"Consumers' interest in premium products is being spurred by rising incomes, an overall trend towards indulgence and the growth of key demographic groups such as older consumers andsingles are all helping to spur the growing interest in premium products," Datamonitor said in a new report.
Spending on such luxury items is expected to reach £4.5bn in the UK by 2009, an increase of 30 per cent compared to 2004 spending, Datamonitor said.Increased accessibility has fuelled what has become known as the 'democratization of luxury'. This means that many middle and lower income consumers aspire for more and are prepared to buy items that suggest they are moving in the right direction.
Brands such as Tescos 'Finest' labels - which cover a comprehensive range of food and personal care products - have now started to overtake some of the comparable budget labels, giving a prime example of how mass market consumers will trade-up to higher quality, more sophisticatedproducts providing the marketing communications to appeal to the broadest possible audience.
The growth of discount chains has also been crucial in providing consumers with the opportunity to sample premium goods because they increasingly stock luxury brands at discount prices.
Generally consumers are increasingly 'trading-up' to buy premium food, drink and personal care products and this preference is reflected in the growth of specialty products such as hand-made, origin specific food, drink and personal care products, the firm said in a study on spending habits.UK consumers are also willing to pay a premium for enhanced efficacy with 36 per cent paying up to 10 per cent more for cosmetics and toiletries containing active ingredients, and 19 per cent also willing to pay over that. This, according to Datamonitor, suggests manufacturers continued foray into functional products could provide highly profitable.
"The growing taste for luxury is set to become more pronounced as consumers continue to experiment, self-reward and seek out satisfying experiences with rich flavours, textures and variety," said Daniel Bone, the consumer analyst at Datamonitor and author of the report. "For manufacturers, consumers' growing desire for quality means concentrating on new product development and marketing the luxurious aspects of products."
In a survey about 83 per cent of UK consumers expressed the view that it is important "to be open-minded about trying new products and experiences" and 62 per cent agreed with the statement "you have to take risks to get rewards", Datamonitor found. About 73 per cent of Brits surveyed also indicated finding new excitement and sensations as 'important' or 'very important'.
This indicates that adventure-seeking values, risk taking and values which place a high importance on new experiences as playing a big part in influencing consumer purchases of and trading up to premium products, Bone said in his report.
Increased accessibility to such products has fuelled what has become known as the 'democratization of luxury' in the industry. Many middle and lower income consumers aspire for more and are prepared to buy items that suggest they are moving in the right direction, the firm said.
In recent years, the trend for 'accessible premium' brands has emerged, reducing the high entry barrier that the industry once maintained for premium products. But consumer expectations and how they perceive premium offerings are also shifting.
"With more exposure to higher quality goods, consumer expectations are rising and in consequence they are harder to please," Bone said. "The bottom line is that premium and value increasingly co-exist in the market-place, which in many instances have increasingly polarized between premium and low-cost offerings."
Although consumers' willingness to pay premium prices is influenced by complex criteria such as 'coolness' and hedonistic sensory attributes, there are other simple factors that are equally important.
Datamonitor found that overall 50 per cent of European and US citizens were willing to pay up to 10 per cent more for time-saving products and services, compared to 41 per cent of consumers in the UK.
"That a further 17 per cent of UK consumers are also willing to pay over that, it suggests that simply having enough time is becoming a luxury in itself," Bone said.
UK consumers are also willing to pay a premium for better efficiency in the products they use with 36 per cent of those surveyed saying they are willing to pay up to 10 per cent more for cosmetics and toiletries containing active ingredients and 19 per cent also willing to pay over that.
This suggests manufacturers should continue to develop functional products as a high profit section of their business, Bone said. The report suggest marketers need to respond to this desire in a way that says, while material items are not important to well-being, it is better to have a few quality material items than to squander resources on many low qualityitems.
"With rising consumer expectations, manufacturers must ensure premium products support all aspects of consumers' lifestyles in order to justify a premium price." Bone said.