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Premiumization: The Key to Brand Growth

Consumers are moving away from name brands and shifting to generic store brands. Jason Martuscello explains premiumization and the value of understanding brand equity with a changing consumer landscape.

Editor’s Note: This post is part of our Big Ideas series, a column highlighting the innovative thinking and thought leadership at IIeX events around the world. Jason Martuscello will be speaking at IIeX North America 2019 in Austin, TX. If you liked this article, you’ll LOVE IIeX North America. Click here to learn more. 

Update: Looking to learn more about premiumization? Check out Part 2


Problem: Growth of Private Label & Store Brands

Private label and retail brands are radically shifting the competitive landscape.  Brands such as Amazon “Basics”, Walmart “Great Value”, Wholefood’s “365” and Target’s “Market Pantry” are increasingly becoming mainstream alongside household staple brands.  Customers are finding fewer and fewer reasons to pay premium price tags for ‘big-brand’ names. Established, trusted and routinely purchased products are being traded for “good enough” category equivalents.

More and more customers are questioning forking over the extra cash for Charmin, Cottonelle or Quilted Northern when cheaper toilet paper like Amazon’s Presto get the job done.  Why should customers pay more for Heinz ketchup when alternative bottles of ketchup bearing identical ingredients are a fraction of the price? Even if the ketchup is ‘better’ customers are likely not going to easily and intuitively see the difference.  The point is, customers are getting smarter and less willing to pay premium prices for a just a “brand name”, fancy packaging and brand characters.  So, what is the solution?

Being Different is Not Enough…

With busy schedules and information overload, customers have no time to sort through the choices available and rarely see value differences between products.  Should I choose toothpaste that freshens breath, whitens my teeth, or prevents gingivitis? Is Fluoride good for me? Does natural toothpaste even work? Peppermint or spearmint?  Brands work effortlessly to differentiate from other products, by creating ‘distinctive assets’ making products easy to remember and recall at the moment of purchase.

Interestingly, what brands want, and customers actually do are at odds. As brands work tirelessly to show differences between products, customers are automatically oversimplifying and chunking them into buckets.  With little time or energy for customers to perceive differences, a brand’s goal of simply being different is not enough to fend off private label competition.  Customers don’t want to wade through and evaluate the difference, they want an immediate and intuitive solution.  Mere difference is no longer enough.

 

The Key to Brand Growth… Premiumization

It is becoming widely accepted for legacy brands to turn to the science to premiumization to overcome competitive pressure from store/retail brands and private labels.  Premiumization is simply a means of getting customers to pay higher prices for a brand or product.  It’s about stretching the category norms upwards and creating a demand for customers to pay higher category prices.  When we say premium, we are not talking about luxuries like Gucci or Prada, but rather reasons why customers would be willing to pay more for products.  For example, if the average category price for a roll of toilet paper is 0.84 cents premiumizing toilet paper is getting customers to pay 0.89 per roll.

Premiumization Delivers Value to Customer, Growth to the Brand

Premiumization can be understood similar to brand equity.  If brand equity is the commercial value that is derived from customer perception, then premiumization is the vehicle from which that value is achieved.  At the heart of premiumization is the understanding of how customers perceive and assign value.  Merely tracking awareness and intention measures is not enough to inform actionable business decisions.  Instead, focusing on what drives price premiums in a category allows strategic and actionable paths to move the commercial needle.   Based on an extensive review of the behavioral science literature we have identified 6 key pathways to command premium prices from a customer.  The paths are not just rational product attributes or functional benefits, but the deep social, psychological and emotional reasons customers pay premium prices for products.

 

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7 responses to “Premiumization: The Key to Brand Growth

  1. So in other words, the way to premiumization is tell the consumer “I’m different” – whether that means I’m safer, more innovative, easier, etc. I’m not sure how this is any better than saying “I’m Different”, which you say doesn’t work.

    1. its to say “I’m better” not “different” which is not the same. I can be the same and offer you the same benefit of “anti-dandruff” but I’m better.

  2. Entiendo que si las grandes marcas Dejan de decir soy diferente y se centran el el cliente, pueden ahorrar en marketing y bajar sus precios.
    Según este párrafo de su artículo: En cambio, centrarse en lo que impulsa las primas de precios en una categoría permite que los caminos estratégicos y accionables muevan la aguja comercial. Sobre la base de una revisión extensa de la literatura sobre ciencia del comportamiento, hemos identificado 6 vías clave para obtener precios de primas de un cliente. Los caminos no son solo atributos racionales del producto o beneficios funcionales, sino también los profundos sociales.
    Gracias

  3. Entiendo que si las grandes marcas Dejan de decir soy diferente y se centran el el cliente, pueden ahorrar en marketing y bajar sus precios.
    Gracias

  4. I don’t think it’s only about being distinctive, “premium”, differentiated, etc. A brand needs a multifaceted strategy that’s consumer relevant: be what I want, where I want you, when I want you. In addition, the “distinctiveness”, “premiumness”, etc. is in the consumer’s mind, not just on the shelf or in communications (both traditional and digital). This is why, in my opinion, behavioral sciences will play a crucial role now and in the future in helping us nudge people’s choices.

  5. This is probably the best article on store brands vs ‘premium’ brands I have ever read. Congratulations!

    If I have understood well, scaling to be a premium brand requires much more emphasis on the reasons why a brand is positioned rather than its position sought. This leads to a new more informed consumer in general than he/she had been in the past, thus more aware of the real value he perceives in the tag price.

    This information is now much influenced by the social and echological stances brands stand for.

    Do you agree?

    Thank you!

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