I was out for a few drinks with some colleagues on the weekend. One of these gentlemen is a martini guy. It is his drink. And when he orders it, as he did that night, he always asks for Grey Goose vodka.
He insists he can taste the difference. Maybe he can.
I always have the same three thoughts when we reach the Grey Goose juncture:
1. It doesn’t really matter whether the vodka is “better” or not – his perception is that it is.
2. Although he considers this brand special, it is available almost everywhere, from chic clubs to neighbourhood bars.
3. The extra cost might be a slight stretch in relative terms, but it isn’t enough to give him pause or embarrass anyone around him.
Grey Goose vodka is a great example of an emerging marketing trend I call accessible premiumization. A premium product, in a more-or-less commoditized category, priced and distributed such that it is a clear step up from other brands in the category, yet available to the masses.
Starbucks may not have been the first accessible premium brand, but it was among the early entrants, with a unique language and higher price points. By design in some cases, and by accident in others, Starbucks created an accessible premiumization blueprint for brands in other categories. Think Fiji in bottled water and Coach in handbags. The fundamentals of accessible premiumization are fascinating.
In order to better define accessible premiumization, we need a reference point. Let’s use ultra premium consumer products, which are a notch above accessible premium products, as our measuring stick.
The ingredients of ultra premium
Ultra premium products tend to be pure luxuries. For calibration, I am referring to cars such as Ferraris and jewellery such as Fabergé eggs.
When you dig into what makes a product ultra premium, some patterns emerge:
Product: The first pattern is that there is zero question about either product quality or design authenticity. These products are a clear step above others in the same category. They are typically hand-crafted and boast a legitimate and well-earned history of excellence. Best-in-class is a label often used here.
Price: For ultra premium products, pricing is typically not measured as a percentage increase over the average in the category, it is a high multiple of a standard product in the category. Staying with Ferrari, the price point of the brand is five to 10 times the price of a car driven by a typical consumer.
Distribution: Ultra premium products are not widely distributed as their target segment is so small. Sales are by order only or dealers and retailers will have a footprint of 10 per cent or less of those of national brands. There are five Ferrari dealers in Canada. Mazda, by contrast, has 168.
Marketing: Conventional marketing tends to be far less important for ultra premium goods than for more mainstream products. Simply showcasing the product can be enough for some brands. For others, it means promoting hyper-exclusive parties (attended not by celebrities but by insiders and influencers), or promoting obscure events not meant to create a public splash. When was the last time you saw a Ferrari TV ad?
The fundamentals of accessible premiumization
Compared with luxuries, accessible premium products are a marketing construct as much as an actual improvement over other offerings in the same category. For example, unlike Ferrari, which is arguably a very different car (unique engine design and placement) and therefore a step change in product design and quality versus convention, Fiji Natural Artesian Water is simply water in a plastic bottle, only of elevated quality measured against other water-in-a-plastic-bottle offerings.
When you dig into the elements of accessible premium products, some different patterns are clear:
Product: It is about “evolution not revolution.” Accessible premium products tend to be measurably better but not fundamentally different from their competitors. Grey Goose vodka is quantifiably better than its competitors (more involved distillation process, wins taste tests), but it is still vodka.
Price: Price plays a very important role in signalling the premium nature of the offering, while also ensuring the product remains accessible to a sizable consumer segment. Research shows that accessible premium products are almost always in the range of two times higher in price versus the average priced product in the category. For example, when Starbucks introduced $4 lattes, “normal” coffee shops were charging $2 for a similar product. A more current example is Coach, which has handbags that retail for about twice what a comparable product would sell for at a national retailer in the same mall.
Distribution: One of the most glaring differences between ultra premium and accessible premium products is where the products are sold. Unlike luxuries, which are hard to find by the majority of consumers, accessible premium products are widely distributed. For example, Fiji water, although priced about twice that of other bottled waters, is available at your local convenience store. And Rock & Republic jeans, which come with a price point well above Levi’s, are sold in college towns not just big cities.
Marketing: The marketing of accessible premium products is probably the biggest departure from how ultra premium products are introduced. Where the reputation of ultra premium is earned largely on product quality or performance over decades, successful accessible premium products are typically backed by large marketing efforts, and they can become instant successes. Belevedere vodka was on the market before Grey Goose, but Grey Goose obtained share faster on the back of a lot of marketing.
There are five common marketing strategies employed by accessible premium products:
1. Packaging. For many accessible premium products, unique packaging forms a basis for differentiation and a heightened customer experience. Fiji water comes in a square-ish bottle. Coach handbags are meticulous wrapped and presented to the customer in an expensive bag.
2. Back story. A well documented history of the brand or product, replete with stories of the founder and his or her original production facility is often associated with accessible premium products. It helps if the product is imported (Grey Goose is from France). In order to demonstrate the truthfulness of the statements and set the tone of the story of the brand history, many accessible premium brands have produced “promotumentaries” that play not only on the brand’s website but on mainstream television as well. Patron tequila has done a great job with its back story.
3. Unique production process and nomenclature. In keeping with a deep history of the product, the uniqueness of the production process itself and corresponding unique nomenclature is often employed as a marketing weapon. Starbucks in a way started this trend en masse by altering the normal roasting process and then providing customers non-standard names for serving sizes.
4. Celebrity endorsement. Celebrities seen using or carrying an accessible premium product is a common tactic for these brands. Whereas ultra premium products are often purchased by very wealthy but relatively obscure individuals, the difference between a successful and unsuccessful accessible premium product can be whether it catches on with celebrities. Fiji water and Coach handbags owe some of their success to celebrities and the magazines that publish photos of celebs and their stuff.
5. Niche events. It almost seems like a competition between accessible premium brands to find sports/parties/events to sponsor that strike a balance between appealing-to-most-consumers and niche. Grey Goose is associated with sailing. Rock & Republic sponsors industry events in Los Angeles. But in both cases the proceedings are also either promoted on network television or reported on in the mainstream press.
As a marketer, it can be very difficult to differentiate a product in a commoditizing space. But the big accessible premiumization win is in profit. Although the price may double, the cost to produce and sell an accessible premium product does not scale proportionately, and so the margins tend to be about 50-per-cent higher for these brands. Sidney Frank, the creator of Grey Goose vodka, sold his brand to Bacardi in 2004, just seven years after its inception, for $2 billion in cash. At the time it was the largest single brand sale. Frank’s estimated profit: $1.6 billion.
A carefully designed combination of product, price point, distribution channel and marketing tactics form the fabric of a premiumization opportunity, which I will discuss in detail in my next column.
Special to The Globe and Mail
Mark Healy, P.Eng, MBA, is a partner at Satov Consultants – a management consultancy with practice areas in corporate strategy, customer strategy and operations strategy. Mark’s focus areas inside the customer strategy practice include consumer insights, customer experience, innovation and go-to-market strategy. He is a regular speaker and media contributor on topics ranging from marketing to strategy, in telecom, retail and other sectors. Mark is known as much for his penchant for loud socks and a healthy NFL football obsession as he is for his commitment to Ivey and recent Ivey grads. He currently serves as chair of the Ivey Alumni Association board of directors. Mark lives with his wife Charlotte and their bulldog McDuff in Toronto.