Not just synonymous with being “luxury” or “expensive”, the concept of premiumisation has undergone significant evolution over the last few years. Where once it was concerned with reflecting success, sophistication and hitherto unavailable high-quality with lifestyle-driven imagery, the key now lies in creating trust, value and stronger personal connections with consumers. “Quality” has come to mean many different things to many different consumers, and so any discussion around premiumisation – what it is, and how to succeed with it – has to start and end with understanding what now drives their behaviour.
To begin with, those personal connections can now include ethical, emotional and aesthetic considerations, among others; research also shows that sustainability, convenience and heritage can all increase the quality of consumers’ experience with any given product. This shift means that for brands and producers, premiumisation is no longer really a trend per se; it’s more about positioning a particular product within its category and ensuring you offer consumers sufficient value.
Add real value
“If they’re not just competing on price, brands tend to add value by either adding something, like extra vitamins, minerals or fruit pieces, or by taking something away, like lactose, fat or other elements considered unhealthy,” says Erik Sebelius, Solution Manager Chilled Solutions at Tetra Pak. One driver here is consumer caution; economic uncertainty compels consumers to spend sensibly and make trade-offs, so when they do choose quality, the product has to deliver on their needs.
Sebelius cites China as an example, where the market for ambient drinking yoghurt has declined more than 35% over the last four years. Yet one producer added Swiss chocolate bonbons to their product and charged an even higher price than before. “Brands have to work a little harder on being creative and offering value,” he says. “It’s about the perceived value of what a product is and what it will deliver, compared to what it costs.”
Indeed, one way for brands to achieve this when adding ingredients is – like with those bonbons – leaning into indulgence. “Consumers want something that will boost their mood or their day, and we can see this as part of the ‘funflation’ trend,” says Anna Larsson, Business Insights Leader at Tetra Pak. “It’s a demand for new, sensory experiences – something memorable. You’ve got to go beyond simply making consumers’ lives easier, smoother or more frictionless and deliver some indulgence and joy.”
Cater to the specific
Another important aspect here is adapting your offering to very specific needs. “Some brands are no longer simply offering ‘milk’,” says Sebelius. “They’re offering a solution to, for example, pregnant women, with a tailored recipe containing the right type of vitamins and minerals for that specific need.” This means a certain amount of fragmentation in brands’ offerings, but by targeting smaller groups of people, they can charge a higher price. “Because as a consumer, you feel that this is a product created just for you.”
Packaging is equally important when it comes to premiumisation and consumers’ perception of quality. Beyond basic qualities like protecting the product and being functional, packaging here works on an emotional level – it needs to create attention, interest and buying intention; not for nothing is this known as the “first moment of truth”. “You want something iconic or unique,” says Sebelius. “That way, you can build a specific identity around the package.”
The shape of premium
“When we researched what ‘premium’ means to consumers, they talked about shape and design and how they value simplicity,” adds Larsson. “There’s also a desire for something innovative or modern, but not too new or different – it can’t be a form that feels out of place.” So, simple yet stylish, unique but not unexpected. It must be robust and well-crafted, too, so that a brand’s quality is evident throughout the whole consumer journey. “As much as the visual and emotional elements on the shelf are important, it’s also about usability at the second moment of truth,” she says.
Consumers seeking premium products are often equally invested in sustainability and environmental concerns; for them, brands have to deliver here, too. Current trends include the demand for organic, small-scale and non-industrialised products – these are perceived as more natural, healthier and better for our planet. When it comes to packaging, handmade is a watchword; think handwritten labels, or matte, unfinished paper and cardboard.
“Heritage is another trend we’re seeing worldwide,” says Larsson, “driven by the desire to shift from the global to the local. Consumers want to feel they’re supporting the ‘right’ kind of producers and products with their money. But we can also view sustainability as a co-benefit, because consumers now expect it as standard – it’s simply a ‘must have’ for brands. To really stand out, brands need to couple it with convenience or other added value.”
The challenges for producers
Delivering all this is, of course, not without its challenges. Primarily, this concerns offering value at a reasonable cost – both in terms of the product and the package. “It’s very easy to add value, but producers need to ensure that they still make profit – a lot of new solutions can be difficult to do at an acceptable cost,” says Sebelius. “They need margin, but they need volume too – it’s about finding the optimal balance.”
You also have to manage all the marketing mix elements, and, adds Sebelius, “fine-tune this with regards to your brand value, target consumer and preferred channel. It’s very complex to get this right.”
Yet opportunities with premiumisation abound for savvy brands. “Our extensive consumer research can help producers identify what is driving the consumption occasion, from both a functional and emotional perspective, across multiple different categories,” says Larsson. “So you can look at the emotional and functional benefits of their ideal product, or identify where the white spaces – unsatisfied needs in different categories – in the market are.”
There’s also the aspect of catering to specific consumers in specific geographic markets or locations, and greater fragmentation. Brands need to think less about one great product that can be sold to everyone, everywhere, and more about catering to a number of specific niches or particular needs – a trend that’s only likely to continue and intensify in the coming years.
What comes next for premiumisation?
And speaking of the future, where is premiumisation headed? With added ingredients, technology is developing both in terms of how they are added – think dosing systems and more flexible filling machine solutions – and what is being added. “Producers are working hard to develop things like bacteria cultures and probiotics, adding them as a powder or early in the production process,” says Sebelius. “When it comes to boosting health or energy, I think the industry has only just scratched the surface in terms of what can be offered to consumers.”
Then there’s the prospect of generative AI accelerating what Larsson terms the “creativity part – new concepts, new ideas, new designs, new recipes.” It might also help when it comes to identifying new beverage trends and formulating products to take advantage of them. “There’s so much experimentation, life hacks and sharing on social media,” adds Larsson. “The driving force for this is coming directly from the consumer.”
Ultimately though, it comes back to your brand, and the emotional value consumers associate with it. Emphasising the functional aspects of your product will remain important, but so will highlighting the functional aspects of your brand. Only those that focus on connecting more intimately with consumers personally – for example by highlighting their heritage, leveraging nostalgic elements or underlining their authenticity – will succeed in the premium space.
