Premium POV

Luxury Brands vs. Premium Brands

The difference between luxury and premium isn’t as obvious as you might think. I believe this criteria has to do with what we at Warren Douglas refer to as “share of wallet” relative to the consumer’s household income, calculated against the product’s “function index.” For example, if an up-and-comer college graduate uses a $400 fountain pen to fill out a job application, the pen is a luxury item rather than a premium item. If a multi-millionaire uses that same brand and model pen to write his personal checks, the status of the pen becomes relegated to premium. For the job applicant, the pen is a status symbol. For the wealthy business man, it’s a tool with a lower index relative to income. Why does this matter to marketers? It all has to do with understanding the mindset of the consumer in the right context to engage and drive a predictable purchase pattern. For Montblanc, the brand is both premium and luxury, but premium to one audience and luxury to another.

As another example, take Steinway pianos. Their music room grand could cost as much as $80,000. To the wealthy entrepreneur who wants the nicest piano for entertaining and to make a furniture statement, it’s a luxury item. A $40,000 alternative could functionally do the trick, but there’s no status with the lesser alternative. However, to the music teacher who views the piano as a necessary tool, the Steinway is a premium choice. In this case the “share of wallet” in relation to household income is likely opposite that of the fountain pen example above. Yet the secret ingredient to marketing to premium and luxury consumers has to do with the “function index,” and how strong that factor is to influence purchase.

This topic becomes really fascinating when considering brands in categories that are much more commoditized, such as grocery items, home furnishings, and even pet care. For more information on premium brands, or information on how Warren Douglas can index premium brands in a specific category, visit the Warren Douglas website.


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