How to Win at Premiumization in China - Part 1

17 Nov 2015|Added Value China

Click here to read Part 2 and Part 3

What is Premiumization?
Premiumization is about borrowing characteristics associated with upper class consumerism and lifestyle and attaching them to mass/lower priced brands upgrading their value and making them more desirable and distinct. It is essentially adding the effect of exclusivity as an emotional benefit to the functional benefits of mass products. On a deeper cultural level, it is about democratizing the distinctiveness of the upper class and offering the middle class the desirability and excitement of social advancement.

The Importance Premiumization in China
Premiumization in China is now more important than ever before. With the growing middle class and increased consumer spending as well as heightened health awareness and growing concerns over food safety and pollution levels, the concept of ‘premiumness’ has continued to evolve and brands are now realizing how critical this is to their marketing strategy. We have witnessed the emergence of super premium, future thinking brands over the last two decades like Grey Goose and Red Bull, but as more brands look for new ways in which to add value and premiumize their offers, being able to express these meanings more clearly and trigger stronger consumer desire is still a big challenge and requires a well-thought out strategy.

In China a number of well-established brands have started to lose their premium position due to selective channels as well as the growing importance of ecommerce which has fragmented their premium offer. Others are now regaining ground on their competitors by reacting better and executing a smarter marketing strategy. To make a real difference in China, marketers will need to better understand how to create that ‘specialness’ inherent in a brand’s own equity and it is ultimately the brands that really unravel the complex meaning of premiumization who will be the eventual winners.

People’s perception of premiumization differs vastly across various categories and markets. The key challenge is to better understand culture and emerging trends in order to discover what premium really means for a particular region and audience. For instance, a common problem which brands face in China is the lack of customer loyalty and there is often a wide gulf between customers’ expectations and a brand’s ability to wow and retain happy buyers. Brands simply can’t afford to fail when it comes to delivering a good experience to existing customers and a bad reputation or negative customer feedback will travel fast and impact badly on the brand.

In China where the quality of life is changing so quickly and consumers want to increasingly enjoy and showoff their new prosperity, premiumization represents a huge growth opportunity not only in the mega cities but even in 4th and 5th tier cities. Local players are also catching up in the premium segment as consumers’ growing disposable income is allowing them to enjoy premium products that were previously out of their reach. As expressions of premiumization continue to evolve, brands need to premiumise their offer in the right way. By understanding what premiumization really means to Chinese consumers – creating something more emotional and attractive rather than just offering products at higher price range or promoting a better brand image – then brands can seize fresh opportunities to create new product segments and ultimately increase consumer demand. Both new and established brands are bringing more excitement and raising marketing spend which is helping to attract more consumers into the market. Premium brands must also differentiate themselves from their competitors both in terms of the product itself and the advertising and packaging that promote it. Ultimately brands must deliver on the practical and emotional benefits they promise to consumers and should promote themselves in a unique way that captures the hearts and minds of consumers. Consumers are now in the driver’s seat – increased purchasing power gives them a wider variety of products so brands need to stay ahead otherwise they will eventually lose out in a market they once controlled.

For a premium brand to stand out, the types of visual codes and ideas that communicate ‘premiumness’ are essential components. If a brand promise and the overall experience don’t match and the more basic elements don’t work then something is clearly wrong. Companies like Uber have managed to establish itself in the premium category despite well-documented problems and having to lower prices in markets like China. Future thinking brands like Nespresso are leading the way and consistently delivering both a quality product as well as a great consumer experience. It is imperative that brands provide consumers with a holistic experience across all touchpoints whilst still maintaining a high sense of quality, ultimately going far beyond retail and touching people’s lives by creating an amazing, emotional experience. Consumers are becoming less trusting and interested in a particular brand per se but are instead seeking something which ignites emotion and touches them in new ways.

Written by Panos Dimitropoulos, Account Director of Cultural Insight, and Sam Woollard, Client Development Director, with support from the Added Value China team.

The main cultural trends underlining luxury and hence the way premiumization is being emergently understood are evolving in China. If you are interested to learn more about the emergent trends of premiumization in China and how your brand can make an impact, please contact us.

Image source: Thinkstock

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