Retail Strategy Secret #13: Prestige Pricing


Welcome to the thirteenth post in our series of “Retail Strategy Secrets”!  Here you will learn the angles, approaches, and tactics retailers are using every day to try and separate you from your hard-earned cash.  Understanding these unlocks the door to spotting great deals, and you never want to pass up a Dealicacy…

Prestige Pricing

Prestige Pricing is the retail strategy of setting prices above the competition, and is more or less exactly what it sounds like: an effort to attract status-conscious consumers to a brand or product.  Factors that go into consideration for prestige pricing include location (such as an up-scale mall), product exclusivity (items generally not available anywhere else), unique customer service (allowing tire returns at clothing stores), higher quality (perceived or real), etc. And the list goes on and on. In fact, differentiation and the art of finding new reasons to maintain or justify resetting to higher price points is not only a big factor in prestige pricing… but in any marketplace as a whole.

Also referred to as “premium pricing”, this strategy can be enacted by either the vendor/manufacturer or retailer.  Its association with “vendor pricing”, however, can be linked to its relationship to MSRP.  MSRP of “normal” (non-premium) items are basically used as the starting point for determining the higher list price.

Everday examples include everything from food and beverage (Cheerios and Starbucks coffee) to clothing and automobiles (Rolex watches, Bentley automobiles, etc.).  Is Starbucks coffee really any better than McDonald’s?  Cheerios vs. Tasty-Os? How about Bentleys vs. Buicks?  Maybe, maybe not.  They are valued differently, but in case the similarities for the product feature set are virtually the same.

Admittedly, this may be foreign territory for those of us who have been deal-hunting for any length of time.  Why do people buy items that are priced so much above their peer products if the features are virtually equal?  The theories abound:

  • Premium price can be an indication of better quality (ingredients, parts, craftsmanship, time)
  • Supports a feeling of self worth (“I deserve it”) and status (“I belong”)
  • Increased ability to fulfill the brand promise, where anything less than exceptional carries a risk (such as with a heart pacemaker or satellite emergency beacon)

Note that these are all *benefits* of the product. The benefits as seen by the seller!  So, in the majority of cases, Premium Pricing works due to good marketing.  If you look really close at ad copy, the good ones don’t try to differentiate on features.  They assume you already know that pants keep your legs covered, or leave you to discover the RPMs and horsepower.  Instead, they focus on the exhilaration of driving, the association with great looking people, etc.

The good news for us: we can win by focusing on something completely different than features or benefits.  Value.  The dealicacy artist knows the *utility* of a product, and uses that to justify relative pricing.  Whether that relative price is above or way below MSRP.

As promised, here is a look at Oakley sunglasses, a very clear example of Prestige Pricing.  Oakley is a hawk at MAP, and clearly sells at a premium ($150+ for plastic!).  Just try and find any price listed next to any print advertising – whether direct from Oakley or the retailer (and the price tag isn’t even visible at the store either!). What abounds in the advertising, however, is clearly looking great and achievement of social status while participating in sports and outdoor activities.  But the reason I buy them is that they do the job I need them to do.

*** SCREEEEEEEECH *** What, I fall for this?  I buy this marked-up pretty colored plastic?  Yep, but I wait until end-of-season clearance on proven models.  I am a distance runner, and the utility abounds in these glasses:

  • They are polarized, so I can see better at dawn and dusk (the times I tend to run)
  • They are lightweight (barely noticeable even on 5-mile+ runs)
  • The curved lenses and “form fit” keep bugs from flying into my eyes (it *really* sucks when that happens)
  • They channel sweat away from my eyes
  • Plus, my runner friends swear by them lasting forever (I don’t pay attention to the celebrities wearing them)

The key here: your Dealicacy is in your conclusion of the product’s value to you.  In my case, I have not been able to find this combination of features that beneficial to me in any other brand — or else I would buy that one.  Plus, I have had no problems with mine over the 8+ years I have had them.  A few years ago, I was manager to an analyst who was once was a former Oakley rep. He took one look at my sunglasses and said “You know, there are newer models out there.”  🙂

So here are some ways to get the better of this pricing strategy:

  • Buy quality that will last, not brand hype
  • Seek out product reviews from a reliable source (Note: this doesn’t mean buy a subscription to Consumer Reports. You’re smarter than that, and the information is available for *FREE*.  Look for communities of users: such as at Amazon for household items, Running forums for the best running gear, etc.)
  • Ignore advertising and create your own take on product benefits – if you know the utility a product will bring, your experience will make up for the fake smiles and airbrushing.

Ok, on with the show.  Next up is “Psychological Pricing”.

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One Response to “Retail Strategy Secret #13: Prestige Pricing”

  1. Shaun Phillips says:

    Cool blog, I had not come across earlier during my searches!
    Carry on the fantastic work!