Many marketers and economists say value is in the eye of the beholder, and nowhere is this theory practiced more heavily than in prestige pricing. This economic theory advocates charging higher prices for goods in order to give the impression that there is added value for the cost. Many of the world's most famous brands of automobiles, clothing, jewelry and food use this method as a marketing strategy. However, many people claim to have problems with this logic because the cost does not always represent the quality.
Prestige pricing, also known as premium pricing, is a price system that implies added value of a product because of its location at the higher end of the price scale. Prices within this type of financial modeling are artificially elevated for a psychological marketing advantage. This type of pricing aims to capitalize on buyers' notions that one brand's high-priced item is superior in quality to a similar item that could be purchased for significantly less.
The strategy behind prestige pricing is not tied to its quality but more to its image. By giving a product an elite look because of its high price, the theory states that its implied value will rise. This is accomplished most commonly through marketing campaigns. If the packaging and delivery reflect an elite look or higher value, the theory states that individuals will pay premium prices for this idea alone, rarely investigating whether the price is an accurate reflection of the product's value.
Prestige pricing is used in everything from designer shoes to gourmet potato chips. One example where this psychological pricing strategy is used frequently comes from the automobile industry. High-end automobiles that cost several times what an average automobile costs are presented as a luxury item that has superior performance, interior and perception among other drivers. The materials and labor used to produce these cars might cost the same or slightly more than an economy car and perhaps have no performance differences, but its elite image demands a much higher sticker price.
Many customers and marketers have complaints about the morality of prestige pricing. The sellers are aware that the product is possibly no better than the standard version, so certain individuals see it as a form of dishonesty. By not providing a measurable advantage over modestly priced products, the theory is that these organizations are cheating customers who are unaware of the difference.