The true cost of ‘premiumization’
If I were what’s known as a “high net-worth individual” – and I am decidedly not – I would hate to think I was being discussed by brands as a high net-worth individual. Still, I guess it’s better than being called a cash cow.
Amid soaring inflation and other economic headwinds, however, there has never been a bigger stampede to win over those with the biggest household incomes. This was evident in a recent New York Times story that noted the word “premiumization” has been used in at least 60 earnings calls in recent weeks.
There is nothing new about the notion of a VIP customer who gets a better experience because they can afford to pay for one, but the Times story suggested premiumization is a bellwether of a disturbing polarization in terms of income distribution:
The premiumization trend also reflects a divide in the American economy. The top 40 percent of earners are sitting on more than a trillion dollars in extra savings amassed during the early part of the pandemic. Lower-income households, on the other hand, have been burning through their savings, partly as they contend with the higher costs of the food, rent and other necessities that make up a bigger chunk of their spending.
The talk of premiumization lead to some fascinating comments on LinkedIn, where some wondered whether the trend will raise concerns about “financial inclusion.” I’ve personally never heard financial inclusion cited as a factor in developing a customer experience (CX) strategy. The time to do so, however, is now.
If a company asks its team to focus on the premiumization of its services, there are a few principles to keep in mind:
1. Understand what’s premium and what’s not: An option to skip the line can reflect a premium service. So can better seats on an airplane. The Times story, however, cited brands like WD-40 marketing a premium can with a special straw. There had better be some compelling storytelling about why a feature is premium, and why, if a company has a mission to help customers solve a problem, it isn’t part of the regular product.
2. Clarify the standards of a non-premium experience: Customers may not have a bill of rights in many product and service categories, but they deserve to be treated fairly regardless of their income bracket. There shouldn’t be confusion about what they’re entitled to based on price, or sudden shifts in the quality of an experience.
3. Consider the relationship between premiumization and loyalty: Even for high net-worth individuals, some premium experiences could be a splurge rather than a regular part of their spending. Premium experiences may need to be enhanced or refreshed at a higher rate to maintain a sense of the value they offer. The metrics here, from customer satisfaction to Customer Effort Score, might also have to be given greater weighting.
The herd mentality premiumization appears to be attracting makes me wonder how long before consumers catch on. And if brands don’t want to cut off the largest portion of their total addressable market, they should remember what comes at the greatest premium is customer trust.
Shane Schick tells stories that help people innovate, and to manage the change innovation brings. He is the former Editor-in-Chief of Marketing magazine and has also been Vice-President, Content & Community (Editor-in-Chief), at IT World Canada, a technology columnist with the Globe and Mail and Yahoo Canada and is the founding editor of ITBusiness.ca. Shane has been recognized for journalistic excellence by the Canadian Advanced Technology Alliance and the Canadian Online Publishing Awards.