Economy

Consumers Want Premium Products -- and They're Willing to Pay for Them

While globalization has taken its lumps since last summer with the United Kingdom’s Brexit vote and the November election of Donald Trump in the United States, one could argue that globalization has done at least thing it was intended to do: spread global wealth a little more. The problem was that wealth either floated to the top, where it simply added to the vast wealth of a relative handful of the very rich, or buoyed up the bottom where little wealth existed to start with and even a small gain was meaningful.

The large middle class in developed countries saw little personal benefit from globalization. The fact that other people in emerging nations have has been little comfort to people whose wages have stagnated or who have lost their jobs to cheaper workers in foreign countries. This is, however, another story for another time.

At the moment, according to the World Bank, the global middle class is expected to grow from 1.8 billion in 2009 to 4.9 billion by 2030. As that number grows, new middle class consumers have more money to spend and many are looking to purchase higher quality — premium — products.

In December Nielsen published a report titled “Moving on Up: Premium Products Are in High Demand Around the World” based on data the company collects from major retail chains on prices and sales. More than 30,000 respondents from 63 companies contributed to the online survey’s results. Nielsen noted that it did not attempt to correct or control for online penetration, age or cultural differences and suggests that “caution should be exercised when comparing across countries and regions, particularly across regional boundaries.”

Nielsen defines a premium product as one costing at least 20% more than the average price for the product category. Between 2012 and 2014, the premium segment of the consumer market rose by 21% in Southeast Asia, more than double the growth rate of either mainstream products (8%) or value products (10%). Sales of premium products grew by 23% in China in the same period.

Consumers in developed markets are also spending on premium products. In the United States for the 12 months ended April 2, 2016, premium products accounted for about one-quarter of the growth in total sales of personal-care and home-care products. Growth in premium personal-care product sales rose 8%, four times more than overall growth in the category. Growth in premium-priced food sales rose 8%, compared with overall spending growth of 3% for food.

Globally, just over half (52%) of respondents said they live comfortably and are able to buy some things just because they want them. About a third (35%) say they have only enough for food, shelter and the basics. The remaining 14% say they can spend freely.

Having more money to spend does not mean that global consumers buy on price alone. Most consumers primarily label something as a premium product if it is made from high-quality materials or ingredients (54%) or if the product offers superior performance or function (46%).

And what are global consumers will to pay a premium price for? Electronics (37%) and clothing/shoes (36%). Respondents also said they would consider buying premium hair-care products (27%), body-care products (26%) and oral-care products (26%).

Just as an example, premium-priced shampoo accounted for 31% of all shampoo sales in Southeast Asia; 13% in the United Kingdom, Germany, France and Italy combined, and 10% of U.S. sales. U.S. sales of premium shampoo jumped 42% year over year as of April 2, 2016.

Although respondents to Nielsen’s survey said they were willing to pay more for premium materials and superior performance, how do they really know that’s what they’re getting? Consumers say they rely on recommendations from friends and family and their own research. In India, online advertising was a source of information for 51% of respondents.

The final thing to remember about buying premium products is that it can raise self-esteem and perceptions of status. Again, this observation appears to be most true in developing countries: well more than half of respondents from Asia-Pacific said the premium products made them feel good (63%), made them feel successful (55%) or made them feel confident (61%).

For more details and full methodology, see the Nielsen website.