by Ailsa Wingfield. Around the world, consumers are looking for a taste of the good life. Globalisation and digitisation have given consumers access to a broader assortment of products—and an increased focus on the quality of products and the shopping experience have further fueled consumers’ appetite for ‘premium’ products*. As a result, the growth of the premium sector in many markets around the world is outpacing total growth for many categories of fast-moving consumer goods (FMCG).
The availability of new, innovative brands is also fueling growth, as fresh offerings can bring excitement and increased marketing spend to a category. The premium segment has been a bright spot in a very challenging retail environment, and brands are consciously innovating to capitalise on the trend.
South African consumers are also trading up for products and services, adopting the mindset that they will buy the best they can for themselves and their families, even in tougher times. Ninety-two percent of local consumers stated in a relatively recent Nielsen report on Premiumisation that they are willing to pay an above-average price for products that deliver higher quality, offer superior functioning (91%) or stand behind environmentally responsible (86%) or socially responsible (77%) principles; this is despite economic limitations, where only 50% of South Africa consumers say they’re financially better off than they were five years ago.
With many consumers saying they have at least some discretionary income, the premium segment is rife with opportunity. And when it comes to purchasing premium products, it’s not about the higher-than-average price tag. In fact, only 29% of South African respondents say they consider a product to be premium because it’s expensive — a clear warning to companies who push up prices without providing a very clear value proposition to support the change.
Rather, premium products are defined by exceptional quality and performance: 64% say a premium product is made with high-quality materials or ingredients and 54% say a premium product provides superior function or performance; 57% of respondents say premium products are from well-known or trusted brand names; and 40% say they are defined by superior design or style. For many South Africans, however, disposable incomes remain limited and, for these consumers, trusted brands provide an assurance of quality, minimising the risk of wasting money on a product that doesn’t fulfill expectations.
Emotional factors resonate
Connection to a brand’s values remain particularly important; as consumers move up the economic ladder, they’re attracted to aspirational brands that signal they’ve achieved a certain level of success. It’s clear that consumers buy premium products for both rational and emotional reasons, but the latter resonates more strongly in South Africa. Beyond a products’ functional benefits, consumers are buying premium products primarily because they make them feel good and self-confident, and premium products tap directly into a desire for products that provide specialised, enhanced or exclusive benefits.
Fifty percent of South African respondents agree (somewhat or strongly) that buying premium products makes them feel good; 49% say buying premium products makes them feel confident. Status is also an important purchasing consideration: 41% say they buy premium products because these items show other people they have good taste. But premium products don’t just communicate sophistication and taste; they’re also an important indicator of accomplishment — 41% of respondents say they buy premium products because these products make them feel successful or show other people they’re successful (31%).
But delivering on their expectations of the experience remains critical, and the most-successful premium products are those that perform an important job for which previously available solutions were unsatisfactory or non-existent.
Goods with premium potential
The categories with premium potential are as diverse as any retail store shelf but there is a common thread: everyday consumables rise to the top of the list of categories for which consumers most often say they are willing to trade up. It’s not just big-ticket items for which consumers are trading up; many are looking for everyday items that perform better or fulfill their emotional needs or social aspirations at a price that doesn’t break the bank.
This is a ripe opportunity for mainstream brands to provide premium products that are still affordable compared to higher-tier premium or luxury offerings. But some of the bigger manufacturers have struggled to keep pace with smaller players. Premium perceptions are not necessarily driven by a strong legacy brand, and existing brand equities can sometimes be at odds with shifting perceptions. A smaller company builds brand and product perceptions simultaneously, so it can more easily adapt to consumer demand. Alternatively, an established brand’s image may be inconsistent with the needs of a newer launch, and reconciling these can be a difficult task; a well-known mass-market brand may struggle to establish its offering as premium.
Launching successful premium products
Brands can capitalise on the rising appetite for premium products and increase their bottom lines by putting a premium on premium-focused innovation. Based on an extensive review of new product development, Nielsen’s Innovation Practice has six guidelines for developing and deploying premium products.
- Create a highly differentiated offering: All successful innovations — regardless of price — resolve a real consumer struggle. Differentiation is particularly important for premium brands, as it helps justify the higher price point they command.
- Live up to the promise: All products need to deliver on expectations but it’s particularly true for premium products. Higher prices set a higher bar for product performance; consumers have less tolerance for poor performance or undesirable attributes in premium products.
- Enhance the package design: Perceptions of a product begin as soon as consumers lay eyes on it. Packaging helps brands get noticed and, more importantly, can significantly elevate perceptions of a product.
- Ensure the price is right: Premium prices vary significantly—from entry-level offerings priced 20–50% higher to affordable luxuries with prices at least three times higher. Price should factor in the realistic competitive context and retail dynamics, based on consumers’ value perceptions.
- Amplify the product’s unique proposition: Besides demonstrating a technical benefit, brands need to communicate a higher-order emotional benefit that connects with consumers’ aspirations and needs.
- Provide sustained, long-term support: Given premium products’ higher price tag, consumer adoption may be slower than for mainstream products, so they could require even greater marketing support. Premium products must plan for robust, multiyear support, especially beyond their first year in the market.
*Nielsen defines ‘premium products’ as goods that cost at least 20% more than average price for the category.
Ailsa Wingfield currently serves as head of Nielsen Emerging Markets Thought Leadership, with responsibility for curating strategic, forward thinking content to help clients future-proof their business. She has extensive experience in Africa and Middle East, having worked with global and local brands in multiple countries across the consumer goods and telecoms industry.
The article first appeared in the 2017 edition of Brands & Branding in South Africa, an annual review from Affinity Publishing of all aspects of brand marketing — consisting of case-studies, profiles, articles and research — which may also be accessed at the brand-new Brands.MarkLives.com. Order your copy of the 2017 edition now!
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