First published in WARC.

Premiumisation is about more than simply launching a premium brand – and even if it does involve a premium brand, marketers need to guard against making assumptions about who will buy it and where, according to the Ehrenberg-Bass Institute.

Writing in the July issue of Admap (topic: How to grow via premiumisation), four senior personnel from the Ehrenberg-Bass Institute for Marketing Science – John Dawes (Associate Director), Magda Nenycz-Thiel (first Mars Professor of Marketing), Charles Graham (Adjunct Research Fellow) and Professor Bruce McColl – explain how premiumisation is a way to grow, particularly in mature categories where growth from penetration is constrained.

Introducing a premium brand is one option but it’s not always the best choice, they caution. Alternative strategies could include:

• the method of price and quality-tier signalling;
• disruptive innovation in order to command higher dollar value with their mainstream brands;
• appropriate investment in categories that have an inherently more premium business model.

The authors suggest three strategic lenses when determining how to increase average purchase value: within industry; within category; and within product format.

Since many businesses compete in multiple categories in an industry, the first consideration in any premiumisation strategy is to focus on growing the more premium categories within a business’s portfolio – easy to say, more difficult to execute.

“We frequently observe built-in inertia in executing this strategy,” the authors report. “Under the stress of hitting top line sales targets, businesses often default to promoting what is easy to sell, but which dilutes margins or profit.”

Within the category, innovation that creates a different business model and consumer value equation can be a successful way of premiumising the portfolio – and even, as the examples of coffee pods and single-serve wet pet food demonstrate, creating a new sub-category that drives total category growth.

“It positively alters the way that the category is consumed, and breaks or weakens direct price comparison,” the authors state.

Thirdly, within a particular product format, opportunities can be found by creating discernible differences between price points that consumers will recognise as important.

And just marketers need to consider more broadly what a premiumisation strategy might involve, so too they need to throw their net more widely than they might at first think.

Don’t unnecessarily limit distribution, say the authors, noting that Dom Perignon sells more champagne in Costco than in any other retailer in the US.

Similarly, they advise not being too restrictive with targeting, as “We have found that plenty of lower- income consumers buy expensive brands and plenty of high-income households buy cheap ones.”