Premiumisation as a differentiator is an untapped opportunity for non-luxury brands, which with purposeful yet creative marketing strategies incorporating sustainability, can position themselves in a more premium way, says ESSEC Business School’s Sonja Prokopec.
“Premium” was once an adjective that was only applied to luxury brands but in recent years, this is starting to change. One of the most notable consumer trends is an increased preference for premium across all consumer categories.
This is no wonder, as a study by Bain & Company finds that the luxury market grew back to 1.15 trillion euros in 2021 after a severe contraction in 2020 due to the pandemic. Bain estimates the sector surprised all with even further growth of 19-21% in 2022.
Research by JP Morgan also points to the resilience of the luxury sector. The bank finds that even amid the current cost-of-living crisis brought about by rising inflation across the globe, demand for luxury goods remains high. Its research shows that in the fourth quarter of 2022, the luxury market grew by 7% year on year.
With such strong growth even amid contractionary economic conditions, many non-luxury brands are seriously considering premiumisation in their forward strategies. What’s interesting is that this doesn’t just apply to products – consumers are showing an increased preference for premium experiences across all aspects of a brand’s identity, services, communications, branding and customer touchpoints too.
While the trend originated with millennials, Gen Z is following suit, meaning that there is a big commercial opportunity for brands that can embrace premiumisation. And far from only applying to glamourous goods like fashion and beauty, we are seeing these same consumer preferences across a wide range of categories.
So, what does premium mean in a broader context and how can non-luxury brands embrace it in an authentic way?
Preference for premium
For many of today’s younger consumers, the preference for premium comes from wanting more from brands. Millennials and Gen Z have grown up in the era of digital advertising where they are bombarded by thousands of brands vying for their attention and money. With far more consumer choice than the generations before them, younger consumers have high expectations of brands and vote with their wallets.
As a result, whilst Gen X and baby boomers were more motivated by product functionality, for younger shoppers, functionality is expected as standard and loyalty is now won through design, style and brand identity instead.
Apple is the poster boy for this, a brand whose global success and fierce consumer loyalty is as much to do with its smart marketing and pioneering approach to customer service as it is with the product itself.
The pandemic has only served to accelerate this trend further, particularly as shoppers embrace so-called revenge shopping to make up for the two years that they missed. The market for personal luxury goods – the “core of the core” of luxury segments – saw impressive growth in 2022, coming on the heels of the V-shaped COVID-19 rebound enjoyed in 2021, especially here in Asia. In 2022, China’s luxury sector grew 22% over 2021 figures to reach 353 billion euros in retail sales value, despite challenging economic conditions faced that year, according to Bain.
The opportunity for non-luxury brands
The biggest, untapped opportunity is for non-luxury brands, which can use premiumisation as a differentiator, even if their products aren’t at a high price point.
TWG tea, originating from Singapore, is a good example of a brand that has already done this well, using clever marketing and a unique approach to in-store customer service to punch above its weight and stand out in a busy category, despite its mid-market position.
Its strategy is based on creating strong visual codes through luxurious packaging and highly distinctive store design. Its flagship stores also offer high-quality service that you often see with higher-end F&B brands, with experiential “boutiques” that allow consumers to enjoy a personalised service, sample the product and learn about recreating the same experience in their own homes.
Going further, brands could also collaborate with known luxury entities to boost brand equity and perception as first steps toward premiumisation. An example is Gucci’s collaborations with athletic apparel brands The North Face in 2020 and adidas in 2022. Both collaborations were met with critical acclaim and commercial success, with the Gucci x The North Face collection selling out quickly.
The premiumisation, in this case, lies in the cross-promotion of brand values and identity to a wider audience. These collaborations enabled each one to transpose its brand across a wider cultural demographic – Gucci reaching out to a younger consumer base, and Adidas and The North Face to a more upscale audience.
Sustainability, the next frontier
Sustainability is the next frontier for luxury brands and this is an area non-luxury brands that wish to embrace premiumisation should explore as well.
Whilst a baseline level of sustainability and social responsibility is now expected from brands as standard, going the extra mile with purposeful yet creative marketing strategies that incorporate sustainability can be another way for non-luxury brands to position themselves in a more premium way.
Scottish whisky brand Macallan provides a useful blueprint for non-luxury brands to learn from. Its limited-edition Harmony series of whiskeys is packaged in presentation boxes that incorporate repurposed coffee bean husks, a byproduct of the coffee-making process in homage to the product’s coffee inspiration.
This shows the value of paying attention to detail that premium brands often do so well – conferring a real sense of exclusivity and craftsmanship. Non-luxury brands that can occupy a similar sweet spot combining sustainability with unique creativity will be well positioned to capitalise on the premiumisation trend.
Ultimately, brands that wish to take a more premium position need to reinforce this through all aspects of their organisation beyond just their products for it to be authentic and effective.
This means that they need to bring their entire workforce on the journey too, by training, upskilling and empowering them to think in a different way. Otherwise, a slick, premium marketing campaign will quickly fall flat if the in-store or customer service experience doesn’t match up or if the brand story does not come through.
The path to premiumisation requires organisations to think differently and to make bold changes. It’s a big commitment but one that is necessary to stay relevant to today’s consumers and potentially lucrative for those that really push the envelope.