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You are here: Home / Marketing / Premium Brand: Meaning, Advantages and Disadvantages

Premium Brand: Meaning, Advantages and Disadvantages

Updated on August 28, 2020 by Ahmad Nasrudin

Premium Brand Meaning Advantages and Disadvantages

What’s it: A premium brand is a brand that is positioned to have high quality and price. The company launched it to give an impression of exclusivity, notably to differentiate it from other mass-market brands.

Launching a premium brand is a dilemma choice. The company has to improve the quality or appearance of a product, which adds to the cost. To be profitable, companies must charge a higher price.

However, setting the price higher means less potential demand. Therefore, companies will usually target specific segments, such as wealthy or high-income consumers.

What is the difference between premium and luxury brands

Luxury brands are often equated with premium brands. Both are two slightly different concepts.

In economics, maybe you have heard of normal goods’ classification into two necessities and luxury goods. Yes. Both are different in terms of income elasticity. Namely, necessities have an elasticity from more than zero to less than one (0<IE<1), and luxury goods have more than one income elasticity (IE >1). What does it mean?

Okay, let’s focus on luxury. Luxury goods are types of products where the demand will increase by a higher percentage when the consumer’s income rises. If income increases by 10%, then the demand for luxury goods increases by more than 10%. The higher the price, the more consumers want it. Thus, an increase in price reflects the additional satisfaction (utility) the consumer gets.

So what does this have to do with luxury brands?

The concept of a luxury brand is basically the same as the concept of a luxury item. The increase in price increases consumer satisfaction. That’s because luxury is not only a combination of price and product quality but also other aspects, such as:

  • Aesthetics
  • Rarity
  • Extraordinariness
  • Symbolism

So, maybe you will find it easier to find premium products than luxury products. The company offers a premium brand to differentiate it from other brands in the mass market. For example, Apple launched the iPhone to target a small part of the mass market, and you are, of course, easy to find. It differs from luxury brands, they are rare, and you may have to contact the manufacturer directly to buy them.

How the company grows a premium brand

As a definition, a premium brand is a combination of price and high quality. So, price alone does not indicate a brand is a premium. Setting a high price for a low-quality product will only result in failure.

Indeed, companies can influence consumer perceptions of a brand’s quality, but that will only end in failure. Consumers have gotten smarter nowadays.

Quality can take various dimensions of a product, including:

  • Performance 
  • Features 
  • Reliability
  • Conformance
  • Durability
  • Maintainability
  • Aesthetics
  • Innovativeness

Apart from the quality dimension, companies support their brand with other aspects such as attractive packaging and superior customer service. The goal is for brands to meet or exceed consumer expectations for a sustainable period.

Several companies may develop different brands for their product lines. For example, Toyota Motor Corporation launches Toyota for generic brands and Lexus for premium brands. The company usually tries to exploit existing resources to maximize profits. It builds positions in two different market segments utilizing the same production facilities.

What are the premium brand’s advantages and disadvantages

Premium brands offer several advantages. First, the profit margins are higher. Companies charge higher prices for their products. Consumers still buy them because they prioritize product value, namely the combination of quality and price, rather than just the price aspect.

Second, strong customer loyalty. Companies also usually have a loyal customer base and are often willing to stand in line for products’ latest variants.

Third, a strong brand image. For that, companies must be able to maintain quality over time.

However, premium brands also have some disadvantages. First, customer loyalty is dynamic. It can change for reasons such as changing consumer tastes and changing the competitive landscape. In fact, a change in company leadership can also exacerbate brand perceptions, especially if successors are perceived as less innovative than their predecessors.

Second, offering premium brands involves higher costs. Apart from production costs, companies usually spend a lot of money on advertising costs.

Third, damage to reputation in one product line can destroy the overall brand image. Companies often launch multiple product lines under the same brand.

Topic: Brand, Premium Brand Category: Marketing

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