Consumption patterns are changing in emerging urban areas, ‘premiumisation’ surprisingly seems to be on the rise across small towns
India’s consumption patterns have changed over the years owing to factors such as, increased digital connectivity, rising income levels, lifestyle preferences and rapid urbanisation. Today, consumers are willing to pay more for products and experiences that align with their values and provide a higher level of satisfaction. In response, companies have started offering premium products and services to meet these changing preferences. This trend, known as premiumisation, refers to customers willingly paying more for goods and services that align with their values and meet their needs.
What is premiumisation?
Premiumisation, a term often referred to in pricing strategies, speaks to the added value of a product. However, it is key to understand that premiumisation does not simply mean charging more for a product. Rather, it’s a strategy that involves leveraging the characteristics, unique features, and intrinsic traits of a product to shape consumer perception positively and, subsequently, enhance their readiness to pay a higher price.
These traits are not limited to the fundamental quality of the product; they can also encompass elements such as convenience of use, authenticity in the market, a sense of novelty, or an unmatched consumer experience.
There are three key factors that drive premiumisation:
Shifting Economic power: An increase in personal income equates to a boost in disposable capital, allowing individuals to invest more in goods and services that surpass essentials. The high purchasing power stimulates an upward trend in consumption across an array of categories. With enhanced income, consumer behaviour typically showcases an inclination towards upgrading their shopping habits, transitioning to high-quality or premium commodities. Consumers become more inclined towards quality-conscious purchasing as compared to price conscious consumption.
Digital Innovation: The digital transition gave consumers robust access to valuable product information, various options, and premium commodities. Powered by digitalisation, consumers can now make informed decisions from a plethora of choices available at their fingertips. Furthermore, the rise in popularity of e-commerce has become a powerful catalyst for niche brands. It inspires these brands to innovate and connect with their desired target audiences.
Demographic shifts: As rural regions gradually shift towards urbanisation, these emerging urban consumers are predicted to demand higher-quality, innovative goods, and services. This spike in consumption is fueled by aspirations to access items previously out of reach in rural settings. Consequently, urbanisation signals burgeoning opportunities for brands to tap into an expanding market of new urban households eager to indulge in premium purchases.
How does premiumisation influence consumer perception and willingness to pay?
Premiumisation affects consumer perception and willingness to pay more for a product or service through several mechanisms:
Perceived Quality: Often, consumers associate higher prices with better quality. In cases of premiumisation, consumers may perceive the premium product to be superior in quality, regardless of its actual performance.
Exclusivity: Premium products or services often create a perception of exclusivity or status. Consumers may be willing to pay more for a sense of uniqueness or to portray a particular image to others.
Value-Added Features: Premium products often come with added features or benefits that standard products do not have. These additional features can justify a higher price in the eyes of the consumer. For e.g. There is an increase in the consumption of organic food over processed food. This spike in consumption despite the cost as compared to conventional food is due to their awareness of the nutrient value of the food they consume.
Brand Reputation: A strong brand reputation can play a big role in consumers’ willingness to pay more. A reputable brand’s endorsements may make the product seem more trustworthy and attractive, enticing customers to pay a premium.
Emotional Connection: Consumers often develop emotional connections with certain brands or products. This connection can increase their willingness to pay more for products from the brand with which they’ve established emotional ties. Take, for example, the range of Apple’s iPhones, where they consistently price their new models higher than the average market rate. Despite this, their sales continue to flourish. Customers perceive the brand to be innovative and associate owning an Apple product with a certain prestige, justifying their willingness to pay a higher price.
In conclusion, it is important to study whether, ‘premiumisation’ will be a prolonged trend in the Indian market. From overcrowded metro cities to remote areas, consumerism is taking on a new face for the Indian market, and brands can no longer ignore this shift. With major brands establishing their stores in tier 2, 3, and 4 cities and rapid urbanisation changing the income-consumption relationship, premiumisation has taken the Indian market by storm. It is safe to expect that this trend will continue as more rural areas become urbanised and developed.
