What is Prestige Pricing and Is It Right For You?

Why are some people willing to pay seemingly sky-high prices for certain items?

In some cases, it could be they believe price and quality are intimately linked. Or maybe they want to splurge on something to show off to their friends, display their status, or simply treat themselves to a bit of luxury.

The consumer psychology around luxury is fascinating. Understanding it and applying it in your pricing strategy can be a major lever for growth and increased market share. This short guide will explain the concept of prestige pricing and show you some ways you can leverage it to tap into a consumer base that craves the feeling of luxury.

What is Prestige Pricing?

Prestige pricing is a pricing strategy that seeks to convey a message of higher product quality and a luxury brand image by selling goods or services at a higher price than comparable products. Some brands use prestige pricing on some product lines to make their other, less expensive lines look like a better deal.

You may have also heard prestige pricing referred to as “premium pricing,” and in some cases, as “image pricing.” All three terms can be used interchangeably, and as they all have the same goal of using price as a means of communicating superior product quality and even exclusivity.

Prestige pricing is a form of psychological pricing. A consumer will consider many different factors when buying something. Price is a key consideration, and it not only communicates hard dollars and cents but the value of something. A higher price, in the mind of a consumer, can often correlate with higher value.

Prestige pricing is similar to a cost-plus strategy in that you’re adding a markup to the cost of goods. The difference is that prestige pricing isn’t just about adding a markup to generate an acceptable rate of return. It’s about deliberately pursuing high prices beyond what an average brand would as a means crafting an image.

Prestige pricing is a pricing strategy that seeks to convey a message of higher product quality and a luxury brand image by selling goods or services at a higher price than comparable products.

Prestige Pricing and Your Brand Story

In luxury verticals, a low price can actually mean lower sales because the perceived value of the product is lower. A high price, on the other hand, conveys high quality and, of course, prestige. This isn’t quite “rational” on the part of the consumer, but luxury brands know the psychological forces at work when it comes to prestige pricing and luxury.

A great example of this phenomenon is in the luxury watch market. A watch’s primary purpose is to tell you what time it is. Yet, brands like Rolex, Omega, and Patek Philippe routinely sell watches for tens of thousands of dollars, while brands like Seiko, Casio, and Timex have some watches that sell for around $10.

We can see this same idea in the market for luxury cars, where brands like Mercedes-Benz, Porsche, and Jaguar sell for far more than an economy vehicle from Honda or Toyota. The luxury lines and affordable ones will get you where you want to go in the same way, so how does the former get away with charging so much?

It comes down to the brand. Whether it’s Rolex or Porsche, the perception of the brand is what justifies the higher price. Here’s what brands that successfully pull off prestige pricing do right:

They Differentiate Well

Psychological pricing is hard to pull off if you can’t convincingly explain why your product is different. Whether it’s superior engineering, environmentally-friendly sourcing, or special knowledge only your brand has, you need to convey that if you want people to justify paying more for your products.

They Show and Tell a Compelling Story

People don’t buy luxury goods only because the quality is better. It’s equally about the exclusivity and the identity benefits they get by being the kind of person who drives a Mercedes-Benz or wears an Omega watch. The best luxury brands use marketing to show, not tell, why the feeling you get from their products is irreplaceable.

It’s not about getting people to make a rational decision based on product specs, but an emotional decision based on the feeling they want to get from your products.

They are Consistent

Across all channels, from social media and eCommerce product pages to the in-store experience, successful prestige pricing brands tell the same story. They invest in the experience and the messaging that solidifies them as a premium brand. Their differentiated features and benefits are never left unsaid, no matter the medium.

All of this is to say that one of the downsides to prestige pricing is that it generally requires a significant investment in branding and marketing to make it work. You can’t compete with everyone else on price if you’re using a premium pricing strategy, so the big buying trigger is a strong brand that people want to identify with. No one will pay top dollar for a brand they’ve never heard of and know nothing about.

Luxury apparel displayed in a room

How to Tell if Prestige Pricing is Right for Your Brand

So how can you tell if a prestige pricing strategy is right for your brand? Here are some things to look out for as you consider this pricing strategy.

Your Products are Superior Quality

You can market yourself as a premium brand, but if your products don’t live up to the promise your marketing makes, you will eventually be seen as “expensive” rather than a luxury worth paying for.

If you can demonstrate that your products are actually of higher quality than comparable ones, you may be able to test a prestige pricing strategy. Be aware, though, that increasing your pricing could cause some of your current customer base to abandon you if they have a low price elasticity. This strategy is often better used for a product launch.

Another way to enter the prestige pricing realm is to launch a new product that is specifically geared toward the top of your market. This method won’t impact existing happy customers and could bring you into a new market.

Your Products are Unique

If there are no close, good substitutes for your product, you can implement prestige pricing as a growth strategy. Essentially, if people can only get what you offer from you, you have a clear opportunity to charge a premium for your products.

This has some overlap with value-based pricing, which is a pricing strategy that involves pricing based on the value your product has to the buyer, rather than the cost of goods. If your products have a unique feature, benefit, or value, lean into that and justify your premium pricing with it.

Your Products are Made in Limited Quantities

Limited edition products are a perfect opportunity to use a prestige pricing strategy. There’s already a sense of exclusivity that comes with launch products in limited batches, so adding to that with premium pricing can lead to consumers clamoring to be a part of it.

Your Customer Base Is Open to Paying More

You can’t charge more than customers are willing to pay, no matter how good your products are. Your pricing strategy has to reflect the desires and needs of your customer base.

If you’re considering a prestige pricing strategy, use price intelligence to compare pricing across the competitive landscape and determine what a prestige level of pricing could look like. This will help you be more targeted and data-backed in setting a price point that positions you as a premium brand without becoming completely disconnected with the realities of your market.

Prestige pricing done right can be a powerful strategy for growth and profit. If your brand has a compelling story, a commitment to product quality, and unique selling points, you can use prestige pricing to connect with customers who aren’t just looking to make a transaction but to have an experience and display their own prestige.

Matt Ellsworth

Matt is the Sr. Manager, Marketing & Demand at Wiser, the leading provider of actionable data for better decisions.

Need better data to inform your decisions?

Schedule a Consultation