Who is a premium consumer?
Updated. Original version published September 4, 2009.
The premium consumer is the person who will pay a little more for something they’ve come to expect only from your brand. When they can have those expectations met at a lesser price, they may switch brands. Or when your brand fails to deliver on their expectations, they’ll go looking elsewhere.
False Assumptions about Premium Consumers
Perhaps addressing some false assumptions people make about premium consumers will help to clarify the target.
False assumption #1: Premium consumers always earn higher household incomes.
Because premium consumers are willing to pay more for certain products, it’s easy to assume higher earnings. In reality, households of all income levels may be willing to pay more for quality products they deem valuable.
False assumption #2: Premium consumers and luxury consumers are the same.
For a lengthier discussion about the differences between premium and luxury consumers, read my blog on the topic. In the meantime, a brief explanation follows. Luxury consumers purchase items that are perceived as indicative of status, whether or not they need them. Premium consumers purchase items they need to perform as expected, and they are willing to pay more for the assurance.
False assumption #3: Premium consumer behavior is consistent across products and categories.
Humans are not as predictable as we might like for them to be. Consumers may be premium in certain categories without being premium in others. For example, a family may choose to pay the premium for organic produce, citing health reasons, while opting for the least expensive shampoo on the shelf. Premium purchases are a mixture of values and expectations in addition to quality and experience.
Factors that Indicate a Premium Consumer
Factor #1: A willingness to pay more
As we observe the responses and insights provided by our Premium Brand Index, we realize that consumers are willing to pay more for certain brands, as long as the brand meets their expectations at a price they can live with. Although private label brands have garnered much attention, many premium consumers are wary of the short-term concessions and inferior ingredients in less-expensive alternatives. However, the brands that have lost share to private labels are discovering they haven’t done enough to differentiate their product quality, nor have they built their brand as the premium brand they thought they were.
For example, a person who makes $150,000 a year may consistently buy cheap toilet paper; he or she has little expectation from the product and isn’t willing to pay for extra fluff (literally, in this case). On the other hand, a lower-income person may see toilet paper as an affordable mini-luxury, and therefore they’re willing to pay the extra $1.50 for four rolls in a pack. In this instance, the premium consumer is the lower-income household inspired by emotional benefits versus the higher-income household that views toilet paper as only delivering rational benefits.
Factor #2: Identifiable differentiators
When all things are considered equal, a consumer will usually opt for the least expensive option. In other words, if they are not able to identify why they’re paying more for a product they may not be willing to do so. Premium consumers are only willing to pay more for an identifiable benefit. Brands who are unable to distinguish themselves from the less-costly competition should not consider themselves premium.
For example, a premium consumer is willing to pay more for a toothpaste that alleviates tooth sensitivity compared to a toothpaste that only promises whitening power. A premium consumer is willing to pay more for first-class seating on an airplane if the benefits of extra legroom and faster deplaning appeal to them enough to merit the cost. Those are identifiable differentiators.
Factor #3: Expectations and concessions
Finally, premium consumers weave through a tangled web of their own expectations and concessions to determine a brand’s “premium-ness.” If a brand consistently provides the expected differentiator, the premium consumer will continue to pay a little more even when a less expensive alternative presents itself. However, if a brand fails to meet the premium consumer’s expectations, they will likely purchase from a competitor. For example, if the premium consumer purchased Simply Orange® Juice because it’s 100% juice and tastes fresh, the expectation is that the product will continue to be made of 100% juice and taste fresh. If, at some point, the juice is made from concentrate instead, the premium consumer may no longer be willing to pay the additional cost because their expectations haven’t been met.
Along those same lines, another consumer may not concern themselves with 100% juice. They are willing to make concessions and drink less-than-natural ingredients in order to pay less. This same consumer may drive a Lexus, wear a Rolex, and live in a gated community. The income level matters less than concessions when they purchase a fruity breakfast beverage. Values come in to play, not just pricing. It could be that the less expensive juice elicits feelings of nostalgia because the consumer grew up drinking it. The explanations are as plentiful as ants at a picnic, making consumer behavior somewhat difficult to predict. However, the Premium Brand Index helps us know how best to position your premium brand to connect with premium consumers.