To see premium pricing in action, imagine this: You enter your favorite brick-and-mortar shoe boutique in search of new boots. Near the back of the store, two pairs of brown boots from different brands immediately catch your eye. The first pair costs $115; the other costs $1,500.
At first glance, they seem nearly identical, but as you look closer, you spot the differences. The less expensive pair has synthetic leather and glued-on soles. The pricier pair features hand-stitched Italian leather and custom-made buckles. Made with impeccable attention to detail, they will last a lifetime. Does this justify its hefty price tag?
In 2025, customers are experiencing price-increase fatigue due to inflation and the threat of tariffs. Premium pricing represents an interesting alternative to raising prices across the board. For example, by selling just one $1,500 pair of boots each month, your favorite shoe store may be able to keep its low-priced boot at $115.
Learn more about premium pricing—what it is, which companies can use it, and how to implement this pricing strategy for your brand.
What is premium pricing?
Premium pricing is a strategy where companies price products higher than their competitors to create a perception of quality and exclusivity. It relies on strong branding, effective marketing, and high-quality products that justify the elevated cost.
Premium pricing is common in industries such as luxury fashion and consumer electronics. For example, an outerwear brand could charge $1,700 for a double-breasted wool coat—many times over the average price point—because it uses merino wool, mother-of-pearl buttons, and immaculate hand-stitching.
On the other hand, a business selling a standard iPhone case could justify a higher price by communicating its shatterproof design and illustrations hand painted by local artists.
Premium pricing vs. price skimming
Premium pricing happens when a company sells a product at a higher price than its competitors. Price skimming works similarly—but instead of keeping the product at the premium price forever, it becomes cheaper as hype settles and competitors catch up.
For example: You return to your favorite shoe store the next day and find the $1,500 boots have been marked down to $1,125. A month later, they’re on sale for $843.75. If the store keeps reducing the price until the boots sell, it could be engaging in price skimming. This strategy allows the shoe store to appeal to customers with different budgets, but it generally only works if there’s perceived value in being among the first to own a new product.
Premium pricing psychology: how it works
Pricing psychology hinges on a consumer’s perception of a product to overcome the mental hurdle of buying a premium product at that higher price tag. Whether it’s the allure of higher quality materials or the fact it’s only available for a short period of time, retailers can successfully sell their products at premium prices by tapping into psychology principles—even if the cost of production isn’t that high.
Here’s how premium pricing can influence consumer behavior:
Exclusivity
Premium pricing automatically puts a product out of reach for most people, which makes it exclusive, and therefore valuable. Researchers from the University of Chicago and London School of Economics found that merely excluding some study participants from the opportunity to bid on a custom t-shirt made the t-shirt more valuable to the remaining participants.
They called this phenomenon mimetic dominance-seeking. It’s the idea that human desires are based on what we think others want (mimetic) and whether or not they can have it (dominance-seeking).
Status
Expensive products can automatically convey social status if others know how much they cost. Economist Thorstein Veblen coined the term conspicuous consumption in 1899 to describe this phenomenon, whereby wealthy people purchase luxury goods simply to show others how much disposable income they have.
Premium pricing examples
Premium brands are no strangers to using premium pricing to inflate profits. Consider these examples:
- Rolex. As one of the most valuable luxury watch brands in the world, Rolex uses exclusivity to demand higher prices. Its customers buy its premium priced products as a status symbol, showing to people that they can afford to buy a Rolex.
- Hermès. Even loyal Hermès fans can’t walk into a store and get their hands on a Birkin bag. The buying process can span months—you’ll need a personal shopper and a spot on the informal wait list. This exclusivity inflates the value of Birkins; a single bag has sold for more than $450,000 at auction.
- Apple. Experts predict that it only costs around $550 to manufacture an iPhone15 Pro, yet Apple’s brand recognition and loyal customer base means it can charge premium prices (between $999 and $1,499) to turn a substantial profit per unit.
Advantages of premium pricing
- Higher profits
- Enhanced brand perception
- Differentiation in crowded markets
- Increased brand loyalty and perceived exclusivity
Premium pricing can boost your brand image. Other advantages include:
Higher profits
Premium pricing creates a larger gap between production costs and the selling price, potentially increasing your profits per item. This lets you increase your revenue without finding new customers or encouraging repeat purchases from existing shoppers.
📚Read more: Types of Products with High Profit Margins
Enhanced brand perception
Just as low cost suggests low quality, a high price often leads shoppers to assume the product is worth it. For instance, Dior produced a bag for $57 that retailed at $2,780—a price buyers were willing to pay for the brand name.
Differentiation in crowded markets
Premium pricing signals that your product is made with better materials, is more exclusive, or of better quality. This can help differentiate your products in crowded markets. For example, a $1,000 duvet set is more expensive than more accessible options, but customers might pay it if they’re looking for natural fibers, hypoallergenic materials, or prefer to shop with a luxury linen brand they’re loyal to.
Increased brand loyalty and perceived exclusivity
When customers perceive a product as being higher in value, they might be more willing to make repeat purchases, as opposed to shopping with a competitor. It’s why a premium pricing strategy works well for collectibles, special editions, or exclusive product drops. Just note that it requires careful balance to avoid frustrating loyal customers or diluting brand value.
Disadvantages of premium pricing
- Alienates price-sensitive customers
- Sets high expectations
- Requires high marketing costs
- Competes with more excessive alternatives
Despite the pros, there are some downsides to adopting this pricing strategy for your business:
Alienates price-sensitive customers
With a premium pricing strategy, you might miss out on budget-conscious customers who can’t or won’t pay top dollar. This is common in today’s landscape: some 55% of Americans say they’re worried about inflation “a great deal.”
Sets high expectations
Customers paying premium prices expect premium quality and customer service; failing to meet those expectations can irreparably damage those customer relationships. This risks negative reviews and harm to your reputation.
Requires high marketing costs
Customers place a lot more thought into higher value purchase. They might need to see several marketing campaigns before they’re persuaded to buy, which can demand a higher marketing budget.
Competes with more accessible alternatives
If competitors offer products of similar quality at lower prices, your customers might bid your premium-priced offering farewell. This is especially common with the influx of lower cost products on marketplaces like Temu and Amazon.
When to use premium pricing
- Superior product quality
- Unique or innovative offerings
- Established brand reputation
- First-to-market advantage
- Luxury or limited-edition items
- Customization and added value
Here are some examples of when it makes sense to implement premium pricing:
Superior product quality
Products with unique or patented features can come with a higher price tag. These proprietary elements can solve problems in ways other products can’t, providing a competitive advantage. Brands invest heavily in research and development (R&D) to create these features, and premium pricing helps recover these costs while the patent protection or trademark lasts.
Consider the $250 Kulala sleep lamp, which costs more than other night lights on the market. That’s because the lamp uses its trademarked DreamRed light, which the company claims is “scientifically proven not to suppress melatonin.” It’s also handcrafted from natural maple wood and has silent-touch control features.
Unique or innovative offerings
Customers are frequently willing to pay more for items they perceive as one of a kind. That might mean one-of-one vintage items, objects with a unique selling point, or differentiated products that lack alternatives. In this case, the scarcity of an innovative product justifies a higher price point.
Adored Vintage, for example, offers a carefully curated collection of vintage women’s clothing and accessories. It can charge premium pricing because each item is unique and hand-selected. Customers aren’t just paying higher prices for the product; they’re also buying the curation and exclusivity of each vintage hair comb and long floral dress.
Established brand reputation
Established brands often have a good reputation. Whether you’re known for high-quality products or innovative design, it can impact how much consumers are willing to pay for your products—even if the cost to produce them isn’t that high.
Allbirds is a great example. Most of its sneakers sell for between $95 and $150, but its reputation for balancing quality with sustainability persuades customers to keep buying the shoes, despite the price tag.
First-to-market advantage
Brands that develop new products can often charge premium prices because of a lack of direct competition. The novelty factor can also attract early adopters.
For example, Pela creates phone cases and accessories from biodegradable materials. As a pioneer in eco-friendly phone accessories, the company combines protecting phones with environmental responsibility. Its cases cost $60, reflecting the unique materials, its commitment to eco-friendly production, and its product differentiation (most alternatives are plastic or rubber).
Luxury or limited-edition items
Luxury brands are obvious candidates for a prestige pricing strategy. Products from these companies—from diamond timepieces to ostrich leather handbags—often use expensive materials, resulting in superior quality. The high selling price reflects the product’s price-to-value, brand equity, and perception as a status symbol.
STARK, a family-owned carpet company, has been crafting high-end carpets and rugs since 1938. Its large rugs often retail at more than $7,500. It justifies its luxury pricing by using premium materials like hand-knotted wool and skilled artisans to make the rugs. Stark’s reputation for excellence and its presence in prestigious locations—from royal homes to national landmarks—supports its premium pricing strategy.
Customization and added value
Customers often value the ability to personalize items according to their preferences. Offering customization lets brands charge more for their products. This might mean a leather tote with a customer’s initials or a ring inscribed with a secret message or inside joke.
For example, take Yeti, which produces high-end coolers, drinkware, and outdoor gear. For buyers who want a more personal touch, the brand offers customizable tumblers, bottles, travel mugs, water bottles, and pet bowls. You can add your name, horoscope symbols, or custom design. This customization—plus Yeti’s reputation for quality and durability—means the brand can charge customers a premium market price. For instance, with customization, a 10-ounce tumbler costs $26.
How to implement a premium pricing strategy
- Conduct competitive pricing research
- Convey product differentiation
- Ensure brand alignment across teams
- Enhance the customer experience
- Innovate continuously
Premium pricing only works if you can justify the cost to the price-flexible shoppers your brand covets. Here’s how to demonstrate your worth:
1. Conduct competitive pricing research
Premium pricing doesn’t mean arbitrarily setting high prices. It’s more nuanced than pricing your silk blend duvet covers at $1,000.
Instead, conduct product research to analyze your market and competitors. Compare your pricing strategy with other luxury brands in your space to ensure you’re positioning yourself correctly. There are limits to luxury—doing the legwork helps you understand what’s reasonable and what’s outlandish.
Estimate your potential market size and project revenue across various pricing scenarios. Weigh the trade-offs between a lower price point with a larger customer base and a higher price point with fewer affluent customers. Would it be more profitable to sell 10,000 handbags at $500 each, or 3,000 handbags at $2,000 each? Use a profit margin calculator to make sure the figure you land on is sustainable.
📚Learn more: Price Optimization Explained: How To Optimize Pricing
2. Convey product differentiation
To justify premium pricing, your product needs to stand out. Reinforce that your product is worth it by communicating its key product attributes.
It’s not enough to offer features your competitors already provide. Highlight your unique selling proposition on your website and advertise your differentiators across all customer touch points, like Instagram, television ads, or billboards.
Consider partnering with luxury influencers who can authentically showcase your product’s value to their followers. For example, Fairfax & Favor, a British luxury fashion brand that creates stylish footwear and accessories, partnered with luxury lifestyle YouTuber Lydia Elise Millen to showcase its premium suede boots to a wider audience.
The skin care brand My Skin Feels also invested heavily in product packaging design. “I also wanted [the brand] to look really different,” explains founder Danielle Close on an episode of the Shopify Masters podcast. “I didn’t want it to look like another natural brand. I wanted it to look interesting and different and stand out on the shelf and kind of prove that natural isn’t boring and organic isn’t boring.
“We’re actually really fun, and the more fun you have with your brand, even if it’s a serious message, it still captures the audience, because it’s fun. So yes, sustainability is really important. And food waste is really important. And natural products are really important, but it’s packaged in a really fun way that makes it feel non-threatening, and it doesn’t judge you if you’re not those things too.”
3. Ensure brand alignment across teams
Products with a higher price tag naturally have higher expectations placed upon them—not just for the product itself, but the entire experience that a customer has when buying them.
Get your entire team on the same page to ensure you’re not falling short during each customer interaction. For example, if you’re commanding a higher price because a product is exclusive, sales, marketing, and customer service teams should all have the same consistent messaging: “If you don’t buy this now, we can’t guarantee you’ll get another chance.”
4. Enhance the customer experience
Customers willing to pay premium prices expect more than just a high-quality product; they want an exceptional experience from the beginning to the end of their purchasing journey.
With Shopify, you can treat every visitor like a VIP—its unified customer profiles power auto-detected local currencies and sizing, tailored galleries, and loyalty points that surface right at checkout.
To deliver on this, consider every touchpoint along the customer journey:
- Craft a clean and simple website. Avoid cluttering your site with pop-ups or constant offers. Make checkout easy with Shop Pay by prepopulating payment and shipping options to lift conversion rates by up to 50% compared to guest checkout.
- Use premium packaging. Use heavy cardstock, high-quality boxes, and tissue paper. Protect any hardware on bags or accessories to prevent damage.
- Provide elevated customer service. For expensive purchases, buyers want human interaction. Skip the AI chatbots and offer phone support or concierge services.
If you invest in these moments, you can turn an ordinary purchase into a premium experience that justifies higher price points.
💡Read how apparel retailer Monte Carlo boosts online revenue by 126% with user experience transformation on Shopify.
5. Innovate continuously
In the absence of innovation, competitors can quickly catch up and undercut you. To maintain your premium position, stay relevant with both your product offerings and marketing approach. Find fresh ways to reach and engage your target market, like limited-edition collections with renowned artists, exclusive product previews for top clients, or invite-only events.
“With Shopify, we’ve been able to do a lot of customization where we have more opportunity for storytelling, which is really important to our brand in particular,” says Tara Lundy, chief brand officer at LifeStraw, on an episode of the Shopify Masters podcast. “You can host customer experience resources that provide guides for people to use your product properly. We’ve been able to offer subscription models for replacement filters.
“And really, also just gleaned so much data and information from our customers based on what their needs are, what their buying patterns and consumer behavior is. This really helps grow the business. It’s also a really excellent way to launch and test new products. I think you get more instantaneous feedback from having your own direct to consumer business.”
Premium pricing FAQ
What best describes premium pricing?
Premium pricing describes the strategy retailers use to sell products at a higher price than their competitors. For example, Rolex uses exclusivity and brand recognition to sell luxury watches that are much more expensive than alternatives on the market.
What might support a premium pricing strategy?
Limited production creates scarcity, which can allow for premium pricing. This strategy works well for collectibles, special editions, or exclusive product drops but requires careful balance to avoid frustrating customers or diluting brand value.
Why is premium pricing good?
Premium pricing offers several benefits, like higher profit margins, building a loyal customer base, and differentiating your products from competitors in the mass market.
When do you use premium pricing?
Premium pricing works well when you’re selling products made with superior quality materials, are selling a unique or innovative product, or have existing brand recognition.
What are some companies that use premium pricing?
Rolex, Apple, and Hermès are examples of companies that use premium pricing. Each brand taps into exclusivity, high-quality materials, and brand reputation to sell products at a higher price than competitors.
