Premium Pricing, Fair Pricing and Price Change

PREMIUM PRICING

Positioning for Premium Price vs. Average Price

Managers must consider what the company must do to position itself in order to command a premium price against an average price.

In order to command a premium price vs. an average price, a company must make the consumers perceive a higher value for the company’s product. Consumers usually associate higher value with higher price, and vice versa.

When consumers see a product with a higher price, they usually ask questions about what makes the product more expensive – – Is it the quality? Is it the brand name? Is it the functionality?

The product’s value is increased through improvements in product quality and functionality, and brand image. However, the perceived value of the product is not just dependent on the actual value of the product. The product can be of the same quality as that of competing products, but can have a higher perceived value.

This condition is achieved by focusing on the psychological aspect of marketing and consumer behavior. Specifically, the company can boost its perceived value by using advertising that emphasizes luxury, uniqueness and other qualities that are commonly associated with higher product value.

For example, an advertisement with a well-known celebrity, such as a sports celebrity or a Hollywood celebrity, can be used to boost the luxury image of the product. A higher luxury image can lead to a higher perceived value.

More Desirable Products & Services Command a Higher Price

Managers also need to consider what makes some products and services more desirable and command a higher price. Some products are more desirable and command a higher price because of such higher perceived value or higher actual value.

Factors that Make People Disregard Their Budgets

It is also of interest to know what makes customers want to dig deeper into their budget or disregard their budgets for “must have” products and services. Customers want to disregard their budgets for a must-have product or service based on the actual need for and urgency of having the product or service. Customers also use their perception of the value of the product relative to competing products available in the market. Thus, consumers have the tendency to prefer products based on their perception of the value of the product, even when the perceived value is not the same as the actual value of product.

FAIR PRICING & PRICE CHANGE

Positioning to Convince Customers that Products & Services are Priced Fairly

In order for a company to position itself to convince customers that its products/services are priced fairly, there must be an alignment or match between the price and the perceived and/or actual value of the product. The goal of a company is not just to increase the price of its products in order to gain higher revenues, but also to increase the actual value or perceived value of the product. Such a matching or alignment, when properly implemented, can convince customers that that the product/service is fairly prices.

In order for an expensive product to be considered to be fairly priced, it actual value or perceived value should be commensurate to the price. The company could increase the actual value of the product in terms of durability and functionality, among others, or the company could increase the perceived value of the product in terms of apparent uniqueness, popularity among celebrities, etc. Some products and services are more desirable and considered priced fairly if they are associated with symbols or ideas of high quality, such as celebrities, rarity, or if they are have higher actual value through better functionality, durability and others.

Factors that Make Products and Services More Desirable and Priced Fairly

Managers are concerned about what makes products and services more desirable and considered priced fairly. In essence, when a product or service is priced fairly, people find it still acceptable to buy the product or service after it has undergone a pricing increase. For example, a bread product that has undergone a pricing increase remains acceptable to consumers if that bread still has high value compared to the majority of other bread products in the market.

Walking Away or Staying with New Pricing

Managers must also account for the factors that make customers consider walking away from a product or service when it has undergone a price increase. For instance, managers should analyze the thoughts customers have as to why to walk away or stay despite the new pricing.

When a product has undergone a price increase, a customer would walk away from it if he sees that the price does not match the value or quality of the product. Also, a customer would not buy the product if the price increase does not come with an improvement of the product value or if the product is not affected by certain economic factors, such as inflation, for instance. If the economy has declined and the product’s price has increased as a result of such decline, customers would probably still buy it. If the economy remains the same but the price has increased, customers expect that the product should also have an improvement in its value.

References
  • Armstrong, G., Kotler, P. (2010). Marketing: An Introduction, 10th Ed. Prentice Hall.
  • Foss, N. J., & Knudsen, C. (Eds.). (2013). Towards a competence theory of the firm. Routledge.
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