Premium for everyone: Two factors that reinforce the trend towards premiumization

In its target markets global brand expansion meets dynamic product categories, growing consumer demands, rising incomes and a clear trend towards “premiumization.” Consumers want to show as early as possible that they have “made it” and did not only achieve status, but also belong to the “global village”. They want to fulfill wishes more and more often instead of just satisfying needs. Millions of consumers between Shangai, Rio, Mexico City and Jakarta are therefore increasingly reaching for the shelves with products of the highest quality, prestige and elegance league, despite carrying middle-class wallets. Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) describe how brands can take advantage of this trend towards premiumization – all details can be found in their new Springer publication “Erfolgreicher Markenaufbau in den großen Emerging Markets”.

An international brand expansion targeting only the top segment of the income pyramid or exclusively the rapidly growing mid-range segment misses a good opportunity to tap additional purchasing power in the emerging markets. Buyers there are increasingly opting for more expensive premium products, which in the truest sense of the word leads to an appreciation of numerous product categories. Barilla, one of the market leaders in the international pasta industry, reports, for example, that the effect of premiumization is already responsible for the increase in demand for pasta in emerging markets. Premiumization is a general market phenomenon and by no means limited to the existing premium markets. According to various market researchers, it is now a common and nationwide phenomenon in many growth markets. There are two important factors in particular:

1. Political reforms and rising incomes reinforce the trend

The rapidly growing middle class is not the only driver of progressive premiumization. In China, ongoing economic reforms are aimed at increasing purchasing power in the inner provinces because in the future private consumption is supposed to take over the traditional locomotive function of exports and capital investment. This leads to a redistribution of wealth into smaller towns in the hinterland. The same can be observed in India and other international markets: premium products are no longer available to the rich alone. This trend is supported by reliable evidence. In China, for example, more than half of the sales growth in recent years has been achieved with fast-moving products such as biscuits, toothpaste, skin moisturizers or milk.

India is the latest example of premiumization in the frozen food market, which has been growing by around 20% a year for some time. The newspaper Hindu Business Line reported in November 2014, that the retail segment of the market generally consisted of frozen vegetables such as peas and sweet corn. But snacks such as chicken sausages, French fries and other potato products have long since become popular. Products that are considered “gourmet foods” in the country, such as pork and seafood, or delicatessen based on chicken meat, have been recording strong growth rates for years.

2. Food scandals and growing prestige awareness emphasize quality as a criterion

Whenever a rising number of consumers can afford to fulfill their wishes instead of just buying what satisfies basic needs, the importance of quality as a criterion increases. According to a survey by the Hong Kong Trade Commission among 1,600 middle-class consumers in eight Chinese cities, three out of four local consumers focus on quality when making a purchase decision. This is due to a series of appalling scandals in the milk and meat sectors and worrying reports of poisonous toys. A growing number of companies have successfully taken up this trend of putting quality above the criterion of cost savings and are doing well. Whether it´s about cars, jewelry, dairy products or diapers: The high quality of premium goods enables prestige-conscious and newly-wealthy consumers to show their peers and colleagues what status they have achieved. Gender also plays an increasing role. The growing proportion of well-trained women in the world´s work force is noticeably fostering premiumization.

Learn more about brands in developing markets

Click to receive more insights from

 

“Brand Building and Marketing in Key Emerging Markets”