Premiumization is the science of motivating consumers to pay more for brands, products, and services. But if applied incorrectly, premiumization can lead to marketplace discrimination and create barriers to organizational growth and sustainability.
One of the USA’s biggest regional theme park operators went premium this year. Attendance dropped, but per capita profits did get a bump. The company CEO said, “I talked about our decision to pursue a premiumization strategy, which entails improving the guest experience and charging prices that align with the value we deliver our guests. For years, our primary objective was growing attendance. While — yes, while attendance is an important performance metric for our business, it’s only one of many different variables that impact our bottom line.” Good practice or discriminatory?
Raising prices is a surefire way of intentionally discriminating against clients based on socio-economic status. That is a reality of our capitalistic system in the United States. You can make money via volume or higher margins. Based on our North American culture, this is a morally acceptable and intentional form of discrimination in the “disposal” income marketplace. Entertainment and luxury items are not part of the unalienable rights addressed in our constitution. But companies need to be mindful of the unintended consequences of premiumization and how it may lead to discrimination. Don’t put your workplace DEI efforts into a box in the corner of your work processes. Cultural competency needs to be integrated into your overall strategic planning; otherwise, a new business strategy could have unintended consequences.
Brands in mature, competitive markets need to premiumize to achieve growth. In its simplest form, premiumization is a means of getting customers to pay higher prices for a brand or product. It’s about stretching the category norms upwards and creating a demand for customers to pay higher category prices. Ideally, companies using this strategy deliver quality goods and services to the consumer. At its best, premiumization understands how customers perceive and assign value. At its worst, premiumization is just slapping lipstick on the old proverbial pig and saying, “It’s new, improved; it’s fancy pig couture.”
What is Your Message?
|Pathway to Premium
|Pathway to Discrimination
|Our product is safe and trusted
|Culture Discrimination and Reinforcement of Racist Tropes
Us versus Them – If safety is framed in a way that negatively references another group, it can lead to discrimination.
|Our product is unique and cutting edge
|Classism, Unintentional Social-Economic Discrimination, and Discrimination based on mental capability
We are better than you – Only an elite few deserve our product or have the intelligence to appreciate our product.
|We offer a better experience
Our implicit bias is our brand – We think our experience is better because we have a limited cultural understanding. We don’t even realize we are limiting our opportunity for growth.
|Our method is simple
|Communication and ability bias
We are deaf to intercultural communications – Simple is relative, and it assumes shared experiences and shared understanding.
|Brand image and reputation speak for itself
|What does your brand say about DEI?
Do what you say and say what you do – Your brand and reputation speak for themselves. Is it saying what you want it to say?
|Our brand is exclusive
|Discrimination is inevitable in this category.
We intentionally limit access – Exclusion comes with a certain amount of intentional discrimination. People who buy because of this pathway characteristic want to differentiate themselves from others. You are intentionally placing limits on your market. With what level of exclusion are you comfortable? (gender, ability, age, socio-economic status, etc.)
Inclusive Premiumization Strategies
- Create incentive programs for consumers who spend more and engage more often. Customers are rewarded for investing more in the business. The company does not create a barrier but rewards prime clients.
- Offer exclusive experiences. Keep a steady stream of clients but offer exclusive high-profit experiences. In this premiumization approach, you don’t alienate a solid base of consumers. You create elite experiences for clients who are ready and willing to pay top dollar. Maybe this is a long-term “basic” customer who has now graduated to a “premium” client. Just think what would have happened if your short-term, short-sighted premiumization started excluding them too early in the client journey.
- Use a funnel approach. Offer various levels of services and engagement for your consumers at various entry points. You can control the profit margin at each level.
- Offer premium days or sneak peek days. Premiumization does not have to be all or nothing. Offer premium times or exclusive days. Everyone likes a sale or a special deal, but some consumers (like me) prefer comfort. Going back to our amusement park company, would I pay more money to go to the park on less crowded days? Absolutely. Some days are naturally less crowded, but you can change more for that experience many consumers would.
When companies implement a premiumization strategy, it can be perceived that you are telling a certain market segment that either “we don’t want you” or that “you are not good enough for our product.” It is hard to welcome those consumers back if the economy changes or you exhaust opportunities in your new target demographic. You can’t just say we want you back now that we are desperate for your money. There are other ways to increase profits without an adversarial premiumization strategy that tells a segment of consumers we no longer want you.
Are you unintentionally losing out on sales because of your implicit bias or lack of cultural competency? Please reach out to discuss a culturally competent approach to increasing sales, expanding your market share, and increasing profits. I am happy to be your cultural competency navigator, diversity, equity, and inclusion in the workplace trainer.