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.cite book | last = Gittings | first = Christopher | title = The Advertising Handbook | publisher = Routledge | location = New York | year = 2002 | isbn = 0415243912 ] The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.
The use of premium pricing as either a marketing strategy or a competitive practice depends on certain factors that influence its profitability and sustainability.
Such factors include:
Information asymmetry(e.g., when buyers have no independent basis to test claims of "exceptional quality" for a particular product or service -- assuming the concept is well-defined to begin with);
* Market status as a
Luxury goodor a Superior good; and
* Market dynamics such as the level of
competitionand entry barriers. [cite book | last = Smith | first = Gordon | title = Trademark Valuation | publisher = Wiley | location = New York | year = 1997 | isbn = 0471141127 ]
Notes and references
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