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Premiumisation is a customer preference for quality over price in a particular industry. It is the opposite of commodization. Commodization is driven by consumers who view products as much the same and purchase primarily based on price. This causes prices to fall and quality to be cut to a minimum acceptable level. Premiumisation sparks competition to produce higher quality items with average prices rising over time.
ExampleA commonly cited example of premiumisation is craft beer. Where mass produced beers are typically cheaper, consumers in many markets show a willingness to pay a premium for beer produced in small batches using unique techniques and ingredients. In many markets this has driven intense competition, not to produce the cheapest product, but to brew the product that tastes the best or that has an interesting character.Economy airline seats are an example of commodization. Customers commonly purchase flights based on price alone leaving airlines with little incentive to improve customer experience.|
| Premiumisation | Commodization | | Definition | A customer preference for quality over price that drives competition to produce higher quality items. | A customer preference for price over quality that drives competition to lower prices. |
Business Models
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