Post-recession, consumers in the US and UK are more discerning and decide about their purchases differently to how they may have pre-recession. ‘I deserve it’ is now ‘I can justify it’; ‘have it all’ is now ‘have what I really want’. Consumers are also placing greater priority on having fun – up on average 6.5% compared to the recessionary period.
Spending on basic necessities (basic food items; toilet paper etc.) continues to be driven by price, as people maintain their tight budgeting behaviours of the recession years. Demand for indulgent goods (i.e. items that the consumer really wants but doesn’t really need) continues to be weaker than pre-recession. However, spending in two key categories demonstrates that ‘premiumisation’ is re-emerging: Sanity products are the day to day luxuries that consumers buy ‘to keep me sane’; and, Lifestyle products are the preferred brands ‘that make me who I am’. Whilst this trend is currently just emerging following the 2008 crash, strong evidence exists for how consumer’s resumed ‘trading-up’ following the recessions in the 1970s, 1980s, 1990s and early noughties. In fact, the trend for resumed spending on premium products post-recession has strengthened from just 3.5% in the 1970s to 13.2% in the 1990s and 20% in the noughties. It is reasonable to expect the bounce-back in spending on premium brands and services to be c25% over the coming 3 to 4 years.
So what does premiumisation really mean in the alcohol sector? Global Information research shows that taste drives consumption across alcohol categories – consumers are unwilling to sacrifice great taste when making a buying decision. Products with superior taste are associated with ‘premium status’. Nielsen research shows that consumers have a stronger emotional connection to beverage alcohol than is the case for other consumer goods categories, and Booz&Co shows that at 24%, alcoholic drinks have the lowest level of switching from premium to non-premium brands. This suggests that premiumisation implies a level of brand/product loyalty, taste preference and, more stable spend and consumption when compared to non-premium alternatives. So, do brands achieve a premium status by accident or by design? It is believed that truly premium products offer advantage to the consumer in three areas, that together enable a brand to be recognised as premium when compared with competing products. These three areas are: Technical i.e. differences in design, features and materials; Functional i.e. how the product performs comparatively; and, Emotional i.e. how the product enhances the consumer’s experience. Through careful objective setting at the start of the R&D phase of a new product and brand, it is possible through their achievement to target the creation of a brand that will over-time achieve a premium status with consumers.
In both the UK and US premium is associated with a number of common factors including: having fun socially, products and brands that are considered authentic and original in concept; distinctiveness compared to alternatives; trustworthy in terms of quality and to some extent ‘trendy’ i.e. not short-lived notoriety, but sustained recognition.
Whilst premiumisation is now being associated with beers and ciders, it is the spirits category (pure spirits and spirit-based drinks) that have the strongest association. Whilst on-trade footfall is down, there is a recognised trend for consumers to sustain their level of spend on preferred premium brands in the spirits sector i.e. they go out less often, but they consistently consume their preferred brands when they do).
Recent research by Nielsen suggests that premium products are the result of broad-based collaboration during a product’s development. According to Nielsen, teams of six or more people generated concepts that performed 58% better with consumers in pre-market testing than the brands’ initial, “starting point” concept. Teams with representatives from four or more functions generated concepts that performed 46% better. However, 74% of CPG professionals do not believe that sufficient collaboration takes place during their company R&D processes. It appears therefore that premium brands may not just happen, but that the basis for their success originates during concept research, and their subsequent development. Further to this, it appears that broad-based collaborative, rigorous development directly impacts a brand’s future potential. Defining specific objectives for the Technical; Functional and Emotional benefits of a new brand/product concept, with input from multi-disciplined professional teams to achieve or exceed those objectives provides the foundation for a product/brand to be recognized as having premium status. Finally, it is absolutely clear that the taste of a product directly affects it status – premium brands offer a taste advantage over comparable products.