Over the past two years, brands raised prices at record rates. In fact, many brands raised prices every quarter over the past two years. Consumers are starting to push back. But, brands, conscious of their margins, are finding ways to raise prices in, shall we say, more creative ways. If the last two years has taught brands anything, it is to be profitable at any cost, even if it is not in the best interest of the customer. Maintaining margins is the rallying cry. And, after all, margins are all about profit.

Now that brands are realizing that there may have been one price hike too many, one of the most creative ways brands are using to protect margins and grow profit is called “premiumization.” According to The Wall Street Journal, the concept of premiumization was mentioned “… in nearly 60 earnings calls and investor meetings over the past three weeks.”

What is premiumization?

Premiumization is a euphemism for higher prices. Premiumization is a way to justify high prices by covering the offering in a coat of high-class, elite status.  Brands are selecting certain items and offering these at higher prices hoping the patina of exclusivity and highest quality give customers a reason to buy. At the same time, brands are culling portfolios to eliminate low-margin offerings.

Premiumization may lull brand leaders into thinking their high-end offerings are now perceived to be extra valuable because the price is high. The etymology of the word premium says otherwise. Premium comes from the Latin word for booty, that is, valuable stolen goods, especially those seized in war. The roots are “before” and “buy,” as in caveat emptor, let the buyer beware.

To be premium is to add a cost to something; sell at above the usual price; regard or treat as particularly valuable or important; have an element of scarcity; and be a reward. Premiumization is the epitome of these definitions. But, basically, brands are just finding a way to lure customers to paying higher prices. This is one of the reasons why marketing is derided. Find a way to sell what we make by telling customers the offerings are not only special but for special people. 

Channel the Consumer Cellular advertisement with Ted Danson, when a confused customer wants to understand what makes a competitive brand better than Consumer Cellular. The salesperson shows that the competitor’s cellular coverage of the US is an all purple US map. Ted Danson tells the confused customer that this just means the brand is more costly, but not any better. The salesperson says purple means premium. Ted Danson indicates that the brand with the purple map is “me too, but more expensive.” This is premiumization.

Is premiumization here to stay?

It is unclear as to whether premiumization will last. Economists point out that trying to maintain profit margins while polishing particular products with a patina of premium-ness may not provide the expected results. What does appear to be clear is that brands believe premiumization will maintain the large profits reaped over two years of extreme price increases. This is what The Wall Street Journal opines as possibly a last ditch effort to show a profitable balance sheet.

Disney tried premiumization under previous CEO Bob Chapek. Not only did Mr. Chapek raise prices at Disney’s theme parks – already an expensive experience – he monetized services that were free to loyal customers (those with annual passes) and hotel guests. Loyalists and hotel guests became vocally livid when Mr. Chapek started charging high fees for parking. Free parking had always been a perk for loyalists and for hotel guests. Needless to say, after Mr. Chapek’s ouster, new CEO Robert Iger walked back many of the increased prices and reversed the parking back to free for those staying at Disney hotels and for loyal customers.

The Wall Street Journal points out that increased fees at Six Flags amusement parks has garnered less than stellar results even though Six Flags’ CEO stated that higher prices were “… a bold change to our business model in order to elevate the guest experience.” Honestly, the customer does not give a damn about a brand’s business model. If the price is too high, the guest may decide the brand is no longer a good value. Which, it appears, is what has happened at Six Flags. Sure, spending per guest rose. But, over the course of the past nine months ending in September 2022, attendance fell 25% versus the previous year. And, profits fell almost 10%.

Wall Street was wowed when Campbell Soup Company showed a 12% rise in sales based on 14% higher prices. Overlooked is that volume dropped 2%

Molson Coors, the giant beer and drinks company, aims to grow market share through innovation and premiumization. It is one of the companies zealously focused on its premium portfolio. In its earnings call, Molson Coors signaled that it is evolving its product portfolio towards premiumization. 

One of those premium offerings is hard seltzer. However, despite its strategic intent, Molson Coors continues to experience lower brand and financial volume. In third-quarter 2022, Molson Coors’ worldwide brand and financial volumes fell 2% and 0.2%, respectively. 

Beam Suntory, the American-founded, Japanese spirits company, is also focused on high-margin offerings. In its earnings report, its CEO and president, Albert Baladi, said, “The quality of these results is clear and reflects our strategy to premiumize (sic) our spirits portfolio, build RTD (ready-to-drink) leadership and focus on value over volume.”

How are consumers reacting to the premiumization trend?

Some premiumization comes across as a stretch or an SNL sketch. Krispy Kreme will move away from discounts and focus on arousing excitement around premium doughnuts. These specialty offerings are considered “fancier, higher-priced and holiday-themed.”  The ubiquitous lubricant WD-40 considers the little red straw on the top of cans to be a premium offering and thus sells that package at a premium price. Apparently, the ability to spray oil with both a precise stream and a mist is premium.

Credit cards have offered premium cards for many years. Yet, now, American Express stated that it is more cautiously reviewing to whom they extend the membership of its cards, including its entry Green card. Airlines have been leaders in offering services with fees attached. Want legroom? Pay a premium. Hotels mimic the airlines in charging fees for everything even if a guest will not be using that service, such as beach towels or gym usage or resort fees.

Putting the potential economic and social issues of a divided society aside, this approach of hiding price hikes behind the curtain of premiumization has the potential to backfire on brands. As brands tend to focus on price, the risk is that the brand’s value may come into question. 

Value is more than price point. Even higher income individuals have a value equation in their mind. A brand’s value is based on an internal assessment of the total brand experience (functional, emotional and social benefits) relative to the total brand costs (price, time, effort). At some point, that specialty doughnut may not be perceived to be a great value anymore. Worse yet, that specialty doughnut may become a novelty. 

Brands need to reckon with the idea that by focusing on those who can afford high prices, the core customer base will become smaller. Focusing on fewer customers who can pay high prices may be good for some brands, but big brands cannot afford to lose significant parts of their customer base. Making money on fewer customers is not a good long-term strategy, unless you are Ferrari or Hermès. What will you charge those last few customers? Making money by alienating current core customers is a dicey strategy. Brand owners must recognize that there must be both quantity of sales and quality of sales. Sales based on higher prices with lower volumes are dangerous. 

Is the premiumization trend a risky play for brands?

Value begins with the customer: value is not determined by the brand leaders or the CFO. Although brand leaders believe they are value creators, they are not. Brand leaders help to create brands to which customers ascribe value. Brand leaders determine pricing but not value. Instead of deciding what to charge, brand leaders should determine if the price they are asking will be a customer-perceived fair value.

Finally, customers are not stupid. Customers know when they are being played for profits. Marketing is all about profitably satisfying customer needs. Brands need to determine whether the customer’s needs are addressed so that the brand is perceived to be a good value. Brands can be perceived as good value at any price point. Marketers must aim their brand to be best values at whichever price point they choose.

Premiumization is charging more to maintain margins. This is a dressed-up version of financial engineering. If the only way a brand can maintain margins is by becoming a premium brand or by offering multiple premium varieties, then risk ruining the brand’s value perceptions. Because this is a fact: there is no shareholder value without customer value. A brand needs quality revenue growth for enduring profitable growth.

Once upon a time, someone at Ford Motor Company may have known what the Lincoln brand stood for in the customer’s mind. But, that was then. Over the years, defining Lincoln has been a challenge.  In 2019, Lincoln decided the brand would be American Luxury. That was an undefined title. It was left to the potential customer to fill in the blanks. Today, American Luxury is Sanctuary, as in a refuge or a sacred place.

Cars are for driving. It is wonderful to drive a car that is luxurious on the inside. It is wonderful to drive a car that is quiet inside, shutting out all of the street and highway noise. It is wonderful to drive a car that has all the appurtenances of class and status. These are benefits – functional, emotional and social – that we may look for in a vehicle.

But Lincoln does not tell us about these benefits. Lincoln as Sanctuary is left up to the customer to imagine. A brand must own a promise. A brand must have a relevant, differentiated promise that is created by the brand owners. A brand promise relevantly differentiates a brand from competition.  Vague Sanctuary can easily be understood as a benefit of a competitor, Lexus, for example.  The brand promise describes the relevantly differentiated experience that customers can expect time after time. 

Brands that have opted for letting the customer decide what the brand stands for tend to regret that stance. 

Take Infiniti.

In 1999, Nissan began advertising its new luxury vehicle, Infiniti. The ad campaign was gorgeous photography of the car in the woods. The lighting was exquisite. The door handles were remarkable. The feeling was one of, well, sanctuary. There were no words about the benefits of the vehicle. There was just the beauty of the design in a beautiful setting.

At the same time, Toyota’s new luxury vehicle, Lexus, was also introducing itself to the American public. Unlike Infiniti, Lexus focused on the vehicle’s sanctuary-like ride. One of the ads showed champagne classes on the car’s roof never wavering even over a rough road. Another referenced its quiet interior.

For all of the amazing market research at Infiniti, its lack of focus on the actual benefits of driving an Infiniti put the brand at a deficit relative to Lexus. Lexus took off; Infiniti languished. At one point, almost a decade later, there was consideration given to eliminating the brand.

Back to Ford Motor Company, owner of Lincoln.

In the mid-2000’s, Ford Motor Company created a campaign for Mercury – the now defunct brand, a relative of Lincoln. You bought your Mercury at the Lincoln-Mercury dealership. Ford was not able to articulate what exactly Mercury stood for… so in its campaign, the tag line was “Imagine Yourself In a Mercury.” If Ford could not tell you what Mercury was, at least you might be able to create some fantasy. Mercury faded away into automotive history. People may have loved the vehicle, but not even Ford could articulate what Mercury stood for in the customer’s mind.

Why is this history important?

With the current Lincoln campaign, Ford is channeling the same approach as Infiniti and Mercury. Let the customer imagine what driving a Lincoln is like based on beautiful photography, serene-hip music and lofty, resounding, yet amorphous wording. Sanctuary sounds wonderful.

For example, we hear:

The legacy continues. Innovative design is in our nature, and we can’t wait for the road ahead

We’ve shaped one century. Let’s define the next.

The power of sanctuary…

Here is a truism. You know a brand has no idea what it stands for when the words, “the power of…” are used. It is one of those catch-all phrases that ad people use when ideas escape them.

So, what is a Lincoln? A visit to the Lincoln website tells us that the power of sanctuary is elevated peace while driving. The definition ends there. It is up to you to imagine just what peace-while-driving is all about. There is a heavy focus on peripheral services called membership such as Lincoln Access Rewards, Lincoln Access Rewards Visa Card, Travel Benefits, Roadside Assistance, Concierge, Insurance. There is an app – Lincoln Way App – and pick-up/delivery for service visits. 

But what about the vehicle? How does it drive? What exactly is a peaceful interior experience? Are small children part of this peacefulness?

Does this mean that the cars themselves are not unique? Does this mean that because designers and marketers could not articulate the Lincoln brand essence they decided to focus on non-vehicle services? Does a focus on the inside of the vehicle mean that the actual vehicle itself delivers benefits and features that are not relevantly differentiated from competitors?

Features can be copied. A relevant, differentiating brand definition can be owned. Brand features are the key service and product elements that make the brand promise credible. But what is the brand promise? 

Lincoln’s provenance is a business built on quiet, honest, affordable classic beauty. There was no ostentation. Originally, the Lincoln vehicles were practical prestige with luxurious functionality. Although its drivers appreciated the cachet and status, they did not want to feel embarrassed or guilty while on the road. With subtle, classic elegance and a contoured grace, these affordable luxury vehicles were impressive and distinct. 

Somehow, in today’s world, this provenance is missing in Lincoln’s brand articulation. There is no reference to Lincoln’s classic beauty expressed in a contemporary manner either in its public design description or in its articulation of its reason for being. Leaving the brand promise up to the imagination of the customer creates a brand that has multiple, individual meanings. Hoping that this approach will rev the engine of enduring profitable growth in a highly competitive marketplace is a lot of gas.

Stitch Fix, the online personal shopper clothing brand, has a problem. The brand is losing active customers, closing warehouses, laying off staff and is bringing back its founder as CEO to right the ship. Data indicate that since the height of pandemic shopping, Stitch Fix lost 95% of its value. The Wall Street Journal states that the huge decline in Stitch Fix’ valuation is due in large part to becoming a brand that is “everything to everyone.” In other words, Stitch Fix’ dilemma is due to serious mission creep.

In marketing, mission creep is the expansion of a brand beyond its original vision, promise or ambition. Mission creep is when a brand expands while losing focus on its core. 

Regardless of whether the brand is healthy or failing, it is essential that the main core business be protected and cultivated. Keep the heart of the brand alive and restore it to health. When the heart stops, the business dies.  With Stitch Fix, the main core business was an online, subscription, personal shopping service where anyone could have their own personal shopper to select and organize their wardrobe. A subscribed customer filled out a questionnaire, an algorithm kicked in. And, then, a human “stylist” curated a personalized box of clothing. Once delivered to the customer, the customer could keep (buy) all or some of the clothing or send back what is not wanted.

Somewhere post-PO and post-pandemic, Stitch Fix took its eye off of the brand’s core identity. Stitch Fix did not figure out how to make the core newly relevant and differentiated in a new era of shopping behaviors. Instead, the brand’s focus wandered away from the core.

Brand management is an ongoing process. Leaders must continuously focus energies on communicating, implementing, nurturing, developing, enhancing, and reinforcing the brand’s core purpose. Stand up for something special or you stand for nothing. Be the best at something relevant and differentiated. Never compromise quality in the name of efficiency or availability. 

Losing focus on the core happens more frequently than you might imagine. Thinking the grass is greener with different brands and/or different market segments is death-wish marketing.

For example, when McDonald’s business started to decline in the late 1990’s and early 2000’s, the brand expanded by buying a host of other restaurant brands: Donato’s Pizza, Boston Market, Pret A Manger and Chipotle. It was a “BOB” strategy – Believe in Other Brands. Additionally, the brand increased the number of restaurants by 50% over 10 years. At an analyst meeting in 1998, then chairman and CEO, Michael Quinlan’s plan for new stores was equivalent to opening a new store every four hours. 

Another, more current example is Meta. Meta is focusing more on the metaverse and less on Facebook. 

There is no doubt that Stitch Fix implemented a mission creep approach to profitability. When brand-business was losing steam, the CEO looked everywhere. In 2016, Stitch Fix expanded to men’s wear. In 2018, Stitch Fix expanded to children’s wear. In 2019, The brand expanded into the UK. And, in 2019, Stitch Fix created Stitch Fix Freestyle, an a la carte service now open to new customers. According to The Wall Street Journal’s “Heard On The Street” analysis, none of these expansions did anything positive for the bottom line.  When the brand wants to be for everyone, it becomes a brand for no one special.

But, not only has Stitch Fix lost its focus on its core, Stitch Fix continues to have a branding problem that is exacerbating its ability to manage. Stitch Fix must figure out how all of its offerings – men’s, children, Freestyle – relate to each other within the Stitch Fix brand portfolio while continuing to enhance and relevantly differentiate the Stitch Fix core brand promise. What is the Stitch Fix brand corporate brand architecture? 

Brand architecture is the brand identity approach used to define the relationship of each Stitch Fix brand offering to another in a portfolio. The Stitch Fix corporate brand expresses the authority (quality, leadership, trust, expertise) of Stitch Fix as a personalized online shopping experience. What are the relationships of each of these additional “brands” to one another and to the corporate promise?

This really matters. 

How you manage your brands is how you manage your business. Brand management is business management and vice versa. Brand architecture provides a framework for job descriptions and assignments, resource allocation, communications, market research, media, brand loyalty and brand power. Brand architecture helps customers sort out if a particular brand is for them. When there is more than one brand, customers want to know the benefits to expect from each brand. Customers do not care about the strategies; they just want to know about the expected experiences.

Brand architecture is significant because it dictates how resources are allocated. It also provides clarity of brand management. Brand architecture provides a strategic framework. 

Analysts are worried about Stitch Fix’ forward strategy. Is the plan to focus on Stitch Fix? What will be the relationship between Stitch Fix and Stitch Fix Freestyle, for example? What is the future of this pioneering brand? How do these other offerings relevantly differentiate Stitch Fix from other retail options, whether online or brick-and-mortar? Is the original Stitch Fix proposition still viable?

The Stitch Fix mission creep has rendered the brand more of a commodity than a relevant differentiated experience. Walking away from its core promise of providing anyone with a clothing stylist, curator and personal shopper left Stitch Fix at parity with any department store or clothing provider. Additionally, among the strategic plans that need to be articulated is this: Stitch Fix must adopt and manage its portfolio against a desired brand architecture. The brand must decide now what the offerings will be in the future and how these offerings will be managed. How you manage your brands is how you manage your business.