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Strategies To Premiumize Your Brand And Keep Growing

Written by: Andrew Glor
Date: July 14, 2024

First published here on the Forbes Council website.

Premiumization, a retail megatrend and strategic move by consumer brands to elevate product offerings and charge higher prices, is on the rise. Over the past couple of years, there’s been a growing demand for quality, authenticity and unique experiences. At the same time, inflation has driven companies to become more comfortable with price increases.

However, raising prices may be reaching a breaking point as consumers are becoming more discerning. In many categories, the private label is by default the cheapest option at-shelf in major retailers, and its share keeps growing. Brands need to rethink what makes them unique and worthwhile so as not to lose their customers.

How can consumer brands premiumize while still retaining their core customer base? Let’s cover some key considerations for navigating premiumization.

How To Drive Premium

Offer quality and use differentiation. The most obvious path to premiumization is to have a high-quality product. Think of Apple’s and Dyson’s products—they are expensive but come with remarkable craftsmanship. Rao’s pasta sauces have taken over their category due to their superior taste despite the higher price tag.

Emphasize the product experience. Tailoring products and services to individual preferences and purchase behaviors (like curated offerings, loyalty programs and exclusive perks) builds brand loyalty. Starbucks went from a simple coffee chain to a superior coffee experience by offering a premium ambiance with free Wi-Fi, seating, innovative beverages and customization options, including tiered loyalty programs and premium reserve lines.

Build an emotional connection. Establish a deeper connection with customers through value-driven messaging. Dove offers premium body care lines with natural ingredients tapping into spa trends, empowering women to embrace their bodies and redefine beauty standards.

Leverage the “new.” New tech, new flavors and new experiences drive excitement. Scarcity—limited editions and collectibles—also command a premium price and drive brand buzz. We all expect to pay more for the latest tech gadgets with new features (like mobile devices or TV models), but even products like WD-40 are adding enhancements to their cans.

Use price pack architecture (PPA) to your advantage. PPA offers consumers a clear structure for choosing the product that best fits their needs while also balancing value and profitability for the company. A higher quality tier can unlock premiumization through a new subline or brand with a different consumer group. This can manifest in brands competing in different quality tiers (this is often referred to as “good-better-best”—take Johnnie Walker and their Red, Black, Double Black, Green, Gold and Blue labels). Alternatively, consider launching or purchasing a new brand targeted to lower income households or discount channels. This offers a way to keep price sensitive consumers in your portfolio while maintaining your main brand’s premium.

Leverage pack innovation. “Shrinkflation”—slightly reducing the quantity sold in the same pack—has also become common. While this can be an effective revenue management strategy, it’s frustrating for consumers. An alternative would be launching new pack formats that command a premium price: eye-catching shapes or labels, on-the-go or sustainable packaging.

How To Justify The Price Tag

Check if you’re “worth it.” Survey data can be used to assess whether you (and your competitors) have a “justified premium,” i.e., are you “worth what it costs” (or more)? The higher your justified premium, the more flexibility you have, as people perceive the brand as worth more than it costs. In contrast, if you’re worth less, you might want to assess your product, marketing and on-shelf commercial strategies. The entirety of a brand’s identity (marketing campaigns, labels, branding, in-store displays and sponsorships) contributes to this perception.

Determine your price elasticity. When working with your existing products, it’s crucial to understand price elasticities and how products react to price changes. How does demand change when product prices increase/decrease? The following factors help you determine qualitatively how elastic your demand is (the more these are true, the more you have room to raise): playing in a premium segment, market leader, high loyalty consumers, few competitors or substitutes, weak private label position.

Understand competitive pricing. Selecting the correct competitive set for benchmarking your price is essential. Your pricing might not be a concern compared to the overall market, but it’s crucial compared to your main competitor’s premium offering. Prices must be comparable: Use standard units like liters of liquid, kilograms of food or single diapers. Look beyond comparing identical pack sizes and think about how valuable the volume you’re selling is. Remember that premiumization generally flows from smaller, on-the-go packs. Even though these tend to cost less in total than a multipack, consumers are paying more on a per-liter basis, so the liquid (or food, diaper, etc.) is more premium in smaller packs.

A Few Extra Things To Watch Out For

Make sure premiumization fits into your strategy. Ponder whether you genuinely need to premiumize: Which consumers are you trying to reach, and in what competitive set? If it’s high-income consumers, premiumization might make sense. Are you extending your reach to low-income consumers? You might need to consider the opposite.

Keep magic price points in mind. Markets do not always function logically. Sometimes, there are “magic price points” that represent steep drop-offs or increases in demand. For instance, cash outlay is vital in some developing markets as many people are paid daily and don’t have credit. The value of one note of a currency could be the make-or-break ability to purchase.

Be careful with promotions. Promotions can be a way to hit specific price points relative to competitors, but they also may fuel cyclical expectations for retailers. This might tempt retailers to become dependent on this practice and can also trigger price wars with competitors that lead to a race to the bottom and dilute brand equity over time.

To recap, premiumization is not a simple solution but a strategic approach that requires careful planning, execution and adaptation. Strategies and challenges of premiumization will vary across industries and target markets—by understanding the underlying trends, focusing on genuine value creation and building strong brand connections, companies can navigate this dynamic landscape and achieve long-term success.