Price Premium: price premium as a brand strength indicator
High price and price premium are different things
Price is determined by dozens of factors: scarcity, logistics, taxes, sales channels, temporary hype. Price premium is the part of the price that the buyer pays above the 'fair' value specifically for the brand strength. Distinguishing one from the other is only possible through comparison with a quality benchmark.
| Indicator | Simply high price | True price premium |
|---|---|---|
| Source | Scarcity, monopoly on the channel, one-time promotion | Perception of quality and emotional attachment |
| Durability | Declines upon introduction of alternatives | Remains even upon introduction of cheap analogs |
| Connection with the product | Often the price is higher than objective quality | The price corresponds to or is below the perceived quality, but above the 'reference' price of the category |
| How to check | Comparison with the category's reference price | Comparison with the price predicted by quality (quality-predicted price) |
If the brand's price is higher than what perceived quality predicts, this is not a brand premium, but overvaluation, which the market will eventually correct through a decline in market share or competitive dumping. If the price is below quality — the brand simply is not capturing the revenue it could without changing the product.
How to calculate the premium without access to data from all competitors
The classic Kantar formula requires data on revenue share and unit share: Price Premium = (Revenue Share / Unit Share) × 100. For example, with 25% revenue and 20% volume, the premium equals 1.25, that is 25%. Small and medium businesses usually do not have access to such data — they have to choose one of four benchmarks.
| Benchmark | When to use |
|---|---|
| The price of a specific competitor | There is one clear category benchmark (leader or direct analog) |
| Weighted average price of the category | There are data on sales volumes of different players |
| Unweighted average price | No data on volumes, only price lists available |
| Display-weighted price | Retail manages shelf placement — the price of products on the shelf is important, not the price in the catalog |
Without volume data, a simplified formula is used: CP = (Brand Price − Reference Price) / Reference Price × 100. There is no universal 'normal level' for all categories: in FMCG, a noticeable premium starts from 10–15%, whereas in categories with high emotional engagement — cosmetics, coffee, alcohol — a healthy range is considered to be 20–40%.
Why only 20% of brands control the premium
A study of 6500+ brands in 200+ FMCG categories showed that only one-fifth of market players actually command a price premium, while the rest 80% sell at zero relative to the category. The reason is not marketers' greed, but lack of differentiation: without it, buyers do not see why they should pay more and choose by price.
At the same time, even price-sensitive buyers are willing to pay more when there is clear differentiation — 14% showed a Kantar study in yogurt and cat food categories. Brand-oriented buyers in the same categories are willing to pay 38% more. The difference is huge, and it explains why averaged figures like 'the market is ready to pay X%' are meaningless without audience segmentation.
How to measure willingness to pay if direct surveys are misleading
Say-do gap — a persistent issue in WTP research: people declare one willingness to pay in surveys, but behave differently in reality. Three approaches provide varying degrees of accuracy.
- Direct survey — the cheapest and least reliable method, suitable only for rough orientation.
- Revealed preference — analysis of behavioral data from past purchases, discounts, and reactions to price changes in sales history. Requires data, but reflects real behavior.
- Controlled price tests — A/B price tests on real customers or in controlled retail environments. More expensive, but provides causal relationships rather than correlation.
For small businesses, a reasonable compromise is price testing on a portion of sales channels, for example, different prices on a marketplace and in your own online store, followed by comparison of conversion rates and volume.
A one-time price increase or long-term advantage
You can raise prices without a strong brand—just by taking advantage of the moment. But such a jump usually hits sales volume proportionally to the elasticity of demand. The difference between a one-time price increase and building a premium lies in how brand investments change the elasticity itself.
Example from Kantar/Google practice: for a cosmetic brand, brand-building investments reduced price elasticity from −0,7 to −0,6. When price was increased by 14%, expected demand decline was around 10%, but due to lower elasticity revenue grew by 7% instead of falling. This is the difference between 'raise prices' and 'build a premium': in the latter case, the market tolerates the increase because perceived value rises along with it.
How to build a premium from scratch: sequence, not a set of activities
76% additional revenue from increased pricing power came precisely from marketing investments, not product improvements—this fact is often ignored by finance-oriented brand evaluation models. The product can stay the same, and the premium grows due to perception.
- Set the baseline. Calculate the current premium using one of the formulas above—without a baseline figure, progress cannot be measured.
- Strengthen functional perception of quality. Through reviews, certifications, comparative tests—this is the foundation without which the emotional overlay will not hold.
- Add positioning differentiation. Not 'better,' but 'different'—a specific distinction that competitors cannot quickly copy.
- Build an emotional connection. It is this layer that provides the transition from 14% readiness to pay among price-sensitive customers to 38% among loyal ones.
- Test elasticity on small-scale tests. Before raising prices on a large scale, test the reaction on a limited channel.
- Fix the premium through a sequence, not a one-time promotion. The price should remain elevated for at least several pricing cycles so that the market perceives it as the new norm.
Guide for small and medium-sized businesses without Interbrand data
Large reports by Kantar BrandZ and Interbrand are built on panel data unavailable to small companies. However, tracking the dynamics of your own premium is possible without them — the methodology is simpler, the accuracy is lower, but the trend is visible.
- Once a quarter, track the price of three to five direct competitors and calculate a simplified formula for Price Premium relative to the unweighted average.
- Compare not the absolute price, but its dynamics — is the gap with competitors widening or narrowing after each marketing campaign.
- Monitor the share of purchase abandonment due to price in feedback from the sales department — an increase in this share indicates that the premium has become detached from perceived quality.
- Conduct a simple sensitivity test every six months: offer a portion of the audience a price 10–15% higher and compare conversion rates with the control group.
- Record the premium in one table on a quarterly basis, rather than trying to keep it in mind — only the dynamics over several periods shows whether branding is working on price or not.
This approach will not replace panel data from large agencies, but it provides sufficient accuracy to make decisions about raising prices not at random, but based on your own sales history.
What to consider as price premium management
Price premium is not a one-time bonus for a successful rebranding or a result of attractive packaging, but a measurable outcome of accumulated decisions: quality, differentiation, and emotional connection with the audience. It is calculated through comparison with a category benchmark, grows through specific steps, and is tested on small scales before being launched on the entire market. Companies that track it once a quarter and treat it as a metric, not a feeling, receive the pre
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