C. (2009), Foundations of Marketing, Cengage Learning, New York.
- Rodgers J. (2001), Travel and Tourism, Heinemann, UK.
- Warner C. (2009), Media Selling: Television, Print, Internet, Radio, Wiley-Blackwell.
Footnotes
Author: Gabriela Wojtaszek
