As the U.S. economy continues to improve, the rapid growth of premium products has followed suit, evidenced by the growing popularity of specialty gourmet retailers and the expansion of natural and organic shelf space across nearly every channel and retail banner. According to IRI's "2014 Brand & Retailer Loyalty Survey," intent to purchase premium brands also has increased in 2014 relative to 2012.
But, the label "premium brand" means very different things to different people, and perceived value will be specific to audience, channel, aisle and category. Though price and household income certainly play a determining role, the biggest differences in perception appear between baby boomers and millennials.
Millennials, for example, are drawn to convenience, while boomers are more likely to seek out quality ingredients and brand names. Gen Xers take up the middle ground and tend to align most closely with the general population.
With regard to price sensitivity, the IRI survey logically found that higher income households are more likely already to purchase premium brands. In contrast, the intent to buy more premium brands in the future decreases as the income of the household increases.
In order to win consumers and compete successfully, CPG marketers need to break down the value equation of premium offerings and discover the balance that will speak meaningfully to each consumer, exploring a variety of strategies, including price-tiered store brand products, new technology, innovative product forms, ingredient transparency, and convenient packaging to discover the balance that will broaden their consumer audience and increase profit margin.
|FRAMEWORK TO WIN: PRIMING PREMIUM CPG FOR GROWTH|
|Segment||Significant Factors in Defining Premium Brands||How to Reach and Win the Segment|
|Millennials (aged 18 – 34) Comprise nearly a quarter of the population and spend more than $72 billion on CPG products annually||• Convenience|
• Attractive Packaging
|• Leverage digital touch points (e.g., smartphone apps, social networking, in-store kiosks) to capture their attention|
• Respond to their unique price-saving strategies through loyalty programs, at-home coupons or in-store signage
|Baby Boomers (above age 55) Comprise nearly a quarter of the population and account for more than 50% of CPG spending||• Brand name||• Emphasize the value they find in trusting proven brands|
• Educate about the practical benefits of ingredients to bolster trust
|Households with Children Spent $134 billion on CPG products during the past year, accounting for 34% of industry sales.||• Convenience|
• Attractive Packaging
|• Consider promotional strategy, given the shopping habits of consumers in this segment|
• Enable/appeal to their on-the-go lifestyle through innovative packaging
|Lower-Earning Households ($35,000 or less in annual income) Spent $110 billion on CPG during the past year, accounting for 28% of industry sales||• Higher Price||• Consider pricing strategy, given this segment's price sensitivity|
• Understand how value is defined by these consumers and aim to align with this definition
|Source: IRI, Premium Products Primed to Perform|