The Art of Premiumisation: Stop Guessing, Start Innovating

The Art of Premiumisation: Stop Guessing, Start Innovating

Joanna Parman

As a concept, premiumisation is growing around the globe, as sales of premium product segments are outpacing total category sales in many markets. Consumers are trading up—and not just on big-ticket items. They’re also looking to trade up to premium versions of everyday grocery and household items. For brands that get it right, this presents a big opportunity to differentiate their product portfolios, drive sales growth in increasingly competitive markets and engage with a much wider range of consumers.

Consumer spending power is on the rise around the world, and it shows no signs of slowing. And as a result, consumers now expect to find premium offerings available across all categories—from dish detergent to ice cream. This is one of the fastest growing areas across fast-moving consumer goods (FMCG), and it’s an opportunity for brands to make big gains if they get it right.

Rational vs. Emotional

There is no absolute definition for what qualifies as premium. Each consumer’s individual view of what makes something premium is partly subjective. For some, locally sourced ingredients indicate a premium product, while for others, internationally sourced authentic ingredients play a bigger role. So, how can we define the concept of premium so that brands can stop guessing and start innovating?

The concept of premium is a complex one made up of rational factors and emotional responses. Let’s take a look at the rational factors—quality, price and age—that contribute to the consumer’s evaluation of a product or brand’s premium status.

In our global consumer prosperity study, we asked consumers about their views on premium products. The most commonly cited reasons that consumers perceived a product as premium were exceptional quality (56% of respondents) and superior function or performance (51%). So with this insight, there’s a rational link between paying more for something that is of a higher quality or value. These views are consistent globally, indicating that there is an inherent human response to these cues. 

One of the tactics that brands have traditionally used to indicate that a product is premium has been to simply inflate the price of the product. And while a third of consumers globally say that they consider a product to be premium when it’s expensive, brands should not ignore the other qualities that consumers consider with respect to perceptions of premium. In fact, half of consumers globally agree with the statement that “premium claims are simply a way for brands to charge more money.” While price is one factor in building the perception of premium, it can’t operate in isolation.

High-quality ingredients and materials are the two biggest influencers of premium across age groups. Our global premiumization study, however, identified that the level of importance varies between younger and older consumers. Sixty-one percent of older consumers cited this, compared with 50% of Millennials. Both older and younger consumers agree that a premium product is one that offers superior function or performance. And that’s where the similarities end and the more emotive cues kick in. Younger consumers are more likely to associate premium with superior customer experience (40% vs. 31% for older consumers), style or design (39% vs. 32% for older consumers) than the generation before them. And this is where the subjective element really becomes hard to influence.

A consumer’s emotional response to a product—from packaging to association and memories—plays a big role in shaping their views of premium and ultimately drives their purchases. We can split the emotional elements into two camps: the feel-good factors and those that drive action. Globally, more than half (52%) of consumers claim that buying premium products makes them feel good, with the same number saying that buying premium products makes them feel more confident. This is closely followed by the status statement, where 47% of consumers say that buying premium shows others that they have good taste. 

These emotional factors drivers differ depending on how developed the premium segment is in a particular country. In the U.K., for example, where premium segments are more established, consumers are more inclined to buy for the personal feel-good factor, as 40% say this is the case. U.K. shoppers, however, are much less likely to buy premium products to be seen as trend setters (22% U.K. vs. 36% global average), or as an indicator to others that they are successful (28% U.K., vs. 43% global average). Are U.K. consumers more cynical, or is it simply that the concept of premium has not evolved and fatigue is creeping in? These examples highlight the need for brands to truly understand the emotional drivers at play across their varied consumer segments in order to innovate and meaningfully communicate the premium attributes that will resonate across consumer groups. 

The trend factor 

Premium products that ride a specific consumer trend can also command a premium, but only for a finite period. It starts with the trend leaders and early adopters who are willing to pay that little bit extra for something that fulfills their needs in relation to the trend, such as plastic-free, vegan, etc. As the wave of adopters builds to include a pack of followers, the scale of the premium bubble starts to shrink, and the relative value drops. Once the mass market adopts the trend, the wave has passed and the trend has lost its premium value as the standards are reset. And on it goes. 

This can be seen in the sustainability trend wave that has transformed over the last decade in the U.K. What started as a desire for fair trade and organic products has led to consumers seeking and buying local products from the U.K. From there, the trend flowed into the rise of artisanal and craft products, and then to the desire for natural ingredients, before morphing into demands for reduced packaging and waste. 

The sustainability trend has now re-focused on ingredients, particularly the number of ingredients present in specific products. Consumers are looking to avoid artificial sweeteners in soft drinks and sweet treats, aluminum in deodorants, and products containing palm oil. All of these fit around the perceived sustainability aspect of “better for me, better for the environment.” Roughly four in 10 global respondents say they’re very willing to pay a premium for products made with organic or all-natural ingredients, and environmentally friendly or sustainable materials, with a third saying they are prepared to pay more for socially responsible products. However, this shifts with time and as the trend evolves. Each one starts out with a premium price tag at the beginning of the trend lifecycle, which then declines as the trend expands.

Fast vs. Slow

Consumers’ mode of shopping is also affecting the view of premium: are they thinking fast and working on autopilot, or are they taking their time and making a more considered purchase? 

When consumers are flying on autopilot and making quick, snappy decisions, they tend to base their decisions on intuition and more emotive cues. In this state, all of the communications (advertising, online, in-store, packaging) that sit around the premium product play a role in influencing the moment of purchase. 

However, there are parts of the shopping trip where consumers tend to slow down and make a more considered purchase. This could be in a new category, or at a fixture that is unfamiliar or difficult to find the product they’re looking for. It’s at these points that they make more rational, deliberate and logical decisions and they’re less susceptible to the premium imagery in front of them. Therefore, brands need to consider both types of shopping behaviours and make sure that any premium claims answer both types of mind states: emotive cues on pack for those quick, intuitive purchases, versus facts to support the more rational decision makers.

The concept of premium is complex because its perceived value is based on rational factors and emotional cues that differ from consumer to consumer. The subjective and perceived value decisions that we make every day are highly influenced by the emotional reactions we have to products, whether that’s through pleasure and reward, or memories and associations of a product or experience. The implicit and explicit emotional memories and associations that consumers have with the products themselves cannot be underestimated. This is the human element that makes it personal to each consumer. 

There is no one-size fits all approach, and brands need to truly understand their consumers in order to innovate successfully in premium products that will both fill an unmet need and resonate in a meaningful way with their target consumer, so they can stand the test of time. 

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