Premiumization Strategies in Food and Drinks: Fighting Product Commoditization Through Added Value Product Positioning

NEW YORK, Nov. 8, 2010 /PRNewswire/ -- Reportlinker.com announces that a new market research report is available in its catalogue:

Premiumization Strategies in Food and Drinks: Fighting product commoditization through added value product positioning

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The premiumization trend has been identified as starting in the 1970s in alcoholic drinks. It moved first into food and drinks that were associated with treating / indulgence and gifts, such as boxed chocolates. Throughout the latter part of the 1980s, the 1990s and into the 21st century, premiumization has continued apace, developing both horizontally, in terms of the number of categories in which it can be observed, and vertically, in terms of the tiers of premiumization that have been created.

It has been an appealing strategy for manufacturers, offering the possibility of avoiding discounting wars and building better profit margins. However recently it has become increasingly hard for manufacturers to carve out distinctive premium positionings as the markets have become more crowded, and many, but not all, premium products have been affected by the economic downturn.

This report identifies recent and current successful premiumization strategies and considers the impact that the economic downturn has had on the premium sectors of the food and drinks industry. It demonstrates how premiumization can be achieved and defended against the threats it also describes. It identifies the essential elements of success in premiumization and also looks more broadly to emerging consumer trends to consider where the new post-recession forms of premium may come from.

Key Features of this report

- An examination of the factors that have enabled premiumization to grow in developed markets and a consideration of how far these will also hold true for developing markets.

- An analysis of the impact thus far of the recession on premium brands in developed markets and the post-recession prognosis.

- An analysis of premiumization in a mature market; the development of tiers or levels of premium, what happens to premium brands when the whole category shifts premium-ward;

- The main premiumization strategies employed – product based (including health, ingredients etc), distribution, packaging, production-based, with examples from around the globe.

- A model of consumer motivations. Why do people pay more for premium? Identification of intrinsic product-related motives and status-related motives. An exploration of the evolution of each; contrasting the motives of mature developed markets and the developing economies.

- An analysis of the main threats to maintaining a premium position and an identification of the tools and approaches that can make a strategy most defensible.

- Emerging consumer trends and the way in which these could be harnessed and applied in developing new premiumization strategies

- Case studies exploring the different routes manufacturers have successfully taken to carve out a premium position, based on ingredients or packaging, distribution, exclusivity etc.

Key benefits from reading this report

- Understand what it is that motivates consumers to pay a higher price and purchase a premium product and tailor your communication and marketing strategy to those motivations.

- Importantly, learn which are the key emerging consumer trends increasingly being identified as influencing the way consumers now think and shop. Affected by these, the 'new' premiumization will look very different from that prior to the recession. Consider the application of this for your own portfolio.

- Benefit from numerous examples of new premium products and the ways in which they meet the consumer motivations described. In particular understand how motivations and the cues, such as packaging and descriptors, vary geographically and by product category, thus enabling you to tailor your communication appropriately in different markets.

- Identify the key threats to maintaining a premium positioning and how to develop a strategy that is most defensive to these threats

- Benefit from case studies which demonstrate how companies of different sizes, in different categories and in different geographies have used a variety of strategies to build sustainable premium brands. Strategies include those based on product specification, specific ingredients, distribution, exclusivity, scarcity, concerned consumerism and packaging.

Key findings of this report

- Women are the driving force behind premiumization as they increasingly not only do the shopping but earn more of the money with which they shop. This, coupled with rising disposable income leads to an increasing comfort with, and desire to 'trade up' beyond products that would have previously been purchased.

- The first 'rule' of successful premiumization is that at least some degree of product superiority exists. However simply offering 'more of' or 'better' is not a very defensible strategy, being easily copied by private label or leapfrogged by another product. More sophisticated and individualized approaches are increasingly being offered, using a mix of product, distribution, brand positioning, and relationship strategies.

- The main approach used to establish premium credentials is product specification, and as noted above, these have become increasingly complex. Health claims, particularly 'clean' products (containing no…bad ingredients), high end, natural or exclusive ingredients (particularly super fruits) are increasingly evident. In production, both new and sophisticated techniques offering consumer and/or environmental benefits or, conversely, traditional or 'handmade' options all feature.

- Consumers motivations for buying premium brands can be divided into intrinsic product or status related reasons. The intrinsic product can be worth more by being experientially (taste, texture etc) or emotionally (treat, reward) pleasing. In western economies status-related motivations have moved on from being dominated by conspicuous consumption of the most expensive or luxurious. Whilst those motivations are still important, and indeed dominate in developing markets, connoisseurship, and exclusivity based on scarcity have become increasingly important.

- Post-recession, new consumer trends point to the increasing importance of provenance in premiumization, also of being local and trustworthy. Concerned consumerism means strategies which enable consumers to be display altruism and environmental concern will flourish. Scarcity or exclusivity is a key driver of premiumization which can be realised through distribution or production techniques as demonstrated by the success of members clubs with their customised high-end products and personal delivery.

Key questions answered by this report

- How has premiumization developed in mature consumer markets to date?

- What are the differences and similarities between developed markets and the developing countries in terms of premiumization?

- What impact is the recession likely to have on premiumization in the next few years?

- What are the strategies that manufacturers use to support a premium positioning?

- Are all premiumization strategies based on intrinsic product superiority? What is the role of other aspects of the marketing mix such as distribution, packaging and advertising?

- What are the main threats facing a manufacturer as he tries to maintain a premium positioning for his brand?

- What tactics provide the best defence against an erosion of premium positioning?

- Why do consumers pay more than they have to and buy a premium brand? What motivates them? Have those motivations changed over time?

- What cues do premium products use to indicate to consumers that they are premium and worthy of their higher price point? How do these vary by category and geography?

- What broader consumer trends can we identify that can be adopted profitably by manufacturers to create premiumization?

Table of Contents

About the author 2

Disclaimer 2

Executive summary 11

Introduction 11

Major trends in premiumization 12

Defining premiumization 13

Premiumization and consumer needs 14

Emerging consumer trends and their application in premiumization 15

Building a successful premiumization strategy 16

Chapter 1 Introduction 17

Summary 17

Introduction 18

Defining premiumization 18

What constitutes premium? 19

Tiered premiumization 20

Scope and structure of this report 23

Definition of 'premium' 23

Report overview 23

Chapter 2 Major trends in premiumization 24

Summary 24

Introduction 25

A brief history 25

Drivers behind the development of premiumization 26

Economic and social factors 26

Rise in disposable income 26

Development of the middle class 28

Increase in smaller households 30

Later marriage and later, or smaller, families 32

The increasing proportion of women in the labor force 32

Drivers by stage of premiumization 34

Early stage 34

Expansion 34

The role of manufacturers and retailers 34

Consumer drivers in the expansion of premiumization 35

Maturation 36

The development of masstige 36

Case Study of a Mature market: The UK crisps category 38

What distinguishes tiers in the current crisp market? 39

Masstige or premium? 40

Implications for premiumization in a mature market 41

The impact of recession 43

Consumers have sought to save money in their shopping basket 43

Non grocery purchasing has been affected more than grocery 43

Sales of premium products have been under pressure 44

Many premium products have benefited from the economic downturn 45

The shift to eating in 45

The shift to cooking and home baking 45

A retained 'small luxury' 46

Concerns about food and ethical standards remain 46

Wider consumer values have been affected 47

Post recession implications for premiumization 48

Economic recovery 48

Sales of premium products will remain subdued 50

Premiumization will recover to its pre-recession days 51

A change in the nature of 'premium': 51

Chapter 3 Defining premiumization 53

Summary 53

Introduction 54

Product specification 54

Product 'quality' 55

'More of' or 'a better quality of' 57

Increasingly complex product specification 57

Health related ingredients 58

'High in…' claims as a premium health positioning 59

'Added…' claims as a premium health positioning 61

'Low in…' claims as a premium health positioning 63

'No…' claims as a premium health positioning 63

High end and natural ingredients 65

Limited and exclusive ingredients 67

Production and manufacturing 68

High-end production techniques that retain or add to the high quality ingredients 68

Minimal production techniques 70

Scale of production 70

Ethical production techniques or approaches 72

Premiumization through provenance 73

Distribution strategies 76

Packaging strategies 77

Packaging material 78

Pack design 80

Pack description 80

Luxury 80

Connoisseur 83

Exclusive 83

Premium 84

Super-premium 84

Other terms 85

Premiumization via packaging 85

Brand positioning 87

Chapter 4 Premiumization and consumer needs 88

Summary 88

Introduction 89

A model of consumer motivations 89

Motivation relating to the intrinsic product 90

Status acquired from product (brand) consumption 91

By tier of premiumization 93

The evolution of consumer motivations 94

Status motivations 94

Intrinsic product motivations 95

Chapter 5 Emerging consumer trends and their application in premiumization 97

Summary 97

Introduction 97

Consumers are seeking reassurance and trustworthiness 98

The continued importance of local 99

The opportunity of handmade and customized 101

Concerned consumerism 103

Environmental, the premium way 103

Case Study: ILOHAS water 103

Generosity 105

A different relationship with the brand 106

Members' clubs 106

Part ownership of production – a honey case study 107

Chapter 6 Building a successful premiumization strategy 112

Summary 112

Introduction 113

Sphere of operation 113

Tier of premiumization 113

Markets of operation 113

The threats to a premium product 115

Maximizing the chances of success 117

Provide a clear reason for purchase 117

Offer clear product and status benefits 118

Create a new category or consumer motivation 119

Case Study: Red Bull 119

Be obviously premium 122

A premium brand positioning 122

Be packaged premium 123

Be small or offer small company values 123

Be premium in the use of media 123

Build the premiumization strategy on relevant and emerging consumer trends 124

Added or super ingredients 124

Local, simple, just high quality 124

Relational and experiential 124

Knowledge 125

Exclusivity and scarcity 125

Superior quality 125

Concerned consumerism 125

Table of figures

Figure 1: Quality segments of the global wine market 20

Figure 2: Tiers of premiumization in food and drinks 21

Figure 3: Development of premiumization 26

Figure 4: GDP at purchasing power parity (PPP) in $ per capita, selected major economies, 2004-2014 27

Figure 5: Trends in global middle class growth 28

Figure 6: Heinz Farmers' Market 37

Figure 7: Development of premiumization in the UK crisps market 38

Figure 8: Walkers Sensations and Tyrrells Potato Chips 40

Figure 9: Hairy Biker Potato Crisps range (also available in lemon and olive tagine) 42

Figure 10: Areas of expenditure most affected by the recession (ranked 1 to 10 by consumers in each of 8 countries) 44

Figure 11: Consumers 'ladder up' through technical and functional to emotional benefits 55

Figure 12: Evolution of the meaning of 'quality' in relation to premium food and drink products 56

Figure 13: Guggisberg - Grass-Fed Premium Swiss Cheese 60

Figure 14: Choclatique - Q-91 Chocolate Wafers - Bali-Hi; Bora Bora; Forbidden City; Original;

Saigon Cinnamon flavors 61

Figure 15: Anti Ageing Water Range – Nutra Resvetarol 62

Figure 16: Japanese Delight - Premium Kombu Seaweed 64

Figure 17: SoZo CoffeeBerry - ) - Exclusive Dietary Supplement Functional Beverage 66

Figure 18: Noni Zoda - Fortified Noni Super Premium Beverage with DMG - Organic Cane Sweetened; Sugar Free 67

Figure 19: Kona Premium Estate Coffee 69

Figure 20: Redleaf – Canada's Ultra Premium Bottled Water 70

Figure 21: Heartland Creamery - French Style Fresh Chevre Cheese with Lavender 71

Figure 22: Ethical food and drink sales in the UK (£m), 1999- 2008 72

Figure 23: Hotel Chocolat - Chocolate Collection - The Undiscovered Cocoa of St Lucia 75

Figure 24: Freshly Wholesome Gourmet - Complete Meal - Indian Tandoori Wild Alaskan Salmon variant 79

Figure 25: Essential Trading Co-op Ltd: Organic, Luxury Mueslis, Granolas and Cereals 81

Figure 26: Hwa Tai Luxury - Cracker - Original; Vegetable 82

Figure 27: Soprole Activ - Yogurt Bebible con Micro Cal - Sabor Frambuesa; Sabor Multifruta 83

Figure 28: Forte Healthy Energy Shot 84

Figure 29: Fillico Beverly Hills Luxury Spring Water 86

Figure 30: A generalized model of the major metrics defining market tier 87

Figure 31: Consumer motivations in buying a premium product 89

Figure 32: Relative importance of product and status as purchase motivations, by tier of

premiumization 93

Figure 33: Evolution of status related motivations 94

Figure 34: Evolution of intrinsic product related motivations 96

Figure 35: Tesco's 'Enjoy the Taste Of....' campaign reflects the increase in importance of 'local' 100

Figure 36: Mymuesli.com – customized, delivered, organic muesli 102

Figure 37: ILOHAS mineral water from Coca Cola Japan in 'eco' PET bottle 104

Figure 38: Your Pure Honey Manuka honey certificate of ownership, hives and jars 109

Figure 39: Innocent guest smoothie Lemon, Honey and Ginger, helping to support bee

populations 111

Figure 40: Nestlé Waters Brand Portfolio 114

Figure 41: A generalized model of the main threats to the maintenance or growth of a premium product 115

Figure 42: Red Bull Energy Drink 120

Figure 43: Red Bull Website Home Page 121

Table of tables

Table 1: Middle class population size (m) & share of global total (%), 2009-2030 29

Table 2: Average household size 1990 - 2015 31

Table 3: Proportion of labor force which is female (%), 1990-2015 32

Table 4: GDP growth for Major Economies (% change), 2008, 2009 and 2011 48

Table 5: GDP growth for Major Economies (% change), 2008, 2009 and 2011 49

Table 6: Premium product launches in categories of interest and product claims May 2006 – May 2010 58

Table 7: Percentage of new product launches with high / low /no ingredient health claims 59

Table 8: Proportion of premium new product launches with various 'clean' claims (%), 2007- 2010 63

Table 9: Consumer priorities and motivations 99

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