Price premium

Examples of Price premium in the following topics:

• Demanding a Premium

  • Firms can engage in premium pricing by keeping the price of their good artificially higher than the benchmark price.
  • Brands like Pepsi or Coke can price their goods at a premium, charging more than a generic soda brand due to its brand name.
  • Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price.
  • A premium pricing strategy involves setting the price of a product higher than similar products .
  • Luxury has a psychological association with price premium pricing.

• Demand-Based Pricing

  • Price skimming is a pricing strategy where initially a product price is set very high, but lowered over time.
  • Value based pricing (aka value optimized pricing) sets prices primarily on the perceived or estimated value to the customer (rather than on the cost of the product, the market price, competitors' prices, or historical prices).
  • Value based pricing (aka value optimized pricing) sets prices primarily on the perceived or estimated value to the customer (rather than on the cost of the product, the market price, competitors' prices, or historical prices).
  • These include: price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing.
  • Psychological pricing is one cause of price points.

• The Freemium Model

  • Feature Limited - set number of features with basic- to get better cooler features move to premium
  • In fact, the concept of a smaller giveaway to attract a premium customer is not new.
  • Feature Limited - set number of features with basic- to get better cooler features move to premium
  • Wired's, Editor-in Chief, Chris Anderson examines the many sides of free and freemium in his 2009 book Free: The Future of a Radical Price.
  • Alternative models for monetizing digital offerings include Pay what you want, which also loosens conventional pricing constraints.

• Competitive Advantage

  • The competitive advantage theory suggests that states and businesses should pursue policies that create high-quality goods to sell at high prices in the market.
  • The competitive advantage theory attempts to correct for this issue by stressing maximizing scale economies in goods and services that garner premium prices.

• The Meaning of Price

  • Buying something means paying a price.
  • But what exactly is "price?
  • For example, playing a premium price is compensated for by having this exquisite work of art displayed in one's home.
  • The latter role for price acknowledges that man's response to price is sometimes unpredictable and pretesting price manipulation is a necessary task.
  • Differentiate between cost, customer's view of price, and society's view of price

• Differential

  • Differential pricing exists when sales of identical goods or services are transacted at different prices from the same provider.
  • Price differentiation, or price discrimination, exists when sales of identical goods or services are transacted at different prices from the same provider.
  • This usually entails using one or more means of preventing any resale: keeping the different price groups separate, making price comparisons difficult, or restricting pricing information.
  • For example, so-called "premium products" (including relatively simple products, such as cappuccino compared to regular coffee with cream) have a price differential that is not explained by the cost of production.
  • For example, airlines routinely engage in price differentiation by charging high prices for customers with relatively inelastic demand (business travelers) and discount prices for tourists who have relatively elastic demand .

• Developing Services

  • The price of your merchandise or service tells the customer a lot about what they can expect from your business.
  • This is why in some instances, salons and other services are able to charge a premium.
  • Although they are delivering a product/service that is similar to competitors, the higher price suggests theirs has greater value.
  • However, offering an exceptional product at the right price, through the most accessible channels, promoted extensively and accurately, should work for any type of product.
  • Based on the results of data-gathering devices such as customer surveys, consumer complaints, and suggestion boxes, the product manager can determine the types of services to offer, the form the service will take, and the price charged.

• New Product

  • What price level should be set in such cases?
  • Penetration pricing in the introductory stage of a new product's life cycle involves accepting a lower profit margin and pricing relatively low.
  • Price is set relatively high to generate a high profit margin, and sales are limited to those buyers willing to pay a premium to get the new product.
  • A premium product generally supports a skimming strategy.
  • In this case, "premium" doesn't just denote high cost of production and materials, it also suggests that the product may be rare or that the demand is unusually high.

• The Savings Association Insurance Fund (SAIF)

  • In the 1990s, SAIF premiums were, at one point, five times higher than BIF premiums; several banks attempted to qualify for the BIF, with some merging with institutions qualified for the BIF to avoid the higher premiums of the SAIF.
  • This drove up the BIF premiums as well, resulting in a situation where both funds were charging higher premiums than necessary.
  • In the 1990s, SAIF premiums were, at one point, five times higher than BIF premiums.
  • Alan Greenspan, Chairman of the Federal Reserve, was a critic of the system, saying, "We are, in effect, attempting to use government to enforce two different prices for the same item – namely, government-mandated deposit insurance.
  • Such price differences only create efforts by market participants to arbitrage the difference."

• Competition-Based Pricing

  • Competitive-based pricing occurs when a company sets a price for its good based on what competitors are selling a similar product for.
  • Competitive-based pricing, or market-oriented pricing, involves setting a price based upon analysis and research compiled from the target market .
  • For instance, if the competitors are pricing their products at a lower price, then it's up to them to either price their goods at a higher or lower price, all depending on what the company wants to achieve.
  • One advantage of competitive-based pricing is that it avoids price competition that can damage the company.
  • Status-quo pricing, also known as competition pricing, involves maintaining existing prices or basing prices on what other firms are charging.