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Price premium is the percentage by which your average selling price exceeds or falls short of a benchmark price. It is a common metric that can be used to judge the competitiveness of products, promotion, price strategy and sales.

Calculation

Price premium requires a benchmark of average market prices for comparable products to your own. This can be calculated from a basket of similar products. It is also common to use a single close competitor or price umbrella as the benchmark. Price premium is calculated as:
price premium = (price - benchmark price / benchmark price) x 100

Example (1)

An organic coffee product is priced at \$12. Similar products had an average price of \$10.50 in the past month.
Price premium = (12 - 10.50) / 12 x 100 = 14.3%
The firm tracks the price premium over time and has found that it has been increasing due to discounting by competitors. The firm decides to decrease prices modestly.

Example (2)

A hotel with a slightly worse rating than other hotels of similar quality in central Hong Kong charged an average of \$200 USD for a 23 square meter room over a three week period. They estimate that a more popular competitor charged \$300 USD over the same period.
Price premium = (200 - 300 / 300) * 100 = -33.3%
The hotel decides they might be able to charge slightly higher prices going forward and maintain a reasonably high occupancy rate.

Example (3)

A telecom service in Belgium offers the highest quality colocation services in the country. In a particular quarter their sales team exceed their sales quota by 10%. Management checks the price premium and finds that it declined from 30% to 2% in the quarter. They decided that the sales team only met the quota by over-discounting. In the following quarter, they introduce new rules and an approvals process for discounts.
 Overview: Price Premium Type Definition The percentage by which your average selling price exceeds or falls short of a benchmark of average market prices. Related Concepts

Sales

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Account Management
Ambiguity Effect
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