The Power of Premium

Matt Wills

by Matt Wills

Published in Pricing on

Consumer trends and behind the increasing levels of "premium" products across any number of categories. But what is a "premium" product, and why are they valuable for manufacturers?

What is premiumisation?

In a consumer products context, premiumisation is about taking an existing category and offering consumers an alternative “superior” product that gives the consumers more / better benefits with a higher price. Think about detergent liquid tabs vs traditional powder, or whitening toothpaste vs standard toothpaste. Justification of this premium position varies by category, but is usually driven by:

  • Better ingredients (e.g. organic, healthier)
  • Better packaging (e.g. more convenient size, easier to use)
  • Better delivery (e.g. stronger formula, better taste)
  • Better perception (e.g. more luxurious appeal, glass vs plastic)
Why premiumisation is important?
  • It gives you a positive margin conversation to have with your retailers
  • It helps keep your category a priority for the retails vs going down an everyday commoditised route
  • It enhances your average revenue / case
  • It enhances your product mix and your profit margins
  • It helps to replace lost volumes on tired out of favour products
  • It can give consumers reason to re-evaluate your brands
  • It can help you drive penetration into consumer segments where you are currently underrepresented

A typical push-back is that premiumisation is only a small part of the category, it is receiving too much marketing focus and the core is suffering. In reality, to embed a new product in the minds & baskets of consumers, there will always need to be a large initial marketing focus, like all new product development (NPD) success isn’t guaranteed. Ultimately consumers may not think the premium is justified, but when you do get it right it can be a real game changer for your category, revenue and margins.

Not much we can do to premiumise in our category...

When speaking to our clients about mix, we often hear that; “our category is an ‘everyday’ category, sure it might work other categories e.g. KitKat senses or Absolut Elyx, but not for us”. There is a belief that premium opportunities are minimal, that their focus needs to be on cost reduction to improve profitability. This is a poor argument that points to a weak culture of innovation. There are many great examples of seemingly everyday categories that have managed to introduce a premium product to deliver a better mix. When you look at the difference these premium products can make to your mix it puts into sharp focus the relatively small amount of money that is typically invested in innovation by some consumer products companies.

Take baby wipes as an example; currently on Amazon in the UK, Johnson & Johnson everyday baby wipes are priced at £1.41 per 100, and Johnson & Johnson’s premium Aveeno brand wipes work out at £2.08 per 100, nearly a 50% premium. Whilst there will be differences in the cost of goods of each product and the marketing behind them, fundamentally they are delivering the same need (that of cleaning up after your child). Johnson & Johnson have managed to provide consumers with a premium offering enhancing the revenue in the category and their own revenue mix. Waterwipes a competitor to Johnson & Johnson within the same category are even higher priced at £3.52 per 100 (that’s nearly a 150% premium vs Johnson and Johnson).

This is just one simple example and if it’s possible to premiumise here it’s possible anywhere.

Give it a lot more focus

Have you ever looked at the amount of time and money you spend, as an organisation, encouraging your consumers to buy your products on promotion – at a lower price?! Surely you can find some of that time to work out how to steer them towards a better, more profitable mix instead?

If you are not getting premiumised products coming through from your marketing teams then you need to work with them to generate options. As the example above shows; there will always be ways to do it, but it will require new thinking. Looking at other categories / brands is a great way to think about what could be possible in your category. Even stepping back and looking to other industries for inspiration can be a great way to generate ideas. Also look to the past, there are numerous examples of failed launches / forays into premium that you can explore, maybe it wasn’t relevant then but it will work now? Maybe there were problems with the product / marketing. Just because it didn’t work once doesn’t mean it will never work.

The message is clear, premiumisation is a great way to positively impact your revenue and profit margins, it’s not easy (few things are in Revenue Management) and it won’t always work but it’s critical for the health of your business and that of your customer.

Find out more

Acumen are a revenue management consultancy, helping consumer products companies make smarter, more profitable decisions through a combination of pricing, promotions, and mix management. Find out how at acumenci.com

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