A few days ago I read a Wall Street Journal article that looked at brand extensions for basic products with premium characteristics. The launching of a “luxury” version of everyday products is nothing new. Just check out this link to PNG’s 10 most successful new products of 2012.
I am not sure if Cascade Platinum really does keep your dishwasher as clean as your dishes or if Bounty Duratowel extra fiber paper towels really do feel like cloth. But I can tell you this: if there is a real improvement, or in other words, an added value, consumers are willing to pay extra.
For example I have a client that manufactures, packages, and sells pet treats. The company has its owned manufacturing facilities based in Latin America, which embrace high standards of quality in both raw material (e.g. cattle, poultry) as well as processing methods. However, today’s mass retailers have put such pressure on pricing that my client has been forced to consider, guess what? Importing product from China for the lower price point products.
Due to bad media and recalls, American consumers have the perception (whether real or imaginary) that products from China (in general) are dangerous. They want something with higher quality standards and therefore, they are willing to pay more for products they trust won’t harm their precious pooches. The Latin American product is in fact cleaner and fresher, and it does have a better and heavier body, but even without that knowledge, customers are willing to pay more simply to avoid products made or produced in China. The secret to them paying a few cents more for bones from company owned factories: proudly showing where and how their products where produced.
The benefits of premium products are not always tangible. This is true in all categories. Bounty’s Duratowel paper towels and Cascade’s Platinum dishwasher soap are not miraculous innovations that work completely different from their basic counterparts. It’s simply that PNG, among others, understands that consumers have both wants and perceptions, as well as needs. The added price in premium products takes economic advantage of these, less tangible, desires.
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