I travelled a little bit these last days and I heard on radio two things that made me think about tea. The first one was an interview of a famous cook (whose name I never had heard and I don’t remember) that spoke about bakers and the return to higher quality products with a critic of the race to low-cost that has been raging through this industry in the past years. The second one was an interview (yes another) of an ice cream maker that sold high quality ice creams at a high price, saying (I am quoting from memory) that “it was not a regular ice cream” and commenting about the uniqueness and quality of the ingredients used to make them.
Even if they didn’t pronounce it, the word premium came to my mind as they seemed to imply that their products were above the others and in an area where price didn’t really matter. I don’t remember how much an ice cream was but it was for heavier scoops as usual which combined to its high quality made it something exceptional, at least according to the ice cream maker.
You will now ask me what is this premium thing you are talking about and why should I care about it when I am drinking my tea? Premium according to Merriam-Webster is a high value or a value in excess of that normally or usually expected source.
For tea, it would mean having more than you bargained for, more than you expected from what you drank. Does the tea market go that way?
I wrote something a while ago on generic strategies for speciality tea or industry wide companies but after hearing these people and thinking about it, I think that this premium strategy could work for most companies.
What is a premium strategy? It is a variant of the diversification strategy where a company tries to increase the perceived quality of its products leading to an increase in the perceived value and a willingness by the customer to pay more, allowing the company to increase its margins.
By doing this, a company manages to create a specific image, one that set it apart from the competition, one that allows it to go on another level creating a need and a market because its products are no longer perceived as one among others but because they became the standard that helps to measure the competition.
This strategy is the one adopted by several luxury cars companies, nearly all luxury good companies and some coffee companies (you know which one, I won’t dare to tell their names to you).
The first drawback is obvious; if people think that what they experienced is not worth the extra cost paid, they will turn to competitors (quite often cheaper ones). The second drawback is more complex as it will depend on the economy and the willingness of the customers to buy these products because they make them someone special and unique. Whereas this is easy for a car or a watch, it is more difficult to be perceived this way with tea (but the same goes for a lot of commodities, non-alcoholic drinks and so on).
You don’t believe this is a common strategy on the tea market? Just look at your favourite brand and the products it has decided to sell over the past years. I am sure you will find a little exclusive approach to them. This can take the form of having really rare or exotic teas or of specific blends that no one else does (even if some companies specialised in recreating any blend given to them) or a mix of both.
However what they all need to do if they want to keep on focusing on this premium approach is to enlarge their customer base, to be identified as being something special and unique, to rise through a new market level and stop fighting in a niche. Even if tea is said to be the second liquid drunk on Earth after water (even if it sounds a little strange), it needs to cross boundaries and become either something that everything will drink or develop a specific and positive image in the collective minds of almost every.
Without this awareness, the premium strategies will probably not be successful on the long run as the market will remain small in numbers and highly competitive with a lot of companies making and selling teas.
This is probably the biggest challenge faced by everyone in the tea industry.