Even though it has improved over the last decade, the world economy is quite uncertain – especially after 2016’s ‘surprise’ result of both the US presidential election and the successful Brexit vote. And in a time of uncertainty, it makes sense for the tendency to be towards more conservative economic decisions, less extravagance, saving, recycling…
But there is another, quite interesting, trend: Commodity brands moving towards luxury!
Commodity brands compete on price. “Customers treat the offering as a commodity, selecting between vendors purely on price with no differentiating factors as the basis of competition.” (Read more) Of course there can always be some differentiation, even in a commodity market – service, location, convenience – but price is of an overwhelming importance.
Differentiation and premiumisation, however, can elevate a brand from the price fight and that is what many brands recently opted to do. Brands shifted to the premium – even luxury – end of the market to avoid category commoditisation and in order to build margin.
The car industry is an interesting example. Mass brands in the car category chose to premiumise, adding more technology and luxury features that a few years ago would have been available only in luxury models.
So if commodities are moving towards premiumisation, what should luxury brands be doing? In the car industry, the differentiation of mass brands was countered by luxury brands adding more popularly priced models to their offering. But is that the way to go?
According to the BrandZ Top 100 Most Global Brands 2017 report, luxury brands should “regulate the balance between exclusivity to protect premium and accessibility to drive volume.” For luxury brands, more than any category, the story is of the utmost importance. “Brands then need to communicate their brand story in ways that resonate with consumers today, which usually involves a digital component.”
And as soon as one understands this story, seeing an increase in premium and luxury offerings in a world of economic uncertainty, makes perfect sense!