Why pay the premium?

Starbucks, iPod and BMW – what is the one thing common in these three brands? Each one of them command a premium over similar products of other brands. It is amazing to see how the customer who creeps so much in filling gas at $4 per gallon, feels so good buying a grande (about 350 ml) latte from Starbucks for the the same price, even when the same coffee at other places is available for much less. Similar comparisons can be drawn for other products varying from a music player (iPod) to a pair of running shoes (Nike) to a car (BMW) to almost anything else.

There are a few things that help companies sell their products for a premium price. First and the most important one is the ecosystem. These brands create a unique ecosystem of some kind of sophestication around them. iPod, for example, creates an urbane and hip ecosystem around itself. iPod advertisements and Apple outlets lays the foundation for this ecosystem. Then every famous personality owning one makes it even more of a premium product. Talk show hosts ask the guests – “what songs do you carry on your iPod?” (instead of “what songs do you like to listen?”). iPod becoming a fashion symbol or more of a necessity adds to this ecosystem. The last leg of the ecosystem is the iTunes software and the whole array of accessories that go with the iPod. A customer can buy special speakers for their iPod, get docking stations, covers and what not. This ecosystem provides a lot of value to the product and helps the company earn a premium. 

A very important thing to note about the premium branded products is their superior quality. Many times we forget talking about this aspect of the products delivered by the premium brands and just focus on the marketing strength of the companies. The premium branded products are most of the time better when compared to the nearest competitor.

Emotional factor also plays a major role in paying the premium. The customers actually pay the premium to treat themselves. Buying these branded products give them satisfaction and help generate a good feeling about themselves. Take car for example. A customer pays a good amount to buy a BMW. Yes it is one of the best cars available out there, but how important is that while making a buying decision? The most important factor that kicks in here is the emotional feeling of the customer for the car. Some people have it in the list of their “things to buy when they can”. Others use it as a factor to satisfy themselves of attaining a certain level of success in life and yet others just buy it to treat themselves luxuriously (and assemble speeding tickets ;)).

Now let’s talk about how some companies are able to put their brands at that level which makes them important for the customers to have even at a premium. To answer this in a couple of words- Expressive Branding. This gives the customers a very straightforward way of making a statement about themselves. Each of these premium branded products have a certain level of luxury attached with them. And believe it or not, every common person loves luxury. People are obsessed by trading up. They will go to a coffee shop and ask for a cup of something which is not less then a tongue-twister for trading up. These brands promote themselves as a channel that people can use to trade up or to make a statement about themselves.

But it is not a bed of roses. When a company does expressive branding, it takes some major risks. When the brand plays the role of creating an identity statement for the customer, it always runs into the risk of a certain segment of people hating it. You will always find people who would never ever buy a certain brand because it’s not their type. The companies going for expressive branding make a very clear statement to the World – love us or hate us, but don’t ignore us. After all, if you want to earn a premium, you have to pay a price for it!