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Premium Branding 101: 3 Quick and Easy Ways to Supercharge Profits 

By  Jack

There are a lot of factors that go into pricing strategy, but have you ever considered the role that premium pricing could play in transforming your business?

When it comes to pricing, businesses usually operate under one of two assumptions: either that lower prices will attract more customers or that higher prices will deter them.

But the truth is, pricing is a complex psychological game—one that can be used to your advantage, no matter what you sell and what industry you’re in.

In this post, we’ll explore the concept of premium pricing, the linkage between perceived value and price (along with the benefits premium brands offer), and how you can go about implementing higher prices into your own business.

The Psychology Behind Premium Branding

Let’s begin by taking a look at the psychology behind premium pricing. When you charge more for your product or service, customers instinctively perceive it’s higher quality. This is because we associate high prices with luxury items that are difficult to obtain. As a result, premium pricing can help to position your business as a desirable and exclusive brand. 

Pricing influences every purchase decision you make, but what’s easy to forget is that prices are very carefully designed. Savvy business owners understand that pricing is an incredible influential element of marketing.

Prices not only influence our purchasing decisions and steer us towards specific items – we also make snap judgments about a product purely based on its price. Is it high quality? Is it a basic commodity or luxury item? Overpriced…or a great deal? 

Premium Pricing Psychology

You might have heard about the multiple studies related to wine tasting, including Stanford’s 2008 study in which a person is told they are tasting two different wines (costing $5 and $45). During the research, the individual’s pleasure centers in the brain become more active while enjoying the more expensive version. The wines are actually completely identical, so this reaction was purely psychological.

In his book, “How Customers Think,” Harvard professor Gerald Zaltman estimates that ~95% of purchasing decisions are based within the subconscious mind. As business owners, we’d be wise to think about how we can better tap into these subconscious patterns, behaviors, and biases.

You might expect that as the price of your product or service goes up, fewer people are willing to buy what you’re offering. As counterintuitive as it might seem, this is often not the case.

If you can establish an overall brand image of a premium brand (whether its a prestigious luxury product or a high end service), demand for your offerings typically will be price inelastic. This means price increases will rarely hurt demand (consumers’ buying habits stay about the same).

From my experience, prices on premium goods are much more inelastic than you’d expect. This becomes more potent if you have a unique selling proposition clearly communicated to the market. If you’re able to give the perception of uniqueness, you quickly eliminate competition as you become the only one who can provide it. As a byproduct, it gives you a tremendous amount of flexibility around what you’d like to charge.

By raising your prices, you can actually improve your brand image (giving a strong perception of quality) and make your business more exclusive.

Advantages of Premium Brands and High End Service

Premium pricing and branding can be a powerful tool for businesses of all sizes. There are quite a few advantages to employing a premium pricing strategy, including:

Increased Profit Margins

Premium pricing can help you boost your bottom line by increasing your margins. When you charge higher prices, you’ll naturally make more profit per sale (100% of a price increase is now profit, since all other factors are unchanged). And if you’re able to attract new customers with premium branding, you’ll see an even bigger boost in your overall profitability.

If you want to charge premium prices, you need to establish yourself as a premium brand. Once you’ve done that, you’ll have the leeway to raise your prices without fear of losing customers. In fact, customers will often be willing to pay more for a product or service that they perceive to be of high quality.

This allows you to target a more affluent customer base and position your business as a leader in your industry.

Premium Pricing Strategy

Weather Economic Downturns

In times of economic uncertainty, businesses that rely on low prices are often the first to suffer. We never want to be stuck in a race to the bottom. But if you’ve established yourself as a premium brand, you’ll be better positioned to weather downturns. As mentioned above, premium brands typically have limited price elasticity and high customer satisfaction ratings.

As a result, customers will likely still be willing to pay premium prices for high-quality products and services—even when their budgets are tight.

Finally, premium pricing can also help to build brand equity. When customers see that a company consistently charges higher prices for its products, they may begin to perceive the brand as being luxurious or exclusive. This can make people more loyal to the brand and more likely to purchase its products in the future.

Create Differentiation

In today’s competitive marketplace, it’s more important than ever to stand out from the crowd.

And what better way to do that than by offering a product or service that is perceived to be of high quality and worth a higher price? 

I believe one of the the most important advantages of premium pricing is that it opens up opportunities for differentiation and strong brand positioning.

When customers see that you’re willing to charge more for your products or services, they’ll automatically assume that you offer superior quality—which can attract new business. Humans have a natural tendency to want what they perceive as being valuable or rare.

Higher prices help you avoid being price-shopped and treated like a commodity, particularly if your offering can’t easily be compared to competitors. This feeds into a virtuous cycle which can quickly evolve into a moat around your brand.

Premium Pricing Strategy Examples

  • Luxury brands like Gucci and Louis Vuitton charge high prices for their products because they are seen as rare and high-end. Both are masters of positioning for a premium price and have consciously cultivated an image and identity that conveys luxury and exclusivity.
  • Apple is another gold standard example for premium pricing. Customers are willing to pay more for iPhones and iPads because they perceive them as being superior quality (with a dramatically simpler user experience) than other devices on the market. The iPhone and MacBook Pro are both priced up to three times more than competitor items. We can debate if Apple products are actually worth the 3X price tag, but they are clearly doing something right,…as the first company in the world ever to reach a market cap of $3 trillion.
  • Luxury brands like Porsche and Lamborghini of course have high end features and a great driving experience, but most buyers decide to drop this much money for the desirable symbol of the brand. By purchasing, they are essentially paying for the privilege of identifying and being associated with these premium luxury brands.
Premium Pricing Strategy Examples

Relationship Between Price and Value

Let’s transition into what this means for you and your business.

In order to implement higher prices in your business, its critical to understand the relationship between price and value.

The reason people buy anything (whether it’s a bar of soap or a new car) is to get a deal. They believe what they get (value) is greater than what they are giving in exchange (price).

As Warren Buffet says: “Price is what you pay. Value is what you get.” In order to charge premium prices, your prospects need to be able to quickly answer the question: “is it worth it?

If we’re looking to charge a higher price we need to be able to confidently justify it.

People will pay significantly more for something when they can clearly see a value that’s relevant to them and that value noticeably exceeds the price they’re being asked to pay. On the other hand, if the value isn’t clear to them and they’re not sure what it’s really worth to them, they almost certainly won’t be willing pay premium prices to get it.

For example, from a personal point of view, I like to aim for a 10-to-1 ratio. What this means, if I’m considering investing a dollar for something business related, I want to expect ten dollars as a return (10X ROI).

This number will vary depending on the individual, but we’d be well served to think through the return on investment we can communicate to our prospects and customers (especially if our business is B2B). For example, if we’re selling accounting software, we’d want to illustrate the ROI of reducing the amount of employee time spent on accounting processes.

People will pay almost anything (it doesn’t matter what the actual amount is), once they credibly believe that it is free. You’ll sometimes seen this referred to as selling ‘dollars at a discount.’

If we can’t establish a strong return on investment, I recommend you lean into other factors related to perception. Think about factors like prestige, uniqueness, exclusivity, status, or offering a superior experience. Your success will be largely predicated on deeply understanding how your product or service is perceived in the market (and improving that perception if at all possible).

Your Business and Premium Marketing

There are many different philosophies around the “how” of implementing a premium pricing strategy in any given business.

I think Alex Hormozi’s representation of the Value Equation is an elegant way to think about how you can ramp up the value for any of your offerings. I recommend you take focused time with this to think about how you can maximize the perceived value of what you offer in the minds of your prospective customers. How can you be more expensive than your competitors, while offering far superior value?

  1. Dream Outcome (we want to INCREASE) – “the feelings and experiences the prospect has envisioned in their mind” (and the gap between this dream and where they are now)
  2. Perceived Likelihood of Success (we want to INCREASE) – the probability that the purchase will pay off and they’ll get to the dream outcome (testimonials/case studies are great here)
  3. Perceived Time Delay Between Start & Achievement (we want to DECREASE) – “the time between a client buying and receiving the promised benefit” (how can we make this process faster?)
  4. Perceived Effort & Sacrifice (we want to DECREASE) – costs of effort and sacrifice. How can we make it easier or more convenient? This is why “done for you services” are more expensive than DIY alternatives.
Premium Marketing

Remember that customers have very clear ideas around what constitutes value. If the price does not match the quality, customer expectations will not be met and increasing prices will likely backfire. Like I said, it’s worth taking plenty of time to make sure you get the value equation right.

If we get tactical, price anchoring is a great way to think about actually implementing a premium pricing strategy.

Price Anchoring

Price anchoring is a common pricing strategy employed to influence customers’ perceptions of value. By setting a reference price that is higher or lower than the actual selling price, you can encourage customers to either perceive a discount or view the product as being more expensive than it actually is.

There are two main types of price anchoring: absolute and relative. Absolute price anchoring occurs when a business sets a reference price that is completely unrelated to the actual selling price. For example, a store might advertise a couch for $1,000 when it is actually on sale for $500. The store is hoping that customers will see the $500 price tag and perceive it as a bargain.

Relative price anchoring occurs when a business sets a reference price that is based on the actual selling price, but is still higher or lower than the true cost. For instance, a store might advertise a couch for $500 when it is actually on sale for $400. The store is hoping that customers will see the $400 price tag and perceive it as being cheaper than it actually is.

Price anchoring can be an effective way to increase sales, but it can also backfire if customers feel misled or cheated. If you are considering using price anchoring as a pricing strategy, just make sure that you are being straightforward around the reference price so customers don’t feel deceived.

Conclusion

Whether you’re selling products or services, premium pricing is an effective way to transform your business. By charging high prices for items that are perceived to be of high quality, you can increase profits, attract affluent consumers in your target market, and create opportunities for differentiation.

If you’re thinking about implementing premium pricing in your business, there are a few things you should keep in mind. First, make sure that your product or service is actually worthy of a premium price tag (remember: this all comes back to how premium brands position with perceived value).

Second, create a strong branding strategy that communicates luxury and exclusivity. And finally, be prepared to adjust your prices as needed—premium pricing is not a static strategy; it should be constantly evolving to reflect the changing needs and desires of your target market. 

By establishing yourself as a premium brand, you can attract new customers, charge higher prices, and boost your bottom line. And in today’s competitive marketplace, those are all major advantages.

Jack


Investor & Mentor

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