Whether you sell a good or a service, it’s no secret that pricing is a crucial component to running a business. Not only does the proper pricing of goods affect the amount of money coming into your business, it also affects your ability to target your ideal market. As a result, it’s vitally important for small businesses to set the right prices on their goods and services from the start.
Many new business owners assume that the only way to beat the competition is to offer low prices. Similarly, many may engage in price skimming where they charge the highest initial price that a customer will pay, satisfy the demand at that price, and then lower the cost to meet demand in the next price category. They continually lower their rates until they attract customers in each price segment.
While these strategies could be useful, they could also have a significant impact on the firm’s profit margins. Fortunately, there is an alternative strategy you can consider when offering a new product.
Premium pricing, also known as “image pricing” or “prestige pricing,” involves pricing a product above standard market value so that customers think a product or service is more valuable than similar offerings. In this article, we’ll cover everything you need to know about this price strategy so you can determine whether it’s useful for your business.