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Price Strategy (Part 2): Premium Pricing in 2022

The change in this strategic issue has been brought about by the drastic separation of premium and mass markets. This is because the traditionally successful Supporter mindset, i.e. the mass approach, has remained, but it has always provided companies with low profits generated by high labour costs. In the meantime, however, the true premium market has developed, where price is almost irrelevant, and knowledge, service, or even faith, self-confidence and other often intangible elements have taken centre stage. And if one has not been able to follow this via price policy, one is now facing a very difficult period in the years after the COVID-19 crisis.

True or not

Looking at the experience of the past decades, pricing has really been about asking for what you are willing to pay for your product. It’s not a new solution, because if you look back at history, that’s always been the case. What is certain, however, is that for this pricing to work, there is one thing your product must have: uniqueness. For products where there is already competition, the comparison is essentially a comparison exercise, and even if we do well, there are limits to how much more we can charge compared to our competitors in order to have a stable customer base. This is why more and more companies are looking to produce truly internationally unique products. Because, although it is riskier, there is no possibility of real market research, since what does not exist can only be theorised. However, if you build your strategy right, you can win big. You can work with a serious profit margin and get more money for much less work. But if you don’t have a unique skill set, you really have to fight a price war. That is why there is a lot of designing going on in the mass markets, how to differentiate one mass product from another so that you can charge the right price for it. The issue can be resolved. It is usually not the market that stands in the way, but the mass-minded manager. Even in the case of an apple, the numbers are not set in stone, and it is not the difference in production costs that causes the drastic price difference in every case. But there are still limits for mass products. So, if I am honest, I can now see that my teacher was right in his own way, and I can also believe my own experience, because it is really a question of the market in which you move. What is certain, however, is that we should expect our colleagues and ourselves to pay the same price as they do. Because when it comes to the fact that people may not buy our product because of bad pricing, it can be very painful and creates a serious stress situation. So it is always a good idea to have an external, objective professional look at the process, because the stakes are too high.

Premium prices

Basically, we are taught that premium pricing is characterised by a high price level, and if a product has a relatively high price, it shouldn’t be that much of a problem. This was true until roughly the Great Recession of 2008. Until then, indeed, a large part of the market ate up this “it’s very expensive, so it must be special” ideology, and there was a clear psychological background to it. People bought the premium because they felt different, they saw their own achievements confirmed, because if they could pay a large amount for a dress, a car, a mobile phone, etc., then they shouldn’t have so much trouble with their lives and careers. At least that was the driving force behind the premium. It was also important that the high prices meant that the mass consumer could not have access to the same products, i.e. owning a premium product clearly showed who belonged to which “group”. From this point of view, quality was not very important to buyers, who were more critical of their expensive possessions. Of course, in the majority of cases, they believed that they were paying for quality, but there were very few products, even twenty years ago, that could be considered premium. Today, however, there is a very significant market for premium products. It has a very significant customer base, and for this reason, there is a strong focus on branding, but also on continuous improvement and professionalism in the background. As there are high-quality expectations for premium products, it is no longer credible to be cheap in this market. In fact, if you are a leader in your field, you have to be the most expensive, because modest companies and leaders are much loved, but no one wants to follow them, because their path is not about success. Many people have fallen for these changes dictated by the markets. But there is a part of the business that can take advantage of this trend to make serious strides forward in its own field. We have come to the point where we must put our own image, our faith, and our confidence in our knowledge on the line. More importantly, we must price our products based on what they are worth to the customer and what they can bring to the customer’s life. After all, they have to pay us a proportion of that value, even if we have spent only a fraction of it on specific, tangible expenditure.