Victoria Aspinall, Client Consultant in Kantar Worldpanel’s Expert Solutions team, explores whether premiumisation is the solution for brands and retailers in an increasingly challenging market:
“Premiumisation is a defining trend, and one we see irrespective of where we look in the market.
Out of Home, shoppers are switching their purchases to more expensive markets, cutting down on more routine or lower value trips to save money, and spending more on occasions with a strong treating and enjoyment factor.
Within the home, in more traditional FMCG products and brands, it is clear that premiumisation is a key driver of incrementality for a successful NPD. Our analysis of new product launches finds 72% of premium launches grow the value of their overall category - not just that manufacturer’s portfolio - compared to just 42% of non-premium launches.
For brands, encouraging ‘fewer, better’ experiences and products is a potential route to growth in challenging times. Small brands such as fashion retailer Cuyana have certainly carved out a successful niche for themselves, offering a premium range driven by ‘fewer, better things’. Is premiumisation of product still a relevant way to do this?
Yes – to a point! Ostentatious wealth is moving both out of reach and out of fashion for consumers. Shoppers want services, experiences and products that make them “healthier, more unique, more efficient”* and are increasingly chosing to spend their money on products that allow them to achieve these aims.
"Whilst premiumisation as a concept has been around for a while, the motivation and drivers behind consumers’ purchasing decisions has changed over recent years. With low levels of consumer confidence across the market, shoppers are being more selective with their spending, seeking experiences and that elusive ‘feel good’ factor. Trading up and down has become the norm for consumers – choosing to spend more money on what matters to them, and less on what doesn’t. “A new imperative now animates consumption, one best summarized as “Live Large–Carry Little. Consumers want no less of the good life, but they want it without all of the baggage that has come with it before. Consumers want just as much enjoyment, convenience and enrichment, but less of the accumulation, possession and debt. It is about consumers continuing to live large with big ambitions and aspirations while carrying little in doing so.” Kantar Consulting, The third Age of Consumption.
Previous drivers of premiumisation – demand for quality and demonstration of success – still matter, but consumers are increasingly aware of their role in the world and their impact on the planet. Take Patagonia’s Cyber Monday campaign – with the messaging ‘Do Not Buy This Jacket’ – which prompted consumers to think about environmental concerns before they bought, and discouraged impulse, unnecessary purchases. The brand donated the profit from each sale made on that date to local charities. Despite the brand’s plea, sales on that day rose by 11% as consumers took notice of the strong purpose and message from the brand.
Brands also need to understand that our world and therefore our priorities as consumers have shifted. No longer is ‘more’ automatically better – success is often measured by experiences, health and societal consciousness. Those able to use premiumisation to offer products that provide more time, health benefits or positive societal impact are the ones who will win.
What does this mean for brands?
There are three rules for success in the new world of premiumisation:
1. Know your customer’s priorities
With more products available at more price points than ever before, consumers can spend more on the things that matter to them, while cutting back, often significantly, on those that do not.
2. Focus on experiences not things
Customers no longer want more of everything. Focus on ensuring your products add value to your shoppers ‘everyday’. Do they help save time, do they improve an experience?
3. Don’t ignore sentiment
Recent societal trends have had huge knock-on impacts on consumer spending. Focus on plastic and environmental damage (thank you Blue Planet!) has led to outcry at excessive packaging and waste. A new focus on health has led to the sugar tax and minimum unit pricing on alcohol, with impacts on product format, taste, price and ultimately, sales. Understanding and anticipating how changing attitudes might impact your category or product is crucial.
Brands looking to grow just cannot ignore the importance of premiumisation as a strategy – but it’s important to not just focus on product and forget purpose. What you offer your shopper, and how you make them feel, can be just as important as price.”