2 Secret Reasons Behind Buying Premium Products

People spend more money on premium brands like Cadillac or Lincoln, quite possibly knowing that underneath the flashy design and leather seats sits the basic technology of a Chev and Ford, respectively. Here are more examples of mainstream car brands and their in-house ‘premium’ brands between brackets:

A few years ago, Nielsen conducted a study on premium products based on data they collected on the sales and prices of the goods sold at 63 large retail chains. For the study, a premium product was regarded as one of which the price is 20 percent higher than the average of in the product category and that performs better and/or is made from higher-quality ingredients or materials — essentially the boomers’ definition. However, millennials seem to value scarcity and better customer service as better markers for defining premium products.

The last point mentioned above is interesting in that much of the premium boom has to do with perceptions of premiumness and not always about actual quality being the best. A large percentage of people base their perception of product quality on advertising, online research, and the recommendation of family and friends, which can all be inaccurate for various reasons. Whether the actual product is better, in the end, doesn’t seem to matter that much, as long as we believe it is and it makes us feel good about ourselves and our newfound status of being able to afford more expensive products. We just need to feel we are moving up in the world.

We’ve all given in to premium perceptions selling relatively ordinary fare, whether it is average coffee presented in an upmarket setting or expensive vodka that is virtually indistinguishable from average vodka. Boston Consulting Group’s ‘Trading Up’ book calls this ‘rocketing’, where you choose a premium brand for a self-defining purpose. We like that we are defined by the brands we choose and that conversation of our tastes or achievements may be initiated by people noticing our choices. Again, status features prominently and the quality of the product is of little consequence if people know that you can afford it and they cannot — and if that’s all that matters.

There is no disputing real quality and if you’re an aficionado on certain goods, you’ll be able to distinguish between the good stuff and the also-rans. There is little doubt that premium brands can and usually do confer genuine advantages, but not always in proportion to the price premium. The fact of the matter is that premium products also carry higher profit margins in comparison with normal goods. It is up to you to determine whether you are willing to pay for it.

If the premium finishes of a new Cadillac Escalade meets with your approval and you don’t mind how much the MSRP is, by all means, go ahead. But there will always be a utilitarian down the street that buys the Chevrolet Suburban donor vehicle in mid-tier trim with many options for far less than your base model Escalade, knowing that they’re getting the Cadillac’s utility value for a lot less money. For some, the status doesn’t matter. But the global middle class is expected to grow to nearly five billion people by 2030, so the demand for premium products is expected to increase — and the profits premium brands rake in. Because for some, the status does matter.

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