A premium product is one that is considered to be commensurate with a high price and is of higher quality in comparison to other closely related products (Nagle & Holden, 2002). A product is termed as premium when customers are willing to pay higher for it while they can purchase other products, obtain the same service or function but lesser prices.
The processing of chocolates can produce chocolates that can be priced at a premium. According to Nagle and Holden, (2002) the product development process should lead to quality finishing of products to increase their attractiveness and, therefore, increase their chances of succeeding as premium products. Chocolate bars that are attractively packaged stand a better chance of succeeding as premium products and have high prices which are way higher than their costs of production and, therefore, give the manufacturers higher profit margins. For chocolates to be premium should be in accordance with the market demands such as dark chocolates being in higher demand. The addition of flavourings such as strawberry and sea salt do not significantly increase the cost of production and as such it is more of packaging and attractiveness that determines whether or not chocolates become premium. Premium chocolates are, therefore, very profitable.
Premium chocolates may sell fewer units but they are usually in very high demand on special days such as Valentines Day, Christmas, anniversaries among others. This can ensure all-year-round sustainable demand for premium chocolates. High-pricing signals quality and improves brand identity to a high-profile market. Consumers associate high prices with high quality and while the products may not be inherently of high quality, the premium pricing can substantially increase profit margins to make up for products which may be limited in terms of pricing (Smith, 1997).
Premium pricing is not appropriate for products for which huge competition exists. Competition tends to undercut prices of products and leads to poor sales. Premium pricing is, therefore, suitable for largely differentiated products for which there is minimal competition. It is, therefore, financially feasible for products such as pharmaceuticals and technologically advanced products such as video games, mobile phones laptops etc. Even in these cases, premium pricing is usually a short-term strategy (Smith, 1997). As soon as competition intensifies, the products prices are lowered, and the business targets to sell higher volumes than before in order to raise high profits.
References
Nagle, T & Holden, R. 2002. The Strategy and Tactics of Pricing. Prentice Hall.
Smith, G 1997. Trademark Valuation. New York: Wiley
