How do “they” do it?
You know who I’m talking about. “They” are the premium brands. These are the businesses that thrive, somehow, despite their high prices.
Most business owners would love to make more profit. And one of the easiest ways to do that is to raise prices.
Of course, we know it isn’t that simple. A random price increase could send customers running in another direction.
But premium brands do exist. Every industry has them. So, what’s their secret?
In this post, you’ll learn what a premium pricing strategy is and how to implement one. But first, it’s important to know more about what’s going on in the marketplace.
Has the Pandemic Really Changed the Marketplace?
The answer is yes, and no.
Even as we look to put the COVID-19 crisis behind us, the effects of it are still playing a major role in commerce.
The pandemic created supply shortages, which forced people to experiment with other brands. People have become comfortable with alternatives to the products they once held dear. Research tells us that over 60% of consumers plan to stay with the new brands they’ve discovered.
Brand loyalty doesn’t seem to matter as much as it once did. Customer retention rates have dropped, making it tougher to maintain buyer relationships.
Thanks to the Coronavirus, consumers became more cost-conscious and rightfully so. People lost jobs, took pay cuts, and many remain uncertain about the future.
Given these events, it appears premium brands may have a tougher time competing. So why would anyone consider a premium pricing strategy today?
Because it works just as well now as it ever has.
But to be successful, we must dig a little deeper. The real question is:
What factors do consumers use in their buying decisions?
If we can identify what people care about as they shop, we can leverage that to make sales.
This pre-pandemic report showed people were willing to pay more for premium brands. This was especially true among millennials. Defined, a premium brand is one that offers more perceived value.
If something has a high degree of perceived value, it is also assumed to be higher in quality.
Before the pandemic, high quality was a major buying factor for consumers. It’s why they were willing to pay more for premium brands.
A recent study from Nielsen shows that safety and efficacy are now factors. Given the crisis of the last year, that’s not a surprise. But this same study shows that the number one buying factor is still high quality.
High quality was the primary buying factor before the pandemic. That hasn’t changed.
But how consumers define it has.
So if we know how people define quality, we can still use a premium pricing strategy to our advantage. Now, let’s look at the key component of a premium pricing strategy. This alone often determines whether you will be successful.
Find the Right Audience
Who you sell to will have a significant impact on the success of your premium pricing strategy. Not everyone has the same priorities and beliefs. That’s why it’s best to spend your time looking for customers who share your core values.
Going after customers who don’t share your convictions leads to a lot of frustration. Here are some problems you’ll face when targeting the wrong prospects:
- You’ll hear that your prices are too high.
- Customers you do get are often difficult to work with.
- You’ll almost always have to reduce your price to get the sale.
- It’s unlikely that your profit margin will ever be what it should.
Your target market should be a good fit for your business. Look for people who share your philosophy and values. This doesn’t mean everyone will be a kindred spirit, but life will be a less complicated.
Premium Pricing Strategy in 5 Steps
The purpose of a premium pricing strategy isn’t just to help you charge more. It’s designed to create differentiation between you and competitors. If people don’t see a significant difference, you won’t be able to justify charging higher prices.
Unfortunately, many small businesses oversell features and benefits. They may explain the product’s technology or how much more efficient it is than others like it. But prospects don’t always understand the value of one feature over another.
Perhaps you think claims such as, “We have great service,” and “We care about our customers” are great reasons to buy. But all your competitors are making these same statements. Prospects don’t know who to believe, so they ignore everyone.
Think about it: do you buy from someone just because they tell you they can be trusted?
Instead of trying to convince people to buy, show them why they should. A premium pricing strategy can help you do that.
Here’s the premium pricing strategy broken down into a step-by-step process:
Step 1: Determine what “differentiation” means in your niche. The first step is to identify the characteristics of a premium brand in your industry. Depending on your competitors, you may not have to do as much as you think to be one.
Analyze the brands that serve as model businesses in your niche. Make notes on what you observe, including:
- branding and design
- offers (benefit claims and tiers of products and services)
- sales copy
- tone of voice
- platforms they’re on
- who their customers are
Now, look at other competitors. What differences do you see?
The goal of this exercise is to develop and define what it means to be a premium brand in your niche. This may take some time, but it will reveal what separates the high-end brands from the rest of the pack.
Step 2: Create an irresistible offer. An offer is not a product or service. Instead, it’s a statement of benefits customers will receive from it. Of course, creating an offer people can’t refuse is much easier said than done.
To make it simpler, focus on delivering what I call the premium brand trifecta. This is a combination of benefits that resonate with customers on various levels. There are three levels, or types of benefits: functional, technical, and emotional.
A product’s or service’s functional benefits are in its ability to fulfill a basic need. For example, a certain computer model may meet the customer’s need for speed. A security system may help them feel safe at night.
The technical benefits of a product or service are measured in its performance. How does it fare compared to others like it?
Finally, premium products and services must also deliver emotional benefits. Emotion is the driving force behind most purchasing decisions, not logic.
Today, more consumers want products that make them feel safer, special, or smarter. Clubs, memberships, and upgrades are popular because they make people feel important.
How can your products and services evoke emotions like these?
Once you’ve developed all these benefits, you’re ready to construct your offer.
Step 3: Focus on creating more perceived value. As we learned at the top of this post, quality is the foundation of premium pricing.
For service providers, expertise is often the gauge for quality. People will pay more if they believe someone is an expert at what they do.
Don’t get carried away by showing off awards and accolades. Rather, educating people on what you do helps establish your authority. To do this, provide case studies, testimonials, and customer success stories.
Show people why your product or service is so valuable. Remember, it isn’t about being the best, which is almost always subjective. Rather, the perception of being superior is what makes impact.
To create more value, look at your top 10 competitors. What promises do they make? What results do they deliver? What can you do to improve on their claims?
Another tactic is to develop multiple offerings with contrasting price points. Create a super-premium offer to position above your primary product or service. Even if no one buys it, this will decrease the price pressure on the flagship offer.
For example, your primary offer may cost $5,000. But the price of your super-premium version may be $20,000. Given the contrast, the price of your flagship offer looks much more reasonable.
To make this work, you must create significant differences in the features of each offer. They must stand apart from one another to justify the price structure. Just be sure you can deliver on your promises.
The Prerequisite for a Premium Pricing Strategy
At some point, you will be tempted to give in to the pressure and lower your prices.
It may be because you lose a few sales to a competitor who is selling for less. Or, it could be that a customer you really want continues to challenge your price. It may also be that you simply need to generate income ASAP.
Whether you do or don’t is a decision you’ll have to make.
But by far, a business owner must have the mindset to implement a premium pricing strategy. If you don’t believe what you offer is worth what you charge, it’s unlikely anyone else will. And if you do, why would you accept less for it?
Research, testing, and experience will support a premium pricing strategy. But none of that will matter if you lack the conviction to follow through.
We’re here to help. Click here to create a premium pricing strategy to grow your business.
You can also email me personally at firstname.lastname@example.org.
Until next time,