Did you know that pricing isn’t only about covering costs and making a profit? It’s also a way to communicate your brand’s perceived value and uniqueness.
In fact, the prices you set can influence people’s perception of your brand and help position it in the market. And this ultimately helps build brand equity and loyalty.
Let’s explore how pricing and brand perception are linked and how different pricing strategies might strengthen your brand positioning and value perception.
We’ll also look at some psychological pricing techniques you can use to influence consumer decisions.
How Price Signals Value
Price as a Signal of Quality
Pricing and brand perception go hand in hand. Price often helps to assess the quality of a brand quickly. A higher price often signals superior quality. This is largely due to the halo effect, where one positive attribute influences our overall judgment.
In fact, 86% of consumers associate price with quality, according to a 2021 survey by NielsenIQ.
Take the Ritz-Carlton, for example. Its premium prices make the hotels appear desirable and exclusive. However, Ritz-Carlton’s strategy only works because it is underpinned by a strong brand identity, outstanding quality, and a seamless customer experience—from the curated ambience to their legendary service.
On the other hand, budget-friendly brands such as IKEA and Aldi use lower prices to signal accessibility, appealing to a mass audience.
Discounts Impair Brand Perception
While low prices work for Aldi and IKEA, pricing too low can also backfire—especially with excessive discounts. Although discounts can increase sales in the short term, they can damage brand equity in the long term.
A study by the Harvard Business Review confirms this and found that frequent discounts can reduce brand value by up to 33%.
Brands that rely heavily on discounts risk becoming commoditised— thus losing their uniqueness and credibility in the long term.
In addition, discounts that are too frequent can diminish the perception of exclusivity. After all, if everyone can afford something, it may become less desirable.
Luxury brands know this. They maintain their premium positioning by increasing prices rather than reducing them.
Price as a Reflection of Brand Positioning
However, quality is not the only way to create added value. Beyond quality, you can justify higher prices by strategically positioning your brand—not necessarily as the best, but simply different.
Here are some examples of different brand positioning strategies:
- Great brand experience, like entering a Lush store’s vibrant and sensory world.
- Innovative products, like Dyson’s vacuum cleaners with their superior technology and performance.
- Unique brand personality and brand voice, like Oatly’s quirky, conversational messaging.
- Strong brand values, like Patagonia’s unwavering commitment to sustainability.
- Strong emotional benefits, like Harley-Davidson’s lifestyle of rebellion and freedom.
For more ideas, check out my article “18 Brand Positioning Examples to Inspire Your Brand Strategy.”
Trust and Transparency in Pricing
Besides communicating value, pricing also plays a role in creating trust. If pricing is perceived as fair, customers are more likely to trust and remain loyal to your brand.
Today’s consumers are doing their homework. They are well informed, research, compare, and therefore expect transparency and honesty from brands.
Hidden fees, confusing price structures, or exaggerated discounts create scepticism and feel manipulating. And this damages the brand’s credibility in the long run.
Brands like Everlane have understood this and built loyalty through radical transparency. When Everlane first entered the market, the company only sold one type of T-shirt.
It broke down its entire pricing structure—listing costs for materials, labour, production, transport and profit. This strengthened the company’s ethical positioning and reassured customers that they were paying a fair price.
How Pricing Shapes Brand Equity and Customer Loyalty
So, we have learnt that fair and strategic pricing strengthens your brand and promotes customer loyalty in the long term. And that’s basically what brand equity means.
What is brand equity?
Brand equity refers to the value of your brand, which is driven by factors such as brand awareness, reputation, customer loyalty, and perceived value. A strong brand with high brand equity can ask for premium prices.
Interestingly, pricing also plays a role in building brand equity. A suitable price reinforces the perceived value. For example, if your brand is considered premium, a higher price will reinforce this perception.
On the other hand, frequent discounting can weaken brand equity and make your brand appear inconsistent or desperate.
What is Price Elasticity?
Price elasticity is closely linked to the concept of brand equity. It measures how much demand shifts when prices change.
Some brands (often strong brands) can raise their prices without much impact on sales, while others (weak brands) risk losing customers at the slightest increase. Focus on differentiation and brand strength to establish long-term pricing power.
Here’s a breakdown:
- Elastic pricing mean that small price change significantly impacts demand. Your market is competitive or price sensitive, like low-cost airlines or fast fashion. For example, when Netflix increased prices, many users cancelled their subscriptions—a sign of elasticity.
- Inelastic pricing means demand remains stable despite price increases, your brand has strong differentiation and pricing power (like luxury goods or niche products). Apple constantly raises its prices, but demand remains high.
Pricing Strategies and They Can Reinforce Positioning
Knowing how pricing affects brand perception is only half the battle. To leverage this knowledge, brands use a variety of pricing strategies that support their positioning.
Since pricing and brand perception are closely intertwined, you can shape customer perception by aligning your pricing with your brand’s overall strategy.
Different pricing strategies work for different businesses. Sometimes, a combination can yield the best results.
Below, I made a list of pricing strategies with real-world examples for your inspiration.
Premium Pricing
Setting your prices higher than the competition makes your brand a symbol of quality, craftsmanship, luxury, or prestige. Crucially, everything—from brand experience to design to customer service—reflects this premium positioning and justifies the price.
Example: Ferrari’s pricing reflects its exclusivity. Each car is a piece of art and the premium price adds to the appeal of owning a Ferrari.
Economy Pricing
Economy pricing aims to make brands affordable to a broad audience—those who prioritise practicality over prestige and seek budget-friendly solutions. To avoid appearing simply ‘cheap’, you should add value through things like a relatable personality, strong values or clever design. This makes affordability a strength rather than a compromise.
Example: IKEA is a good example. They offer stylish, functional furniture at affordable prices. Their focus on simplicity, efficiency and clever design, combined with flat-pack assembly, keeps costs down without sacrificing quality.
Masstige Pricing
Masstige pricing—short for ‘prestige for the masses’—combines premium and economy pricing. With this strategy, brands can offer products with a sense of prestige at a more affordable price and thus make high-quality products accessible to a broader audience.
Example: BMW’s 1 Series is priced lower, which makes the range an entry point into the BMW brand.
Competitive Pricing
Competitive pricing means setting prices at or slightly below competitors to. It focuses on offering similar value at a lower cost. While brands using this strategy may differentiate through features, services, or customer experience, the focus is on providing a cost advantage.
Example: Casper disrupted the mattress industry offering a high-quality, direct-to-consumer mattress at a lower price. By cutting out middlemen and focusing on convenience, like free shipping and hassle-free returns, Casper positioned itself as an affordable alternative to expensive luxury mattresses.
Parity Pricing
In contrast to competitive pricing, price parity is about matching competitors’ prices. The focus is on the unique value propositions beyond price—such as excellent quality, innovative products or an outstanding customer experience. The goal is to attract people who value these non-price factors and are willing to pay a comparable price.
Example: Samsung prices its smartphones similarly to Apple’s iPhones. But instead of simply matching prices, Samsung differentiates itself by emphasising specific technological features—such as higher megapixel camera sensors.
Value-Based Pricing
With value-based pricing, prices are based on perceived value rather than your costs or competitors’ prices. This strategy requires a good understanding of customer needs and what they are willing to pay to fulfil them. Value-based pricing is often used by brands that offer a direct and measurable results.
Example: Pharmaceutical companies often use value-based pricing for speciality drugs that treat rare or life-threatening conditions like cancer.
Dynamic Pricing
Dynamic pricing adjusts prices in real-time based on market demand, customer behaviour, and competition. This flexibility is ideal for industries with fluctuating demand.
Example: Uber increases its prices at times of high demand—during peak hours or in bad weather.
Freemium
The freemium model offers a basic product for free, then charges for premium features. This strategy is popular in technology and app industries to attract a large user base and convert some into paying customers.
Example: Spotify offers free music streaming with ads but charges for premium features such as offline listening and an ad-free experience. This allows Spotify to position itself as a platform for everyone, from casual listeners to avid audiophiles.
Tier Pricing
Freemium is often combined with tiered pricing. With tiered pricing, different packages are offered at different price points (good, better, best). By providing multiple options, you can appeal to different customer segments and cater to various budgets and preferences. This strategy can help a brand be perceived as flexible and customer-centric.
Example: The newsletter platform Mailchimp offers tiered pricing so businesses of varying sizes can find a suitable plan.
Subscription Pricing
With subscription pricing, customers are charged regularly, creating a steady stream of revenue and increasing customer lifetime value. This strategy is often used by brands that offer services customers need on an ongoing basis.
Example: Netflix, Adobe and Dropbox all charge monthly fees. This allows these brands to continually invest in improving their offerings and maintaining a strong relationship with their customers. This, in turn, is reinforcing their position as reliable and valuable providers.
Pay-What-You-Want
This experimental model allows customers to set their own prices. While relatively uncommon, it can help build goodwill and generate buzz, especially in creative industries. When brands use this model, they position themselves as transparent and customer-focused.
Example: Atipo Foundry offers its fonts on a pay-what-you-want basis. Similarly, Radiohead released their album In Rainbows with a pay-what-you-want option.
Skimming vs. Penetration Pricing
Both skimming and penetration pricing are strategies for launching a new brand or product, but they shape brand perception differently.
Skimming pricing starts with a high price and gradually reduces it over time. This approach is ideal for brands seeking to position themselves as premium, innovative, or category leaders. It appeals to early adopters who are willing to pay more for exclusivity, prestige, or first access.
Example: New iPhones are released at a premium price. Then, prices fall over time to attract more price-sensitive buyers.
Penetration pricing does the opposite, starting with a low introductory price to attract customers quickly and gain market share. This positions the brand as affordable, accessible, or a disruptor in an existing industry. Over time, prices may increase as the brand builds loyalty.
Example: A new local business, like a hair salon, might offer discounted cuts or introductory packages to attract new customers.
Psychological Pricing Techniques that Influence Buying Decisions
Beyond these core pricing strategies, brands often leverage psychological pricing techniques to influence consumer behaviour subtly. By tapping into cognitive biases, you can make your prices appear more attractive or reasonable, even when the actual value remains unchanged.
Here are a few methods:
Anchoring
Anchoring means presenting a higher-priced option first to establish a reference point. Once people see a high price, subsequent prices appear more reasonable in comparison.
Technically, all of the strategies mentioned below rely on anchoring.
Example: A hotel might list a $500 per night suite before showing a $250 option, making the latter seem like a great deal, even though it’s still expensive.
Charm Pricing
Setting prices at $9.95 instead of $10 or $97 instead of $100 can make products seem more affordable, especially for lower-cost items. Customers tend to focus on the first digit, which causes a $9.99 to feel lower than $10.
Example: At our local market, many items, such as fruits and vegetables, are priced at something like $3.99 per kilo, even though New Zealand doesn’t even use 1-cent coins.
However, for high-ticket items priced at $500 and above, rounded prices create a more premium and trustworthy perception. This makes these items feel luxurious and the prices easier to process.
The Decoy Effect
This tactic uses anchoring and introduces a third, less attractive “decoy” choice to nudge people toward the middle option. The higher price point makes the middle choice seem like the best deal.
Example: A coffee shop might offer small ($3), medium ($4.50), and large ($5) sizes. The medium coffee seems like the best value because the large one feels only slightly more expensive.
Bundling
Bundling products together at a single, often discounted price creates the perception of a better deal than purchasing each item separately. This encourages customers to buy more than they initially intended.
Example: Amazon often offers book bundles. For instance, a bundle might include three books for $30, while each book individually would cost $15.
Conclusion: Align Your Pricing with Your Brand Strategy
Pricing is a strategic tool that shapes your brand’s identity, value, and long-term success. Whether you position your brand as premium, affordable, or something in between, your pricing should consistently align with your brand story and reinforce the desired perception in the market.
A well-executed pricing strategy increases brand equity, builds brand trust, and fosters customer loyalty. Rather than focusing solely on competitive pricing and short-term profits, consider how your price reflects your brand’s promise and reinforces its reputation.
While the lowest prices may attract bargain hunters, they rarely foster lasting brand loyalty. Customers who choose a brand based on price alone are likelier to switch when another brand offers a better deal. That’s why brands with a strong foundation can often raise their prices without losing customers.
Today’s consumers are increasingly discerning, so transparency and authenticity become paramount. Communicate your prices clearly and ensure they align with your values and those of your audience.
Now it’s your turn. Does your pricing strategy reflect your brand’s positioning and build trust? Take some time to audit your pricing and ensure it aligns with your long-term brand goals. Remember that pricing is a continuous process. When market conditions, consumer preferences, and your brand’s evolution change, so can your price to adopt.
If you need help laying the foundational brand strategy on which to base your prices, or if you require assistance in auditing your current pricing approach, get in touch.
Title image by Kaboompics.com
