Premium Vs Mass Market
“India is just over the tipping point at which the middle class is ready to spend more and the premiumisation of the market is accelerating.” ~ Unilever Global CEO
The Indian market has always been price-conscious. Pricing remains a key driver affecting consumer behaviour. However, with the rise of an affluent population, the consumer landscape is witnessing a clear shift towards premiumisation across multiple sectors. According to a Nielsen IQ report, India's premium segment is growing up to three times faster than the mass market.
While the affluent class is growing, it still represents only a small proportion of the Indian consumer market. Thus, brands relying solely on premiumisation as a category may face scalability challenges. In such a scenario, brands must make a conscious decision—whether to go wide on the consumer base or compensate for the narrow consumer base with premium prices.
This blog delves deeper into the significance of both the approaches and strategies for brands to smartly incorporate a blend of premiumisation and mass market in their businesses.
Premium vs Mass - A Strategic Choice
Deciding upon the premium or mass value of the product is no more routine, but a strategic play. With evolving tastes of Indian consumers, brands have to be considerate about the value proposition they offer to their buyers.
Here are some key differences between the strategies.
Head |
Premiumisation |
Mass Market |
|---|---|---|
|
Target Consumer |
Affluent, aspirational and brand conscious buyers are mostly located in metros. |
Price sensitive buyers focused on basic needs, mostly located in non-metros. |
|
Product Positioning |
High quality product with exclusive and personalised benefits. |
Affordable and functional products with a focus on accessibility. |
|
Strategy |
To serve a limited group of customers but earn higher margins per unit of sale. |
To benefit from economies of scale through mass production and distribution. |
|
Trend Capitalisation |
Rise of the affluent class, higher consumption by GenZs, rise in disposable income. |
Strong demand in non-metro regions, deeper distribution and penetration. |
|
Examples |
Go-Zero Desserts, Potcard Hotel |
Meesho, Parle-G biscuits |
Key Considerations while Choosing the Right Strategy
Choosing between a mass market and premium strategy is a pivotal decision that shapes a brand’s positioning, pricing, and long-term growth. The right approach depends on several interrelated factors:
Understanding Target Market
- It involves identifying the segment of consumers who would be willing to purchase the product/service.
- Brands should forecast the revenue and contribution from each segment of customers by evaluating their spending capacities, aspirations and willingness.
- Businesses should also evaluate the industry landscape and other competitors prevailing in the market.
Example
Go Zero identified the need for sugar-less desserts among health conscious buyers and thus, launched the brand, considering the needs of the premium segment.
Capital Availability
- Premiumisation requires initial investment into R&D, branding and packaging.
- Mass marketing involves higher working capital investment in maintaining inventory and distributor credits for a large consumer base.
- Thus, strategy should be chosen while keeping in mind the capital availability and its cost.
Example
Mass brands like Nestle’s Maggi need to maintain at least 45-60 days of inventory to ensure the product's availability in the market.
Channel Economics
- Premium products favour e-commerce and quick commerce channels as they offer convenience, which is crucial for serving affluent consumers. But, high platform and logistics costs impact margins.
- Mass products are generally scaled through traditional retailer channels, which have mass reach and boost accessibility. However, it increases supply chain complexity and inventory needs.
- Thus, brands must weigh average realisation vs. cost to deliver across channels to understand feasibility.
Example
Meesho has positioned itself as a ‘low-cost channel’ by offering a zero commission policy to sellers to boost product affordability for its targeted market in Tier 2/3 cities.
Opportunities for Cross-Selling
- Strategy choice may also be dependent upon opportunities available for cross-selling.
- If the brand has already established brand value by offering mass products to consumers, the same channel can be leveraged to sell premium products to different segments of customers.
- This increases channel efficiency and margins.
Example
Lenskart transitioned from affordable eyewear to premium offerings through its offline stores, leveraging its mass-market reach to introduce aspirational products like John Jacobs.
Challenges
Each of the strategies comes with its own set of challenges. It is pertinent to identify those challenges in advance and plan purposefully. The table below lists down some key challenges and their impact under both models.
Challenge |
Premiumisation |
Mass Market |
|---|---|---|
|
Pricing |
Brands can charge high prices to customers in exchange for a premium offering. However, too high prices can shrink the market size. |
Price elasticity of demand is high under this model as the buyers are price conscious. It can also lead to a price war amongst competitors. |
|
Working Capital |
Premium categories generally serve to small segment of customers through modern channels like quick commerce, which requires moderate working capital. |
Mass products thrive on wide accessibility, and thus, maintaining huge volumes of inventory across multiple channels increases working capital requirements. |
|
Demand Volatility |
Demand volatility is high as premium products are more discretionary and their consumption can be eliminated by buyers in case of an economic downturn. |
Demand volatility is low as mass products are generally more staple in nature, and economic downturn doesn’t impact mass products adversely. |
|
Scalability |
The premium segment of customers continues to be small, and thus, scalability can be a challenge post a certain level. |
Scalability is generally not a challenge since mass products are designed to serve large volumes of customers. |
|
Marketing |
Premium products require intensive marketing to communicate superior quality to customers and develop brand value. |
Marketing spend is generally low as buyers are not brand conscious. Advertising is done only for product awareness. |