Developing Products With A Price Premium

With consumer incomes in Europe and America rising, there is an ever-expanding class of consumers with greater expectations about quality and spending power to obtain it. Meanwhile, low income groups display a growing desire for aspirational products. This report will identify how both these groups can be successfully targeted with premium products.

REPORT HIGHLIGHTS

With 63% Europeans and American increasingly treating themselves with higher quality food or drinks it is no wonder that specialty and gourmet packaged good sales are rocketing. By 2009, specialty personal care sales are expected to exceed US$6.5 billion. Food and drink sales will reach and estimated US$120 billion by 2009.

With nearly 20 billion extra premium indulgence occasions occurring in Europe and the US in 2008 relative to 1998 it is apparent that consumers increasingly enjoy premium products as part of their daily routines. Concurrently perceptions of luxury are changing and with more exposure to higher quality goods consumer expectations are rising.

Premium offerings must be founded upon superior product attributes, especially in light of the "democratization of luxury". Five core factors affect consumers' perceptions of premium value. Those products scoring highly against these dimensions are likely to be perceived as luxurious thereby increasing willingness to pay.
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CHAPTER 1 EXECUTIVE SUMMARY

Hot topic
The future decoded
Action points

CHAPTER 2 THE FUTURE DECODED

Introduction

TREND: the value of premium packaged goods is growing
As consumers ‘trade up’, the luxury market is growing
A desire for higher quality is driving premium food and drink sales
Consumers are seeking better quality, richer drinking experiences
New ingredients and technology are driving premium personal care
TREND: consumer affluence is rising
TREND: premium seeking consumer groups are growing
INSIGHT: perceptions of luxury and premium are changing
Premium is becoming more relevant to mass-market consumers
Consumers now define luxury more broadly
INSIGHT: consumers embrace ‘hi-lo consumption’ to facilitate trading up
The concept of the hi-lo consumer is becoming more apparent
Value consciousness also remains paramount
INSIGHT: five factors affect overall perceptions of premium
INSIGHT: internal and external quality cues affect willingness to pay premiums
Physical product attributes influence sensory perceptions
Extrinsic attributes are fundamental in influencing perceptions
Credence quality influences trust, involvement and willingness to pay
Experiential quality attributes influence future willingness to pay
INSIGHT: consumers will pay more for conspicuous goods
Conspicuous products are sought by image-conscious consumers
The importance of conspicuousness/coolness varies by category
INSIGHT: uniqueness is equated with quality and brand cachet
Uniqueness influences desirability and willingness to pay
Uniqueness needs lead to three key behavioral manifestations
Growing individualism is apparent amongst consumers
INSIGHT: hedonistic consumers will pay more for enhanced sensory benefits
INSIGHT: consumers regard products as part of their identity
Consumers pay a premium for brands offering symbolic meaning
Conclusions
It is time to capitalize on the expanding luxury market
Rate premium pricing potential with the ‘Premium Price Index’

CHAPTER 3 ACTION POINTS

Introduction
ACTION: modify portfolios to target value and premium consumption
Develop new offerings to fill the growing space in the premium and super-premium segments
Identify existing brands that can be extended into the premium sector
Seek out complementary acquisition targets
ACTION: ensure that quality is reflected by core product attributes
Leverage the premium credentials of intrinsic product attributes
Place heightened emphasis on the authenticity of production
Utilize positive country of origin and/or association effects
Embrace viral and word of mouth marketing
Develop packaging formats oozing quality and sophistication
Develop products that offer ‘on-trade’ or ‘proffessional quality’
Provide and communicate experiential quality
ACTION: target hedonism with sensory loaded goods and promotions
Adopt experiential marketing to leverage sensory appeal
ACTION: leverage the conspicuousness of products
Develop ‘cool’ packaging for consumption in social settings
target consumers’ desire for uniqueness
Offer more opportunities to customize product offerings
Restrict availability and emphasize exclusivity attributes
Avoid long-term discounting

CHAPTER 4 APPENDIX

Definitions
Research methodology
References
Industry and news sources
Academic sources
How to contact experts in your industry
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Table 1: The value (US$) of specialty food and drinks markets, by country, 2004-2009 17
Table 2: Number (m) and value (US$m) of overall European and US premium occasions by category, 1998-2008 17
Table 3: Prestige alcohol sales by category (US$m) 2002-2007 19
Table 4: Prestige personal care sales by category (US$m) 1997-2007 20
Table 5: Specialty personal care sales (US$m) by country, 2004-2009 20
Table 6: GDP at PPP per head (US$), 2003-2008 21
Table 7: Wealth groups in Europe (m) 1995-2005 22
Table 8: Wealth groups in the US (m) 1995-2005 23
Table 9: The number of key premium seeking consumer groups (m), 2003-2008 24
Table 10: Dove and Crest: offering democratized luxury through packaged goods 51
Table 11: Examples of new offerings capitalizing on the premium trend 53
Table 12: Examples of brand alliances and licensing that enhance a brand’s premium credentials 53
Table 13: Examples of existing brands being extended into premium sector 54
Table 14: Examples of products leveraging intrinsic quality attributes 55
Table 15: Products which capitalize on the growing consumer demand for authentic consumption experiences 56
Table 16: Examples of emphasizing country of origin or country of association to help establish a price premium 58
Table 17: Examples of packaging formats complementing a product’s premium positioning 60
Table 18: Examples of merchandizing displays that complement the premium image of a product offering 61
Table 19: Examples of products offering consumers professional quality 62
Table 20: Examples of how to command a price premium through enhanced effectiveness 64
Table 21: Branded accessories can enhance the quality of the consumption experience and willingness to pay a premium 65
Table 22: Examples of effective descriptions that promote the sensory properties of products 67
Table 23: Examples of leveraging product conspicuousness 68
Table 24: Examples of snack and drink products and concepts targeting the individualism trend 69
Table 25: Examples of emphasizing exclusivity in order to target the desire for uniqueness 70
Table 26: Definitions used in this report 71

Figure 1: Premium exists on different levels 14
Figure 2: Six major factors account for consumers’ increasing tendencies to trade up to prestige consumer packaged goods 16
Figure 3: Perceptions of luxury and premium are changing 24
Figure 4: The Premium Price Index (PPI): the five factors that affect people’s perceptions of premium in consumer packaged goods 32
Figure 5: Consumers’ quality perceptions can be grouped under four main factors 33
Figure 6: Taste, Freshness and Origin are considered the 3 most important attributes of the ‘best of its kind’ food and drink products 39
Figure 7: Effectiveness, Healthiness and Convenience are considered the 3 most important attributes of the ‘best of its kind’ personal care products 39
Figure 8: The importance of coolness and conspicuous consumption varies by product category 42
Figure 9: Strategies for managing country-of-origin effects 58
Figure 10: Convenience product attributes by sector 63
Figure 11: The different levels of experiential marketing can be used to capitalize on the sensory mega-trend 66
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