Premiumization vs. Commoditization in CPG

Premiumization and commoditization are two strategies that consumer packaged goods (CPG) brands use to grow. Here’s a quick breakdown:

• Premiumization: Creating high-value products that justify higher prices. Focuses on quality, emotional appeal, and exclusivity. Example: Tide Pods and San Pellegrino.
• Commoditization: Offering similar, interchangeable products where price is the key factor. Focuses on affordability and broad availability. Example: Generic tissues.

Quick Comparison

Brands must decide based on their goals, market trends, and resources. Premiumization can lead to higher profit margins and loyalty, but commoditization offers broader market reach. Both approaches require clear positioning and consistent execution.

Main Differences: Premiumization vs. Commoditization

Brand Image and Market Position

Premium and commodity brands take very different approaches to their market positions. Premium brands focus on creating emotional connections and emphasizing perceived value, while commodity brands compete mainly on price and availability.

Take San Pellegrino, for example. Owned by Nestlé, this brand maintains its premium status by distributing primarily to upscale restaurants and sponsoring culinary events. This strategy has allowed them to charge prices 3-5x higher than the category average, building a billion-dollar brand with a 5% global market share .

Here’s a quick breakdown of how their market positions differ:

Now, let’s see how these positions influence pricing and revenue strategies.

Price and Revenue Structure

Pricing is a key part of a brand’s identity. Premium brands prioritize higher profit margins with lower sales volumes, while commodity products rely on selling large volumes at slim margins.

Lavazza is a great example of this. They use price tiering to appeal to different segments, offering options like the mainstream Qualità Rossa and the higher-end Qualità Oro .

"Premiumization is the act of capturing a higher price for a product that is justified by an increase in perceived value from the consumer’s point of view." – Innosight

Marketing Methods

Marketing strategies also play a major role in setting these brands apart. Premium brands focus on storytelling and building emotional connections with their audience. On the other hand, commoditized products often lean on price promotions and convenience-focused messaging.

A standout example is Bounty paper towels. Despite being in a heavily commoditized category, P&G has kept Bounty at the top for over 40 years. How? By:

• Highlighting product superiority in ads
• Maintaining a strong advertising presence
• Spending $111 million on advertising in 2022
• Emphasizing quality differentiation

The key to success lies in consistency. Premium brands maintain high standards and messaging to justify their prices, while commodity brands focus on operational efficiency to succeed with high volumes.

Benefits and Drawbacks

Premiumization Results

Premiumization can boost profit margins and elevate a brand’s market position. For example, Ferrero saw a 25% increase in Baby Ruth sales after upgrading its packaging and ingredients in 2020 .

Here’s a quick look at what premiumization brings to the table:

Premium brands often have the ability to pass increased costs to consumers with minimal impact on sales, as their customers are less sensitive to price hikes . That said, even top-tier brands aren’t immune to economic changes. For instance, LVMH, which reported $86 billion in revenue in 2022, experienced a slowdown in the fourth quarter, highlighting how premium brands can still feel the pinch during tough times .

"Premiumization goes beyond price – it’s about creating tangible product improvements, experiences, and emotional connections." – The Food Institute

On the flip side, commoditization takes a completely different approach, focusing on scale and cost efficiency.

Commoditization Results

Commoditization thrives in mass markets but comes with its own set of trade-offs. Bernstein analysts describe this strategy as leading to "a slow and steady grinding down of prices and profitability over time" .

Here’s how commoditization stacks up:

Brand loyalty is a particularly tough nut to crack in commoditized markets. As Bernstein analysts Alexia Howard and Zhihan Ma explain: "Because there are so many options in the world of food, and because consumers increasingly seem to be becoming less loyal to big established brands, we worry that companies may be forced to reduce prices over a long period of time as retailers push private label products and allocate more shelf space to up-and-coming challenger brands."

Some brands, like Lavazza, manage to balance both strategies. By offering products across multiple price tiers – such as the mainstream Qualità Rossa and the premium Qualità Oro – they cater to diverse audiences while maintaining their brand’s overall value .

Whether a brand leans toward premiumization or commoditization, success hinges on clear positioning and consistent execution. Premium brands must continually justify their higher prices through quality and innovation, while commoditized brands rely on operational efficiency to stay profitable, even with slim margins.

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Decision-Making Factors

Strategic decisions about premiumization or commoditization depend on a brand’s goals and the factors shaping its market environment.

Market and Consumer Analysis

Market trends and consumer behavior play a big role in determining whether a brand should lean toward premiumization or commoditization. For example, data shows that as household income exceeds $22,000, grocery spending decreases to 75 cents per additional dollar earned, highlighting greater price sensitivity in lower-income brackets .

Here are some key market indicators to consider:

Trends like wellness provide clear opportunities for premiumization. For instance, as more people reduce alcohol consumption for health reasons, demand for premium non-alcoholic alternatives has surged .

But while trends are important, a brand’s past performance also offers valuable guidance.

Brand History and Position

A brand’s history in the market can heavily influence its strategic direction. Research reveals that many leading consumer brands from 1923 remained category leaders six decades later, proving the strength of established brand equity .

"The advantage to established sellers accruing from buyer preferences for their products as opposed to potential-entrant products is on the average larger and more frequent in occurrence at large values than any other barrier to entry." – Bain

Geographic market share also matters. Top national brands control an average of 82% of geographic markets, with food departments often exceeding 50% market share . This highlights the importance of regional preferences when deciding between premium or commodity positioning.

Company Resources and Competition

Internal resources and competitive dynamics are just as important as market trends. Interestingly, smaller brands (under $150 million in revenue) accounted for 50% of value growth in the U.S. from 2016 to 2019, despite making up just 11% of 2016 revenues . This shows that premium strategies can succeed even with limited resources.

Private labels, however, challenge commoditized brands. Consider these success stories:

Some brands have optimized resources by narrowing their focus. For example, Church & Dwight reduced their portfolio from 14 to seven key brands, while Molson Coors halved their new product innovations, leading to a 50% boost in innovation-related revenue .

"Today’s shoppers expect convenient and personalized engagements in every interaction, across all touchpoints. Retailers and brands must work to seamlessly deliver meaningful experiences that delight shoppers and drive loyalty." – Jim Hertel, SVP Analytics, Inmar Intelligence

Personalization is a growing expectation, with 60% of consumers more likely to become repeat customers after personalized shopping experiences . Brands need to evaluate whether they can deliver on these expectations before committing to a premium strategy.

Real-World Examples

These examples highlight how targeted approaches in premiumization and mass-market strategies drive growth for CPG brands.

Premium Brand Success Stories

San Pellegrino maintains its upscale reputation by forming exclusive partnerships and sponsoring select events, creating carefully designed brand experiences that reinforce its leadership in the premium market.

Ferrero has successfully advanced premiumization through strategic portfolio moves:

e.l.f. Cosmetics has embraced digital platforms like TikTok and Twitch to connect with tech-savvy consumers, showcasing how digital innovation can elevate a brand’s premium appeal .

Method has carved out its space in the premium market by focusing on design and sustainability. With refillable bottles and eco-friendly formulas, it attracts environmentally conscious buyers willing to pay more .

These premium brands succeed by offering distinct value propositions, but mass-market brands thrive by focusing on efficiency and scale.

Mass-Market Brand Success Stories

Mass-market brands show how smart positioning can maintain broad appeal without falling into commoditization.

Bounty holds a leading position in the U.S. by emphasizing product quality and making strategic marketing investments. This approach proves that differentiation is key to standing out in the mass market .

Lavazza effectively targets different market segments with a tiered portfolio: Lavazza Suerte for the mass market, Qualità Rossa for mid-range buyers, and Qualità Oro for premium customers. This strategy helps Lavazza retain a 40% share in the Italian market .

Nirma disrupted India’s detergent market by introducing a product priced at Rs 3.5 per kg, compared to the market leader’s Rs 13 per kg. With innovative phosphate-free formulas and marketing aimed at value-conscious consumers, Nirma achieved revenues of Rs 11,403 Cr, proving that innovation can thrive even in highly competitive markets .

Poast Ecommerce Services

Marketing Solutions by Brand Type

Poast Ecommerce (poastecommerce.com) crafts digital strategies tailored to both premium and mass-market CPG brands. Their data-focused methods help clients surpass $10 million in annual recurring revenue .

For premium brands aiming to elevate their market position, Poast emphasizes:

For mass-market brands, the focus shifts to efficiency and scalability. This includes strategic price-pack architecture and promotional campaigns designed to balance brand value with increased sales volume .

By tailoring strategies for each market segment, Poast Ecommerce ensures brands can achieve their growth goals, whether through premium positioning or mass-market appeal.

Digital Marketing Implementation

Poast Ecommerce extends these strategies into actionable digital campaigns that deliver measurable results. They understand that modern shoppers start their product searches across various platforms: 23% on YouTube, 21% on Facebook, 18% on Instagram, and 17% on TikTok .

Their approach integrates paid ads, email marketing, SEO, and influencer partnerships to create a unified brand presence. For example, they helped Dish To Door migrate from WooCommerce to Shopify, incorporating a Rise.ai loyalty program. This move propelled the brand to over $2 million in annual revenue .

"You need a CPG marketing agency who gets growth. You want the entire engine to work. Where paid ads, email, SEO, influencers, affiliates, and Shopify store optimization all work harmoniously together to 2x net new and returning customers. That’s where we come in." – Poast Ecommerce

Additionally, Poast specializes in conversion rate optimization, Google Ads management, and email platform integration (like Mailchimp and Klaviyo) . This all-encompassing approach ensures brands can effectively execute their market strategies, whether aiming for premium differentiation or efficient mass-market scaling.

Conclusion

Matching Strategy to Brand Goals

The choice between premiumization and commoditization depends on market trends and what a brand does best. Here’s a key stat: 50% of consumers switch for better quality, and 41% already lean toward private labels . These shifts make a clear strategy essential.

For brands aiming for premiumization, three factors are critical:

Take San Pellegrino as an example. By positioning itself in upscale restaurants, it has successfully carved out a premium niche . While these factors help secure a strong position, staying flexible to market changes is just as important.

Future Strategy Updates

The market keeps evolving, and brands need to keep up. With e-commerce activity now 35% higher than pre-COVID-19 levels and over one-third of consumers switching brands , it’s clear that constant strategy updates are a must.

Looking ahead, the ability to adapt while staying consistent will be key for consumer goods brands. Consider this: 42% of shoppers plan to buy more online, and 29% now shop directly through social media ads . To succeed, brands should use data to guide decisions, balance global strategies with local preferences, and focus on standing out digitally.

Meanwhile, commodity prices are projected to remain 20–40% above 2019 levels through 2025 . Whether a brand opts for premiumization or commoditization, aligning strategies with market realities and long-term goals will be crucial.

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