This text was developed by Tech & Durables trade consultants Ines Haaga and Sohjin Baek of the GfK International Strategic Insights Staff.
Set in opposition to a backdrop of rising costs, shrinking markets, and altering shopper conduct, it sounds a contradiction to counsel {that a} premiumization technique presents development potential in in the present day’s difficult atmosphere. Nonetheless, we at GfK we now have recognized that the present rise within the attraction of higher-priced tech and sturdy merchandise amongst premium consumers will persist all through 2022.
In earlier articles, we lined how manufacturers can embrace premium and how premiumization can save shopper tech and durables. On this weblog, we study the drivers and the merchandise already benefitting from the pattern. We profile excessive spec premium consumers, and share easy methods to notice the chance they current in your small business. So learn on to find if your small business might maximize the facility of premium.
What’s driving the shift to premium?
Firstly, family budgets are more and more restricted, and the share of purchases has modified. Between Q1 2019 and Q1 2022, the share of low and medium-income consumers in Tech and Durables declined from 38% in Q1 2019 to 29% in Q1 2022. Over the identical interval, high-income consumers grew their share from 26% to 36%.
In order these with extra restricted budgets delay and even keep away from shopping for, better-off premium consumers obtain a much bigger share of gross sales. These with decrease incomes can also be impacted by the discount within the variety of entry-level objects on the market, as pushed by provide chain shortages, producers have targeting producing larger priced-items providing higher margins.
As well as, shopper preferences are driving the potential of premium. Our 2021 Client Life research has proven that greater than one-third (37%) of shoppers agree ‘you will need to indulge myself regularly’. This can be one other motivation of premium consumers for upgrading to higher-priced, feature-rich premium merchandise.
Meet the ‘Excessive Spec Premium’ purchaser
Function wealthy and well-known manufacturers are necessary standards in serving to Excessive Spec Premium consumers make buy choices. Based mostly on gfknewron Client evaluation, shoppers may be categorised into seven viewers teams, with Excessive Spec Premium consumers representing 15% of all shoppers in Europe. This group values well-known status manufacturers in addition to product options. Nearly all (95%) agree with the assertion “I need a feature-rich gadget from a model I do know nicely. If meaning paying extra, then so be it!”
For these premium consumers, pricing is much less more likely to be an necessary consideration issue. There are quite a few components that attraction to Excessive Spec Premium consumers, together with whether or not it’s sustainable or good, maybe it helps make life easier, or presents an upgraded, enhanced expertise. Upgrades are an necessary driver, and actually evaluation of TV gross sales between Q1 2019 and Q1 2022 reveals that ‘upgrading a working product’ is on a development trajectory as a cause to purchase (up from 29% to 34% by Q1 2022), whereas ‘changing a defective product’ has remained flat throughout the time interval.
The premium worth alternative: Driving income and margin
Gross sales on the higher-end have been rising since April 2018. The newest evaluation reveals that the 5% of unit gross sales on the prime finish worth level accounted for 26% of income from Could 2021 to April 2022, making them each environment friendly and efficient. So higher-priced merchandise supply a greater revenue margin too. The place assets are restricted, it’s logical to concentrate on the dearer, higher-return objects. This pattern is going on in key classes together with flat TVs, smartphones, cellular PCs, displays, washing machines, and vacuum cleaners. Right here gross sales are rising in double-digits, whereas on the lower cost level, gross sales have plateaued or are in decline.
Evaluation of shoppers who purchased a flat-screen TV reveals that these procuring within the low- to mid-level worth level of €699 or much less are buying particularly to interchange an merchandise. Compared, these – premium consumers – spending €1300 or extra are changing a working product. This means that these shoppers are shopping for to indulge their need for higher options, or to indulge themselves, or a mix of each. Evaluation of shoppers shopping for higher-priced vacuum cleaners signifies an extra hyperlink, this time between excessive ranges of shopper confidence and spending.
So, whereas some shoppers are feeling the squeeze of rising costs and are slicing their expenditures within the TCG class, this isn’t the case for all. There may be nonetheless a big proportion of consumers who’re attracted by feature-rich merchandise from well-known status manufacturers, and who can afford to purchase them to fulfill their want for self-indulgence. This means there’s a real alternative to maximise the potential of premium if you happen to perceive what’s going to attraction to Excessive Spec premium consumers.
Discover ways to maximize the potential of premiumization
