Premium pricing is the strategy of charging a high price in order to preserve the status of a brand, business, product or service. The term suggests a high-status business that could generate far more revenue in the short term by lowering prices. By keeping prices high, sales volumes remain low. This allows quality, status, reputation and brand value to be carefully sustained. The following are illustrative examples.
FarmingA vineyard produces high quality grapes that are valued for their appellation and terroir. They charge a premium price that's far above the market price for grapes. They produce on carefully cultivated land with unique characteristics and focus on quality over yield. The vineyard has kept production more or less the same for 60 years and avoids the temptation to scale up.
LuxuryA leather goods company enjoys high status as a luxury brand. They sell at a reasonably high price point. Due to their status, they could dramatically boost sales volumes by discounting items. For example, a discount of 30% might boost revenues by 600%. The brand has been around for many decades and has retained high brand value with a discipline of avoiding such discounts. Sales volumes are steady, predictable, profitable and sustainable.
ConsultingAn information security firm is known for its small team of senior consultants who are each well known in the industry. The firm charges high rates far above industry norms but are always fully booked. The firm is always open to recruiting industry leaders but avoids the temptation to lower their standards in order to scale.
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