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  • Writer's pictureAcumen

How can premium alternatives thrive amidst inflation?

At a time when disposable income is getting squeezed hard, persuading consumers to pay more for a product by introducing ‘premium’ elements deems a challenging task. But there are still a significant segment of shoppers who will choose to buy these premium branded goods rather than value options. The largest FMCG manufacturers are already taking advantage of these trends.

For example, Gillette has persuaded buyers to trade up time and time again by regularly introducing razors with cutting edge shaving technology. General Mills’s Old El Paso has diversified through offering a variety of exciting meal kits suited to all occasions. Consumer brands should consider how to cater for the needs of this group in their assortment and NPD to remain competitive. Consumers may choose these premium products for the following reasons:

  • They are forgoing larger spending occasions (holidays, dining out) and therefore can afford to treat themselves with smaller purchases from supermarkets, such as premium alternatives of their regular shopping list, confectionary or wine to enjoy at home.

  • They feel that some innovative products have benefits that outweigh the higher price (for example, P&G’s Ariel cold wash detergent, which helps keep household bills low)

  • They belong to a consumer segment with more disposable income, who aren’t significantly affected by the looming recession or inflated prices and can afford to indulge in premium varieties as their go-to choice.

"The evidence is that there is more up-trading to premium products, just at a time where disposable income is getting squeezed hard."

Using the principles of strategic revenue management, here’s how manufacturers can make the most of premium alternatives in their portfolios:

Increase frequency and depth of promotions

As consumers continue to buy premium products, retailers could focus on promoting them more than before. Offering discounts and setting promotional offers like ‘3 for the price of 2’ and ‘buy one get one free’ will increase the likelihood of purchase and maintain a high product turnover. However, it’s important to simultaneously stay aware of maintaining brand value, and avoiding deep discounts to damage brand perception.

Make a surgical price increase

Across all categories, manufacturers have been forced to implement price increases this year in response to the rising cost of goods. As premium products have a lower pricing elasticity, there may be more room to maneuver with price in the months ahead, without risking volume loss. As retailers becoming increasingly resistant to conversations around price, understanding the brand value and pricing elasticity of your premium products will be vital to determine your next move

Use creative shopper marketing campaigns

Where the product is placed in store is vital in the buying process. Showcasing premium products via gondola end displays will grab consumers’ attention and make them more likely to stop and consider a purchase. Manufacturers with premium items in their portfolio should should analyse the impact of display on promotional effectiveness to ensure future investment is being spent most effectively.

New product development

In light of inflation, manufacturers should assess their pack and assortment offering to ensure there is a suitable ratio of value to premium options to meet the varying needs of consumer groups. When developing new premium products, adding luxury elements, sustainability credentials, innovative varieties, or healthy alternatives are good options to consider. With recession on the horizon, it’s vital that these products deliver some added value to the consumer, something that’s worth paying a higher price for.

Taking action

Revenue management is the art and science of boosting the bottom line using data-backed insights to drive decisions around price, promotions and mix, and working collaboratively with sales teams and finance to deliver growth. In order to succeed, revenue managers need to assess their current performance, consider alternatives and look for opportunities.

We are a revenue management consultancy, helping consumer products companies make smarter, more profitable decisions through a combination of pricing, promotions, and mix management. Speak to one of our consultants here to find out how we can help your business make more profitable decisions.

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