Premiumization’s Impact on Consumer Brands

A water sommelier. Yes, there’s really such a thing. For decades, the term sommelier needed no qualifier. It was a wine expert who led you through a tome of a wine list to pick the perfect wine to fit your taste and budget. But now we have water sommeliers. Excessive? Perhaps. However, it highlights an overwhelming trend that all countries are experiencing in food & beverage – premiumization.

On the surface, we all understand the term immediately. Simply put, premiumization is the desire of consumers – you and me, and especially millennials – to upgrade the quality or benefits of products we buy frequently. Naturally, what constitutes an upgrade depends on the category, but it can include everything from 100% organic or natural ingredients, to enhanced functional benefits, to premium-looking packaging. And companies are indulging us at every turn.

One of the earliest examples of premiumization in the U.S. is coffee. For many, the first coffee experience was nothing more than a concoction of brackish water that moms and dads would euphemistically call coffee; then, one day, coffee shops started popping up on every corner, and suddenly, lattes, cappuccinos, and espressos infiltrated our everyday consumption habits. Coffee sommeliers (yet another recent addition to the lexicon of sommelier land) would argue against the quality of coffee from large chains, but the point is that brands have successfully introduced America to a premium yet affordable luxury, and now we’re hooked.

The same can be said of China, where American coffee chains are now exploding in growth. The Middle Kingdom still consumes more tea than any other country, but a Chinese millennial taking a selfie with a signature coffee cup and sleeve is as close as you’ll get to a snapshot that epitomizes modern-day China.

Of course, not every attempt at premiumization succeeds. In fact, some prominent brands have swung and missed completely at various attempts. Let’s take look at a few reasons why brands succeed and why they fail.

When Premiumization Succeeds

  • Emphasis on quality: In order to pay for the premiumization, consumers need to be convinced that there are benefits, both tangible and intangible, that justify paying a higher price.
  • Status: In the age of the selfie, being seen holding the “right” product in your lastest post is a form of social validation that you have arrived. Though some buy products to merely satisfy their immediate needs and desires, other intentionally choose premium products specifically because they are a status symbol.
Woman drinking from water bottle
Premium waters command premium pricing
Child drinking milk
Advances in pediatric beverages aid in healthy early development
  • Contribution to the future: The consumer will see the identity of a product’s brand through a narrow telescope. If the brand is dedicated to benefiting future generations, whether ecologically or nutritiously, consumers want an understanding of a brand’s societal contribution.
  • Intentional health benefits: If a product is natural, organic or has demonstrated ability to improve health, a segment of consumers will intentionally seek out those products even at premium price points. The trend towards more healthful living has accelerated the expansion of products that offer genuine functional benefits.
Man brushing his teeth
Dental hygiene has been at the forefront of creating premium brands with proven benefits for teeth and gums
Green parrot-shaped packaging
A unique take on facial tissue turns an everyday item into a celebration of spring
  • Highlights uniqueness: Consumers want a product that not only benefits them but also is something not already on the market, one-of-a-kind. Brands that differentiate themselves from others on the market in real, meaningful ways are generally more likely to succeed.
  • Focus on innovation or breakthrough: Improvements in technology that simplify while amplifying lifestyles are attractive to a consumer. Being the first on the market with a technology that challenges the societal norm is a tremendous advantage in gaining consumer interest.
baby wearing a diaper
Super-absorbent polymer technology in diapers is one advancement that commands a premium price

When Premiumization Fails

  • Rebranding without product adaption: While rebranding can give products a fresh and more attractive look, if the updated look does not match the product’s attributes, it is unlikely to see a significant increase in sales. Put another way, rebranding and repackaging an existing product is a common way to freshen a brand, and can be successful in changing consumers’ perceptions of a product. However, when brands jump too far upmarket, without reformulating the actual product, consumers can be turned off because the brand promise that’s being communicated by the packaging does not align with what the product actually delivers.
Durian fruit
Whether you love it or detest it is largely based on ethnicity
  • Not adapting to cultures: While globalization is an increasing necessity for companies, failing to truly understand local cultures can hurt sales. When reaching markets in the U.S. and China, it is necessary to research how each culture adapts and perceives certain products. Tastes and trends in the U.S. will not exactly match the tastes and trends in China, especially in food and beverage. Take a product like durian: in China, consumers love the taste of durian ice cream, cakes and pizza. Most Americans have never even tried products made with durian, and if they have, they were likely revolted by its distinctive smell, texture and taste.
  • Not understanding the target audience: This ties in with cultural preferences and consumption patterns. For example, dairy producers in China know that Chinese consumers will not accept premium dairy products unless they are bottled in glass containers. To Chinese consumers, a glass bottle communicates premium quality while anything less communicates a good, but not premium product.
Bottle and glass of milk
A simple change in packaging can change consumers’ perception from average to premium

Premiumization is not the right approach for every brand; there are products and services that lend themselves more toward commodification, competing largely on price or other basic attributes. But for many, turning what used to be basic goods and services into an accessible taste of luxury for consumers and making the everyday seem special can help companies worldwide profit in an increasingly competitive marketplace.

This post was originally published on Ivie Asia.