Premiumisation vs alienation: The fine line marketers can’t afford to cross

The path to premiumisation is a tightrope that marketers need to tread carefully. Done right, it can be a way to drive plenty of incremental value for a brand. Done wrong and it simply serves to alienate consumers.

Premiumisation can increase profits while elevating overall brand perception. However, it’s a fine line between premium positioning and overcharging – a line that brands can’t afford to cross. Get it wrong, and you risk constraining demand and creating barriers to purchase.

So, what separates premiumisation from profiteering? It’s a tightrope I’ve trodden for decades, running brands like Bulmers Cider, Arla, Lurpak, Anchor, and Weetabix.

Price versus value

Premiumisation isn’t simply charging more – it’s creating perceived value that justifies higher price points. In a commoditised market, this can be a lifeline for brands seeking to break from the pack.

There’s no more commoditised category than milk, but there are still ways to grow category value. Milk business Arla filtered standard fresh milk and applied the Cravendale brand, which allows it to charge a premium.

This growth persists in certain categories despite economic headwinds limiting disposable incomes. While private label is growing rapidly, driven by affordability and improved quality perceptions, premium products can still grow in niche areas like health, wellness, and sustainability. However, they face increasing pressure from value-conscious consumers (2024 Brandbank Outlook Report).

Mainstream branded products face the most difficulty, squeezed into a corridor of uncertainty between the affordability of private label and the differentiation of premium offerings.

How can brands drive growth in 2025?

Brand owners have always commanded a price premium over private label alternatives, but this gap is increasingly under pressure. With retailers developing tiered private label offerings, brands must work harder to justify their price point.

In a recent report, Circana found that private label brands have evolved from low-cost, branded alternatives into innovative, sustainable, and differentiated products with price tiering. Using brand-building strategies to improve value share. Nice.

For named brands, this means focusing on tangible value drivers such as superior product formulation, unique ingredient sourcing, innovative packaging, and exclusive experiences. The challenge is clear: continue delivering incremental improvements or risk losing value share.

Where brands can win is investment. If your brand has the budget to invest in communications, you can lead category growth and land the benefits.

The profit potential

The business case for premiumisation is compelling; higher margins on premium products can boost profitability without increased sales volumes. For established brands, premium extensions can reach new consumers while reinforcing overall brand equity.

However, there’s a distinction between adding genuine value and inflating prices. Customers are savvy and quickly see through the latter. But if you can offer something different with your premium product, customers will be tempted to reach for it.

Unilever has masterfully demonstrated this with Dove’s tiered body wash range. By elevating product descriptors, they’ve created a compelling reason for consumers to trade up from standard offerings. These carry specific descriptors like “deeply nourishing” or “reviving” to elevate them above a bog-standard product.

Strategic execution

Successful premiumisation requires a sophisticated, multi-faceted approach. Firstly, premium products must deliver a perceived benefit that justifies higher costs. This often means incorporating advanced technology, superior ingredients, or enhanced functionality.

Ritter Sport’s Nut Selection range exemplifies this by using whole, specially selected nuts in higher quantities than standard chocolate bars – a difference consumers can immediately taste.  This comes at a 15.7% price premium versus their other products (as checked on sainsburys.com on 6 March 2025).

Premium positioning also demands meticulous attention to aesthetic detail. Sophisticated packaging, elevated design, and enhanced sensory experiences all communicate value from the shelf.

How marketers are using premiumisation to drive growth and build stronger brands

Establishing emotional connections is equally important. Craft beer brands have grown their category by emphasising small-batch production, unique ingredients, and the personalities behind their brews, transforming a commodity product into an experience that transcends price considerations.

Targeted distribution further reinforces exclusivity. Whether through specialty retailers, dedicated e-commerce platforms, or premium sections within mainstream stores, a well-considered distribution strategy protects against commercial challenges associated with discounter listings.

Back in the day, premium beer brands would shy away from Wetherspoons, while the volumes were attractive, the price points were terrifying. The current grocery equivalent is a brand listing in the discounters. Consumers are undoubtedly shopping there, but how do you manage the “read-across” with your other retail partners? In the past, I’ve tackled this by including “When it’s gone, it’s gone” promotions, bespoke pack formats or exclusive flavours. But even these tactics won’t stop all the difficult “pence per volume” conversations.

A positive for brands and retailers

One of the most powerful aspects of premiumisation is the “halo effect” it creates across a brand’s portfolio. Car manufacturers have long understood this principle, advertising flagship performance models that few consumers actually purchase.

Audi probably didn’t see a huge uptick in R8 sales when they put it on TV. But these premium models raise perceptions of the entire range, so buyers like me feel we’re getting a little bit of R8 in our A3. FMCG brands can apply similar principles, meaning a marketer can drive positive impressions across their range from premiumisation.

Consumers recognise when price increases aren’t matched by genuine value enhancement.

For a brand’s retailers, premium offerings present a significant opportunity. Category growth can come from increasing penetration, purchase frequency, or value per purchase. Retailers seek partners who can pull all these levers to grow the category, and premium innovations that attract new consumers are particularly valuable.

When I led Arla’s UK brand, we introduced Arla Farmer’s Milk – giving shoppers the opportunity to pay 25p more for a four pint bottle of standard fresh milk, with all the additional money going back to the farmers. This initiative added around £10m retail sales value to the category in its first year.

Navigating the challenges

Despite its potential, premiumisation comes with challenges. Premium products inevitably target narrower audience segments, and brands must carefully assess whether sufficient demand exists to justify investment in premium development. Overestimating consumer willingness to trade up can be a costly mistake.

I was involved in the launch of Lurpak Slow Churned Butter in 2013. It was a premium product designed to elevate the butter category with its artisanal production method, small-batch churning, and elegant packaging. Marketed as an “everyday premium” offering, it aimed to attract new customers and encourage existing ones to trade up. Despite extensive product development and a £500,000 marketing campaign, the product failed to convince enough shoppers and was delisted soon after launch.

Ultimately, premiumisation isn’t just about charging more – it’s about making consumers want to pay more.

Another challenge is ensuring premiumisation doesn’t create unnecessary barriers to entry. While premium pricing can enhance profitability, overly aggressive premiumisation risks excluding younger consumers or first-time buyers. Many brands maintain a good, better, best strategy, ensuring accessible options exist alongside premium offerings.

Consumers recognise when price increases aren’t matched by genuine value enhancement. Brands attempting to premiumise without substantive improvements risk damaging their reputation and market position.

Economic conditions also contribute to the success of premium strategies, with some segments showing greater vulnerability during downturns. Brands heavily invested in premium strategies must prepare contingency plans for periods of reduced consumer spending.

The lipstick effect

Not all premium categories suffer equally during economic downturns. This well-documented “lipstick effect” – where consumers maintain or increase spending on affordable luxuries during recessions – creates opportunities for strategic premiumisation. It suggests that carefully positioned premium offerings with accessible price points can thrive when broader economic conditions deteriorate.

No item better illustrates this than coffee. Once dominated by mass-market instant products, the category has been transformed through tiered premium offerings like specialty beans, home brewing equipment, and ready-to-drink innovations.

This proves that premiumisation is about more than just price – it involves creating layers of value that drive a consumer’s willingness to trade up, using price anchors to demonstrate value (e.g. barista-made coffee vs Nespresso pods).

Finding the balance

Ultimately, premiumisation isn’t just about charging more – it’s about making consumers want to pay more. The key to success? Balance.

The most successful premiumisation strategies deliver genuine innovation and quality improvements while remaining accessible enough to drive meaningful volume. This approach enables them to capture premium margins while maintaining broader market relevance – a delicate balance that drives profitability and brand strength.

Get it wrong, and consumers will see straight through you. Get it right, and they won’t just pay the premium – they’ll believe it’s worth every penny.