![]() ![]() Pricing at a premium leaves you vulnerable to undercutting tactics from competitors, particularly if your field is crowded. While this is less of a concern for SaaS companies than it would be for, say, fashion brands, you’re still voluntarily pricing out some of your market share. Premium pricing limits your ability to sell your product to a mass market. That means your product development costs are likely to be much higher if you’re selling at a premium. Premium pricing really does depend on price-inelastic consumer demand-without an impregnable USP (unique selling point), you can’t justify the higher price tag for your product. And the same things that bring about the benefits of premium pricing can also prove restrictive for your company. ![]() A delicate matrix of factors needs to be in alignment, and this can be seen as the method’s main drawback. Making a success out of premium pricing generally depends on controlling the context around your product. You can rapidly entrench a market advantage with a well-executed premium pricing strategy. Other companies won’t be able to compete with your product without boasting equivalent product quality and price points. If a premium pricing strategy is successful, it can raise barriers to entry in your industry. Not only does a premium-priced product accrue its own high-quality reputation, but it also improves the perception of the rest of your product portfolio. Premium pricing also improves brand value and the perception of your company. It’s basic math-a higher price-per-unit leads to higher profit-per-unit sold. Premium pricing will naturally result in higher profit margins for your company, if successful. Premium pricing benefits are largely self-explanatory-done right, the strategy can lead to higher profit margins and improved public perceptions of your company. Using this list of pros and cons, you can make a more informed decision before taking further steps to implement premium pricing at your company. Evaluate your company’s position and its targets for growth against what it takes to really make a premium pricing strategy a success. However, it is often more difficult to bear if the new business has few resources to withstand the lower prices.įor an overview of effective pricing, read our full guide on the 15 most effective pricing strategies to boost small business revenues.Like all potentially high-yield pricing strategies, premium pricing can be a demanding approach. ![]() Lastly, penetration pricing could start a pricing war if not done correctly, which is normally detrimental for any parties involved. Secondly, if the low prices are only for a set introductory period, the new customers may switch out after the price levels begin to rise. One of the greatest possible disadvantages is that if the prices are set too low, it may not necessarily lead to a profit. While it has good possibilities, penetration pricing can backfire if not used correctly. In turn, this can lead to decreased production costs and an increase in inventory turnover, which will help businesses with fixed overhead. This pricing and marketing strategy can be very effective if used correctly as it can often lead to increases in both sales volume and market share. Penetration pricing is based on the idea that low pricing for goods or services is a significant incentive for customers to be aware of a new product and to make the purchase. Penetration pricing is one of the many effective pricing strategies whereby businesses introduce a new product or service at a low price to attract new customers. ![]()
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