Premiumisation as a trend: problems of approach
Premiumisation is one of the most popular trends in the market, attracting companies with the opportunity to increase the price premium of their products by around 60%. However, entering the super-premium sector requires a significant initial investment and a large media budget. Not all brands can make it to the top due to inflated expectations.
When considering premiumisation, it is important to highlight its key characteristics. Firstly, the pursuit of this niche is a natural evolutionary process for a company that wants to reach the top of the market. Secondly, the possibilities and ways of achieving premium status depend on the principles of business activity, its specifics, types of products and other factors. Therefore, the approach should be unique in each case.
What premium products should be
A company’s decision to try a new status requires a radically different strategy from the one it has used in the past. This is especially true in the premium segment, where competition is relatively high in almost every market niche. In this case, it is essential to position the brand based on the emotional component. Premium products should evoke:
- a sense of pleasure;
- comfort;
- a sense of belonging to a particular group;
- a sense of cultural identity.
To achieve this, a company has two options: reposition itself to meet the needs of a new segment or create a new brand. Both require sufficient resources and a willingness to incur high costs.
Analyses of different market sectors show that there is no strong correlation between a premium product and profit. On the one hand, this suggests that the business is flexible enough to generate high profits even in the low-price segment. On the other hand, many companies fail to exploit the potential of expensive product lines to generate huge profits. The fact is that super-premium is much more expensive to maintain than budget or mass market.
Mistakes in the premiumisation strategy
Many companies have focused on pricing rather than analysing consumer needs in their quest to enter the premium segment. Experts point out that young consumers have a declining demand for products in this class. Trends such as social responsibility and environmental friendliness mean that people evaluate a brand and a product not in terms of its premium value but in terms of its usefulness and practicality.
Business attitudes are also changing. Whereas companies used to consider it prestigious to have a premium version of their product line, they are now focused on increasing the profitability of their entire portfolio without concentrating on segments. This is not to say that premium lines should be closed. It would be more efficient to develop both expensive and budget segments simultaneously.
