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Capture and defend margin

Premiumisation and trading down

Examples checked

In one minute

Shifting sales toward dearer, higher margin products, or offering cheaper ones when customers trade down.

The big idea: Selling a better mix can lift profit without selling more units, because premium products usually keep more per unit. But premium brands cost money to build, and when budgets tighten customers trade down, so a company needs a plan for both.

Works when
When customers will pay more for a real difference, and the premium line earns enough per unit to repay its marketing.
Fails when
When the premium is only a label, marketing eats the gain, or a downturn sends customers to cheaper brands and own labels.
Check this number first
Profit per unit by tier. Shows how much a better mix is worth.
In the worked example
Profit after the shift: EUR 68 (EUR millions a year, after the shift). See it add up

What it is

Premiumisation means selling more of the dearer versions in a category: premium spirits, larger cars, better phones. Trading down is the opposite customer behaviour: switching to cheaper brands, smaller packs or discount stores. Mix is the share of sales from each price tier, and a change in mix changes profit even when volume does not move.

  • Premium line. Add a dearer version or brand above the current range.
  • Mix management. Push marketing and shelf space toward higher margin products.
  • Fighting brand or value line. A cheaper line to keep customers who trade down, without cutting the main brand's price.

Why companies do it

The economic logic, most important first. A move usually rests on one or two of these.

  • Margin capture. Premium products usually earn a higher profit per unit, so a better mix lifts profit on the same volume.
  • Pricing power. Strong brands can raise prices with less loss of volume.
  • Growth. In mature markets, volume barely grows, so mix becomes the main lever.

When it creates value, and when it destroys it

Creates value when

  • Customers see a real difference: quality, design, status, experience.
  • The premium profit per unit covers the extra marketing and product cost.
  • The company also has a value offer, so customers who trade down stay with it.

Destroys value when

  • A downturn pushes customers to cheaper options and the company has nothing to offer them.
  • The premium is only a label, and customers see through it.
  • Marketing to build the premium brand costs more than the extra margin.

The numbers to check

Ask for these, in this order, before you recommend the move.

  1. Profit per unit by tier. Shows how much a better mix is worth.
  2. Mix: share of volume in each tier, and its trend. Is the market moving up or down?
  3. Marketing cost of the premium line. Building a premium brand is not free.
  4. Share lost to own labels and discounters. The signal that customers are trading down.

Worked example (illustrative)

Rounded numbers for a made-up business, shaped like real ones. Positive lines add to profit; negative lines are costs.

A brewer sells 10 million cases a year. A standard case earns EUR 6 of profit and a premium case EUR 12. It plans to lift premium from 10 to 30 percent of volume, spending EUR 10 million a year more on marketing.

Worked example for Premiumisation and trading down, in EUR millions a year, after the shift. Illustrative figures.
LineEUR millions a year, after the shift
Standard cases: 7 million x EUR 6EUR 42
Premium cases: 3 million x EUR 12EUR 36
Extra marketing for the premium brandminus EUR 10
Profit after the shiftEUR 68

Check: the lines above add up to the total.

The numbers that decide it

Profit before: 9 million x EUR 6 plus 1 million x EUR 12
EUR 66
Gain from the shift
EUR 2
Gain before the extra marketing
EUR 12

So what: The better mix adds EUR 12 million of profit, but EUR 10 million of marketing eats most of it, leaving EUR 2 million. Premiumisation pays when the brand eventually needs less support per case, or the premium price can rise. Check the marketing, not only the margin.

Real examples

Companies that made this move, by region, with what happened and a source checked on the date shown.

How to recommend it in a case

Answer first, then the reasons with numbers, then the risk and the next step. Three sentences, said out loud.

I recommend the premium push only with a cheaper marketing plan, because as planned it lifts profit by just EUR 2 million a year.

Moving premium from 10 to 30 percent of volume adds EUR 12 million of margin, since a premium case earns EUR 12 against EUR 6, but the EUR 10 million of marketing takes most of it.

The other risk is a downturn sending drinkers to cheaper beers; next I would test whether the premium price can rise and keep a value line for those who trade down.

The numbers to quote: Profit per unit by tier; Mix shift; Extra marketing cost; Net profit change.

The figures in the answer come from the illustrative worked example above. In a case, use the client's own numbers.

Classic interview traps

  • Counting the margin gain and forgetting the marketing to build the premium brand.
  • Assuming customers will keep paying more in a downturn.
  • Ignoring cannibalisation: some premium sales come from your own standard customers.

Where it is common

Sources

Every source was opened and the example confirmed on the date shown. Worked examples are illustrative and use no company's figures.

  1. 1.Diageo, preliminary results for the year to 30 June 2023 (regulatory announcement), 1 August 2023 (opens in a new tab)Checked
  2. 2.Hindustan Unilever, third quarter 2024-25 earnings call transcript (BSE filing), January 2025 (opens in a new tab)Checked
  3. 3.Society of Indian Automobile Manufacturers (SIAM), Auto Industry Sales Performance of March 2025, 15 April 2025 (opens in a new tab)Checked
  4. 4.Kantar Worldpanel, "Consumers seek value as Britain heads back to school", 14 October 2025 (opens in a new tab)Checked
  5. 5.McDonald's, quarterly report on Form 10-Q for the third quarter of 2024 (US SEC) (opens in a new tab)Checked

Practise it

Where this move comes up in cases

Related moves