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 / Winter 2004 / Issue 37(originally published by Booz & Company)


The Superpremium Premium

Even in commodity categories, four simple steps can lead marketers to a high-margin brand.

Illustration by Lars Leetaru
In the summer of 2004, Grey Goose vodka was sold by Sidney Frank Importing Company to liquor giant Bacardi & Company Ltd. As important as the new brand is to Bacardi, the sale represented an even greater achievement for Sidney Frank, which launched Grey Goose seven years earlier into a premium vodka market that was widely believed to be saturated. By relentlessly using advertising to hammer home its claim that Grey Goose was the “best tasting” vodka, Frank not only took on Absolut, Ketel One, Skyy, and Belvedere, but built the brand from nothing to a value, based on Bacardi’s purchase price, of nearly $2 billion.

That sum is testament to the opportunity presented by premium and superpremium brands, product classes surprisingly available across a wide range of branded goods, and open even in product categories already considered overloaded. In spirits, the share held by superpremium brands rose nearly 11 percent per year between 1985 and 2001, ultimately growing to 30 percent of the market, at average prices that were 90 percent higher than the median for the entire category. Superpremium frozen desserts — 10.5 percent of the total category — garner prices that are more than 150 percent above the market average.

Although the range differs depending on the category, premium brands typically are those that cost consumers 75 to 100 percent more than the category average; superpremium brands are 150 to 200 percent above the average. Superpremiums, especially, represent a nontrivial source of value and growth for marketers, especially as mass brands increasingly are challenged from the bottom by the rapid spread of lower-priced — or, in the parlance, “value” — brands. Moreover, because the value brand share is growing in most categories, manufacturers’ profit margins are declining. One of the few ways to drive real profit growth in a market with these characteristics is to persuade consumers to switch to premium and superpremium — hereafter, “premium-plus” — products.

Yet the alluring road to the premium premium is littered with wrecks. Too many companies, particularly the largest and most established, have relied on marketing alone to create a demand for their premium-plus products, but neglected the quality of the products themselves. Too many have followed initial success with a dialing up of marketing volume, killing the brand’s exclusivity and potential.

These companies are missing an inescapable fact of brand development and management: The creation and maintenance of premium-plus brands requires a structured and integrated approach that is utterly different from the process companies typically employ to sustain mass brands.

Making a Difference
The reflex among consumer marketers is to rely on an ephemeral, hard-to-define approach they call branding to create differentiation among functionally equivalent products. Although this may work with mass brands in established commodity markets, where advertising serves mostly to remind consumers about products they already know, using communications alone to motivate consumers to select a high-priced but functionally indistinct new brand is unlikely to succeed.

Establishing even basic consumer mindshare is far more difficult today than in the decades of three-network hegemony in television. For new brands with limited distribution, the cost of an “advertising über alles” strategy is exorbitant. Therefore, at the beginning of their lives, premium-plus brands must rely on consumers to be the agents of their message. And for consumers to be effective agents, the new brands must have something tangible and distinctive to justify their selection.

This is the case even with commodities. Consider the history of premium gasoline. Developed early in the 20th century, premium gas was manufactured to fuel high-compression engines, which increased the power and fuel economy of the era’s autos but required higher-octane content to avoid performance-degrading knocking. The oil industry standardized a formulation for premium fuel using tetra-ethyl lead, which provided the octane required. One of the prominent category participants was Amoco, which, in 1925, as the American Oil Company, acquired the rights to a high-octane product it labeled Amoco-Gas, produced through a method that did not rely on lead. For the next four decades, Amoco marketed its “super premium” in the old American Oil territory.

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