Premiumisation – what is it and do I need to do it?

Is premiumisation the right way to go?

Ah, the humble KitKat. A perfect sized chocolate snack or at least it used to be. Now KitKat’s owners, Nestle, are dipping their toe into the world of premiumisation of their chocolate range and are launching a handmade eight-finger KitKat.

With 1,500 bespoke flavour combinations to choose from, the gourmet makeover will target consumers looking for something that little bit different to give as a gift. But at £14, yes, £14, is it a step too far?

Do we want our humble chocolate bars trying to plump for more?

How does a business get the price right when a new product is so different from what we know and love? Can you offer premium products alongside regular ones?

More bang for your buck

So, if you want to go down the premiumisation route and create a premium product, what does it need to offer? The KitKat is getting bigger and it’s giving consumers a wider choice of flavours. It’s also going to look more expensive. But are the ingredients the same quality as those in the regular KitKat?

The shopping experience has changed too.

With this chocolate bar, KitKat is giving consumers the chance to choose which type of chocolate; white, milk, dark or ruby. They get to choose the filling and overall look of the finished product. It’s all very Willy Wonker and it comes at a price.

How did Nestle settle on the price of £14 though? It certainly seems steep when you consider that you could buy a small box of chocolates from Hotel Chocolat, for example, which would also make a great gift.

When it comes to premiumisation – research is vital

If you’re looking to take your business into the premium market, you’ll need to do your research. Is there a demand for a premium version of your product? How big is the market? Who are your consumers and how much are they willing to pay?

Research is key for any product launch but especially if it’s a fairly big leap, like taking a KitKat to eight fingers.

Competition – Look at what consumers currently buy for confectionary gifts and how much they cost. Find out what they like about the competition and what they would change if they could.

Market size – try to find out how big the demand is for your product. Are there potential consumers out there who aren’t buying a competitor product but may want to buy yours? What can you offer them that’s different?

Pricing strategy – How much are your competitors charging for similar products? If you are launching a premium product, then you need to charge a higher price to convey quality. Be sure you know the ceiling price though. Charge too much and it will put people off.

If your product is unique or has a limited availability, the price could be higher too. KitKat’s bespoke bar is going to be available via a special website and at a pop-up shop in John Lewis’ Oxford Street store.

Some things to think about before the launch

Make the most of your existing customers and make sure you sell the new premium product into them first. You never know! You should also:

• Use social media to create a buzz.
• Make sure everything works as it should (if people are paying a premium price, they expect a premium service).
• Get media coverage of the new product.

Is premiumisation always an option?

You’ll need to think seriously about whether your business can handle a premium product. Arguably though, times are changing and more people are recognising they need to pay more for unique or well-made products.

Brand perception – Craft gins and high-end mixers for drinks are good examples. However, many of these products are marketed with new names. We only know them as a premium brand.

What KitKat is doing is putting the same name to a much more expensive product. Will it work? How much is it going to resemble a KitKat? Who knows? Maybe there are enough of us out there willing to spend £14 on an extra-large, bespoke KitKat.

If you think about Poundland as an example, people have a clear perception of the brand. You use Poundland for its price point, product range and the fact that it’s there on your high street (hopefully).

If Poundland decided to sell designer branded goods, it probably wouldn’t go down too well. If you can afford to buy a Gucci handbag, you don’t want it put into a Poundland carrier bag at the till, do you.

Perhaps Nestle is willing to risk a potential chocolate bar disaster but if you’re a small business, then you might not have the funds to cover a similar business decision. Think about whether your business can support a premium product selection and whether your customers can too.

Long-term strategy – Perhaps offering a premium version of a product for a limited time can work. Linking it to a public holiday, film release or sporting event, for example. But it’s a different challenge altogether to maintain consumer interest and spending habits long term. Is the new KitKat simply Instagram gold dust and a bit of a novelty?

Maybe.

Cheap and cheerful works – Perhaps consumers can get onboard with changes and adaptations of a firm favourite, such as an orange KitKat, or mint. We could accept when they gave us a four-finger KitKat (apparently for sharing) and even the KitKat Chunky. Those changes kept it on the shelves as our humble sweet treat option and perhaps that’s all we want.

If your business is providing a staple product or service, there is no harm in maintaining that product and that product alone.

It might well be the better option.

Corporate finance advice

If you do want to look at premiumisation and add a new product to the shelves, you might need additional finance behind you. We work with an experienced Commercial Finance Broker, Paul Rogers, who can advise you on the options available.

It’s also helpful to understand how healthy your business is before embarking on a change like this. We can look at your finances to see where efficiencies can be made, giving you more money to invest in future projects.

Come and see us at one of our offices in Chelmsford, Sutton, Wanstead, and Saffron Walden or give us a call.