Bridgepoint | The Point | December 2019 | Issue 36
Business
Best in class
Even as consumers opt for greater value in their everyday purchases, many are also looking for premium products and services – seeking out goods that either are better than the rest or offer other, less tangible, qualities. This move towards premiumisation presents clear opportunities for consumer- and business-facing companies.
In 2016, Steve Howard, the head of sustainability at Ikea, said something very unexpected: “We have probably hit peak stuff.”
His words made headlines, but three years later, it is increasingly clear that he was right. People no longer want numerous disposable belongings. Instead, they would like fewer but better ones.
Deferential loyalty
“Premiumisation is definitely here to stay, there’s no question of it,” says William Higham, a behavioural and consumer futurist. According to Higham, in the 1980s and 1990s, people associated consumerism with happiness. The more they bought, the better they would feel. Now, attitudes have changed.
“Consumers are realising that experiences make them happier,” he says. “So today, it’s more about having nicely made stuff or stuff with a heritage. Something that feels rare.”
But what makes something premium? What makes consumers and businesses pay more for a product or service? And how can companies benefit from the trend?
In essence, premium products sit between luxury items and basic or value options. “Premium products are luxury goods for people who can’t afford luxury. But they can also be things that look nicer, are made of better materials, make your life easier or give you greater comfort,” Higham explains.
People may mix and match premium products and services with value options, too. Some holidaymakers, for example, are happy to forgo comforts en route to their destination so they have more money on arrival. In that sense, offering something premium is about giving consumers more choice about how, where and when they spend their money.
The middle class is the fastest-growing demographic globally. In that environment, premium products will clearly continue to grow
Quality rules
The nature of what makes a product premium is changing, however. Alex Gordon, chief executive of cultural insight agency Sign Salad, says that traditionally, premium products have built their image around superior ingredients, with a focus on the owner of the brand.
One example of this is Moët & Chandon, the French winery and one of the world’s largest champagne producers, as well as the first French-owned sparkling wine venture in the US. Established by Claude Moët in 1743, the brand makes much of its classic French heritage, with its name, branding and elegant bottle design.
Duchy Originals, set up by the Prince of Wales, also exemplifies this focus on tradition.“There is an element of deferential loyalty here. The imagery used involves history, houses or the people themselves. It’s about ownership and there’s a formality to it as well,” says Gordon.
Andy Wardlaw, marketing and insights director at MMR Research, agrees. In a recent study called Premium Decoded, he asked more than 300 survey participants what they thought about different premium products. Drawing on the results, he identified two types of premium shopper. The first is traditional. Similar to Gordon’s definition, this shopper values taste, expertise and reputation.
The second type looks for different qualities. They want premium products to be authentic, quirky and well-crafted, with a focus on the origins and heritage of a product or service, as well as on experimentation and innovation. They are also looking for goods that promise an element of experience, too, a chance to perhaps see themselves differently or immerse themselves in the narrative of a brand.
Adding value with theatre
“People are looking for things like discovery, surprise and tone of voice,” Gordon says. “It’s about trying something new. It’s experimental.” Someone may go for a craft beer, for example, because they engage with the maker’s story, their pioneering spirit and their willingness to try new approaches.
Kraken rum, an emerging premium product, can attribute at least some of its success to good storytelling. “The brand is all about this mysterious creature that lurks in the depths of the ocean. The rum is in a bottle that looks like it’s been dragged from a shipwreck 300 years ago and it is darker than average. That encourages people to buy into the whole idea of a sea-faring heritage,” says Wardlaw.
There is a degree of theatricality about the brand too.
“Brands need to create theatre. That is a key way to add value. Everything about Kraken rum fits with the deep-sea story and this creates a different and novel experience for the customer,” says Wardlaw.
There’s a whole narrative around ‘premium mediocre’. That’s the idea that something is dressed as premium, but it’s actually just OK
Ethical mindset
Premium shoppers may also pay more for something that connects them with a community and invest in products or services that align with their values, such as sustainable products. “In this case, they may feel they have invested in an environmental, sustainable value system that is going to benefit a broader group of people,” Gordon says.
When it comes to food, for example, many consumers are increasingly willing to pay more for healthier, more ethical options, as Katie Shade, solutions director at market research group Kantar, explains: “This could be linked to the health side of things, but also to a more ethical mindset that manufacturers are trying to tap into.”
The shift in what consumers want from a premium product is connected to other trends in the marketplace, explains Martina Olbertova, global brand strategist at intelligence consultancy Meaning.Global. “The role of premiumisation is to enhance value for the customer,” she says.
And what consumers value is closely related to changing societal attitudes and new lifestyle trends. “At the moment, there is an increased drive for authenticity and connecting with ourselves. People also care much more about living sustainable and ethical lifestyles, which presents another clear opportunity for premium product manufacturers,” she adds.
Heart of the process
Most observers believe there are certain key steps that companies should take to benefit from premiumisation. First and foremost is to tap in to the market. “Pretty much every brand needs to have a premium option,” Higham says. “People are not always going to take it, but they want the option.”
Companies also need to put the customer at the heart of the process. “If you think about the consumer from the start, then you are more able to understand what their drivers are and the things they care about,” Shade says. “Then you can innovate and premiumise around those things.”
Businesses may need to break some category codes, too. “You have to be confident enough to come up with a new structure and colour palette,” says Wardlaw. OGX shampoos, for example, are sold in brightly coloured bottles and go by unusual names, such as Argan Oil of Morocco or Brazilian Keratin Therapy. In Wardlaw’s research, the brand was particularly favoured by modern, premium shoppers across Europe and the US. The packaging makes this shampoo “meaningfully distinctive”, says Wardlaw.
Mistakes arise when companies do not fully understand what customers or businesses want, or when they market something as premium but fail to follow through with the product or service. “There’s a whole narrative around ‘premium mediocre’. That’s the idea that something is dressed as premium, but it’s actually just OK,” Wardlaw says.
The first type of premium shopper values taste, expertise and reputation. The second type wants premium products to be authentic, quirky and well-crafted, with a focus on the origins and heritage of a product or service, as well as on experimentation and innovation
Growing demographic
Walkers Mediterranean crisps, for instance, were launched in the UK in 2017 as a premium product, made with pure Spanish olive oil and sold in what looked like a lined paper bag. As part of his research, Wardlaw asked focus groups what they thought of the Mediterranean-style crisps. “They said there was nothing distinctive,” he says. “When we put them in the bowl, they said they were the same as any other Walkers crisps visually.” A lot of premium crisps are put out for show for guests at dinner parties, so it could be argued that the premium product didn’t give customers what they wanted. Walkers Mediterranean crisps have since been pulled from shelves.
Shade suggests that this highlights the need to find out what consumers really want before going down the premiumisation road. “If you put the product first or you guess at your customers’ needs or drivers, that is when it’s going to go wrong,” she says.
However it plays out, the trend towards premiumisation is unlikely to go away. “The middle class is the fastest-growing demographic globally and now includes more than half of the world’s population. In that environment, premium products will clearly continue to grow. Most large manufacturers, therefore, have little choice but to move upwards,” says Wardlaw.
Premium products can be things that look nicer, are made of better materials, make your life easier or give you greater comfort
Landfill-in-waiting
This shift applies to the business-to-business (B2B) world, too. “B2B buyers purchase for the same reasons as consumer-facing buyers,” says business strategist Jason Martuscello. In other words, they too are looking for premium products that stand out from the rest.
“As a manufacturer, you have to think about the retailer that products are being sold to as well,” says Shade. “There is no point in innovating if you end up with a product that is the same as all the others on the shelves.”
So when it comes to what consumers and businesses want, Ikea’s Howard may have been onto something. “In a sense, everyone has so much landfill or landfill-in-waiting in their homes. We’ve got all this cheap and free stuff. But actually, we don’t want loads of stuff. What we want is a few bits of nice stuff. And that’s where premiumisation comes into its own.” n