What is the premium that a new product can charge to that of a conventional product that is already in the market. Parts of it depend on marketing….
Sometimes, the market demands that if there is a lot of competition in the market, then the company try’s to undercut the competition for market entrance and then increase the selling price gradually. At other times, it is the opposite – the company knows that it has a premium product and it wants to show the market that the product is worth it and so it charges a premium. There are certainly specific rules for the premium such as a Unique selling proposition (patented, high quality or something innovative), High barrier to entry that prevents other competitors from developing a product, or price insensitive customers.
What is that premium? It is different for each product, but are there guidelines? Generally, about 10% or more is not considered premium pricing so it has to be something substantial.
For example, Tesla did both…it first priced at the very high end for premium pricing that was almost 2x that charged by other competition. Later as it got established in the market, it changed it’s strategy to undercutting the market..and continues changing the strategy.
