Premium pricing

The approach of premium pricing includes purposefully setting your company's product's price higher than that of your direct competitors. Setting your product's price higher than the competition is meant to create the impression that yours is a somewhat better product than others. It functions best when combined with a well-thought-out marketing plan intended to improve that perception.Price skimming is directly associated with premium pricing. But in contrast to skimming, prestige pricing entails setting and maintaining high prices. Premium pricing has been a common practice for luxury brands, but SaaS can also benefit from this strategy.Advantages of premium pricingThe advantages of premium pricing are quite self-explanatory: when used correctly, this strategy can increase profit margins and enhance public opinion of your business.• Greater margins of profit: If your business is successful, premium pricing will inevitably lead to larger profit margins for you. It's simple math: a higher unit price yields a bigger profit per unit sold.• Enhances value & perception of the brand: Premium pricing enhances your company's reputation and brand worth as well. A high-end product enhances the perception of the remainder of your product line in addition to building its stellar reputation.• Create a barrier around your brand: An effective premium pricing strategy may increase entrance barriers in your sector. If they can't match your product's quality and pricing, other businesses won't be able to compete. When you implement a premium pricing strategy with skill, you may quickly establish a competitive advantage.Cons of premium pricingThe key to making premium pricing successful is managing the environment in which your product is placed. The fundamental problem of the method is that it requires a delicate matrix of factors to be matched. Furthermore, the same factors that make premium pricing advantageous may also work against your business.• Reliance on the inelasticity of price: Price-inelastic customer demand is a real determinant of premium pricing since you cannot defend a product's higher price without an unbeatable unique selling proposition. That implies that if you're selling at a premium, your product development expenses will probably be substantially greater.• Restricts the market's potential: Your ability to reach a mass market with your goods is hampered by premium pricing. Although SaaS companies are less affected by this than, say, fashion brands, you are still willingly giving up some of your market share.• Reduces the competitiveness of prices: Setting your price higher than your competitors exposes you to their undercutting strategies, especially if your industry is crowded. If a rival appears and offers a comparable good or service at a lower cost, your premium price may backfire.