Not all consumers are price sensitive.
As disposable income increases, people are willing to pay more for a quality product that will save them money in the long run. Increasingly people value quality over quantity, free time, craftsmanship, social responsibility, and local sustainability.
Premium brands are highly valuable assets for a few reasons.
The premium price usually translates into higher profit margins, as additional costs for product enhancements are more than covered by the price premium.
Premium brands are also often viewed as status symbols. Consumers take pride in owning premium brands and showing them to their friends, which in turn increases brand exposure and sales.
Finally, many premium brands appeal to people at an emotional level, offering consumers a sense of belonging to a certain social group, thus leading to increased brand loyalty.
Premium Versus Luxury: An Important Distinction
The process of building a premium brand starts with an important distinction between premium and luxury branding. Consumers use these attributes interchangeable when labelling a brand, depending on their social status and geographical boundaries.
Is BMW a premium or a luxury brand? What about Coach? The answer depends on who you ask.
However, understanding the difference between a premium and a luxury brand is important for the brand owner.
A premium brand demands a premium price because of superior attributes (design, functionality, service) that one can justify rationally. Premium brands reach the status symbol level after years of delivering on its premium promise.
In order to be profitable, premium brands, just like ordinary brands, are built on the principles of mass production, broad distribution, and immediate delivery.
A luxury brand’s high price cannot be justified rationally. While the foundation of a luxury brand is a quality product, the price tag greatly exceeds its functional value.
Luxury shoppers seek a sense of belonging to a certain social class, or very selective group of individuals.
Luxury brands are built on principles that are diametrically opposed to premium branding: limited production, selective availability, and non-urgent delivery.
How to Build a Premium Brand
Although price is usually the first indicator of a superior product, charging a higher price than competitors does not automatically make a brand premium.
We’ve seen that investing in a premium brands is (in most cases) a rational decision. The purchase is based on a lot of research and competitive comparisons that bring justification to the price premium.
The starting point in building a premium brand is a realistic segmentation of the category you wish to compete in. The goal is uncover potential benefits consumers are willing to pay a premium for.
These benefits include:
- lower cost of ownership
- the easy of use
- superior materials and ingredients
- unique, distinctive, attractive, functional design
- better performance
- time savings
- more “must-have” features
- sustainable, ethically sourced products
- local businesses and locally sourced products
We tend to think that premium brands exists only in “glamorous” categories such as fashion and apparel, automotive, and travel. While these categories get a lot of exposure and coverage, premium brands can be introduced in almost any category that presents such an opportunity.
AquaVial is a premium product in the rapid water testing category.
Many products in the category deliver on the basic consumer need to identify potential issues with their water supply before they become a serious risk: an easy-to-understand testing procedure, the ability to deliver results in 48 hours (versus up to 2 weeks in the case of laboratory testing), and a low cost per test.
AquaVial is based on an innovative technology that delivers at least two superior benefits: results are delivered is as little as 15 minutes (versus 2 days), and the ability to detect a wider range of harmful bacteria.
These are important benefits consumers value and are willing to pay a premium for.
Is Premium Branding Possible In Case of Commodities?
The short answer is yes; even tap water can become a status symbol.
Products that are very difficult to differentiate functionally can be bundled into a superior “overall package” and positioned as a premium offering.
The components of an overall package can vary from quantifiable benefits such as company responsiveness, better product delivery, superior warranty, and post sales service, to intangibles such as company’s “social” reputation.
All these benefits and the premium associated with each, are only relevant within the context of each category, by reference to the lower-cost brands.
The superior overall brand experience has become an even more achievable strategy in the age of product reviews, instant communication and feedback, and social media.
Price elasticity is very important when it comes to premium branding. Since premium brands are mass produced, the brand appeal has to be broad.
The premium price has to be within the reach of most people in your target audience, even if it requires small sacrifices.
If the additional features demand a price tag that is simply unaffordable, the product will not be able to be profitably mass produced and commercialised. Remember, you are building a premium, not a luxury brand.
Premium Branding: Communication Strategy
The goal of the communications strategy is to highlight the differences that justify the price premium. Some differences (such as superior design) are obvious and require little explanation. Others, especially the intangibles, require more work.
Higher price tags come with higher consumer expectations. Adequate training of staff that deals directly with consumers is a must.
The training should go beyond highlighting the superior technical features of the product, and include a “social” component. Employees’ social skills and knowledge can make the difference between a sale and a lost client.
Endorsements tend to work well for premium brands, especially for reaching the status symbol level. Influencers are typically attracted by the opportunity to associate with a premium brand, which in turn will elevate their image in the eyes of their audience.
(Premium) Branding is a Marathon, Not a Sprint
Premium brands have to be built on a sustainable competitive advantage.
An innovative new product that deliver superior benefits versus the existing alternatives should definitely be marketed at a premium price.
However, the market and consumer expectations eventually catch up. What has been perceived as innovative becomes expected.
In order to maintain the premium status a brands has to continually innovate or lower the price and join the pack of “me too” brands.