The substantial growth of the Philippine economy over recent years has significantly increased the purchasing power of the country’s Upper C-Class, making it the current demographic to watch closely.
The entire retail chain (manufacturers, suppliers, and distributors) has been reactive to this opportunity, upgrading product offerings with more premium items supported by strong commercial campaigning, notably including more and more investments in brand ambassadors.
Aside from enlarging their product ranges, retailers have also looked to improve on merchandising, with customer experience becoming increasingly important for younger generations of consumers.
The timing is crucial for both vendors and retailers, as this is a huge opportunity to gain market share in premium products, and a valuable push in sales and value margins moving forward. Organized retail chains are prime beneficiaries, as this is a chance to edge out their traditional (e.g. Sari-Sari stores) competition that won’t have the same capacity to improve in marketing.
All this, however, comes with obligatory considerations to ensure a profitable foray into the trend of Premiumisation. Here’s some food for thought:
1) When and where is it happening?
It is already evident in stores located in main cities, specifically in areas benefiting from a more premium market. The challenge lies in a balanced execution, something which many retailers are still having difficulty with. More on this below.
2) What is the impact on assortment and merchandising?
Listing new premium items should in no way destabilize the existing assortment structure suited to the market profile.
Some local retailers tend to sacrifice items categorized as basic necessities in order to accommodate a premium upgrade. This is a risky move in the still unpredictable Philippine market where consumers have shown a desire for premium products, and yet maintain a need for basic commodities and low prices. Listing and delisting products should be carefully addressed to take in consideration the number of SKUs and price segmentation expected for a given category.
Adaptation in merchandising is a challenge driven by market profile as well as the size of the store. Merchandising should reflect the proportion that the retailer has decided to allot to low, mid, and premium segments.
Finally, overspacing for premium items may have negative consequences on sales productivity and price image. Underspacing on the other hand may reduce the opportunity for the trend altogether. The trick is finding balance, balance, and more balance. Remember that the spirit of Premiumisation is one of complementing and not replacement.
3) How far are you willing to take it?
Alignment of your marketing initiatives with your vendor’s program is key. When people see products represented by celebrities on TV, they expect to find these at the forefront of the store.
Upon launching a premium product, try to feature it as much as you can in catalogues. Organizing in-store activities will surely reinforce its visibility, so seek out all opportunities your vendor can provide such as sampling, booths with promodizers, etc.
Forecasting sales with the vendor is also a must in order to replenish stocks in a timely manner.
At the end of the day, Premiumisation provides a unique opportunity for retailers and vendors to work hand in hand under the same interest of getting an uptick in sales value and margins. The biggest risk you can take is not taking the risk at all and missing the boat on this trend.
