Skip to content
The Psychology of Premium
Why Consumers Still Pay More (Sometimes)
Why ‘Premium’ Still Matters (and Sells)
In times of economic stress, consumers don’t necessarily stop spending – they spend differently. While it is true that people reduce discretionary spending during economic downturns, not all luxury items are affected by this in equal measures. While people may postpone buying expensive cars or vacations, they might still want to spend on smaller, affordable luxuries like makeup or coffee, as a way to feel good and maintain their sense of self-care. This is also called the ‘lipstick effect’, an economic theory that was popularised by Estée Lauder chairman Leonard Lauder, who observed increased lipstick sales after the 9/11 terrorist attacks in 2001, and again during the 2008 financial crisis. Rather than just focusing on my recent (somewhat eye-watering) trip to the London Sephora, the theory suggests more broadly that sales of relatively inexpensive luxury goods like lipstick tend to increase during economic downturns. This is because people may reduce spending on larger, more expensive items but still want to indulge in smaller, affordable treats that boost their mood or appearance.
But why do people splurge on frivolous things like lipsticks when they are worried about their gas bill? Small luxury purchases offer us an escape, a quick emotional uplift that’s especially effective during more trying times. In moments of challenge, micro-rituals become more important and central to our well-being, and for some of us, this translates into buying these little, somewhat expensive but just about affordable luxuries. Premium purchases offer us a sense of control (almost showing us that the situation is not as bad as we may think). They are seen as a much-needed reward, and also offer status reassurance – almost a sign-post of the current negative economic state being merely a blip, rather than a permanent shift in our standard of living.
The Core Drivers Behind Premium Behaviour
So we spend money ‘unnecessarily’, just because we can? Digging a little deeper exposes four key factors underpinning our premium purchases.
a) Identity & Self-Expression
Buying premium isn’t always about utility or showing off – it’s about who we are (or want to be). For many of us, choosing ‘craft’, ‘artisan’ or ‘organic’ products is not just a luxury, but an expression of deeply held personal values. Reinforcing these values and beliefs through our actions makes us feel better about ourselves, and helps cement our own worth in our minds.
b) Trust & Predictability
Premium brands are often perceived as more consistent and trustworthy. Especially in instances when choice is overwhelming or stakes feel high, the more familiar, premium brand is often the option we go for. This can also be a factor when buying for people we love, with many foregoing some of their own favourites to still offer premium choices for those around them.
c) Emotional Association
There are strong emotional memories tied to brand rituals, packaging, or sensory cues. Familiarity plays a role, but textures, finishes and scents are perhaps even more important when it comes to brands justifying a premium price point. Rather than being rational, these differentiators link to implicit memory systems: these choices feel more right, even if hard to explain. This is particularly apparent when it comes to more private and less visible luxury purchases, such as buying very expensive underwear or spending large amounts of money on bubble bath.
d) Social Signalling
Luxury items and purchases also offer (either subtle or overt) cues of good taste, status, and discernment – this can be especially relevant in alcohol or lifestyle FMCG categories. Rather than just being the basis for a simple cocktail we are looking to mix, these premium choices often carry symbolic weight, implying more about us than our ability to spend £40 on a credit card.
What This Means for Brands
Positioning a brand or product as a premium choice which is worth paying more for is a challenge faced by many. The biggest mistake we see brands make is an attempt to rationalise their advantage – to show that objectively, their product is worth four times more than a comparable own-brand offering. While we all like to drink our own KoolAid from time to time, this line of thinking is often hard to justify for consumers.
Instead of focusing on rational benefit claims, brands need to focus more on emotional, sensory, and identity-based cues when establishing their products as premium or luxury choices. It’s these less conscious, implicit drivers that make Pringles taste better than the Aldi copy-cat, not the potatoes or oil that are used. Leaning into emotional, intuitive cues is the only true way to convey the feeling that luxury and premium products offer to us consumers.
This emotional nature is often not reflected enough in traditional research methods, where respondents tend to overestimate their own rationality, and sometimes lead brands down the path of justifying their price through cold hard facts alone. Instead, research needs to reveal the subconscious motivations that underlie luxury purchases, and tap into the emotional drivers of choices.
In premiumisation, perception is everything – and perception is shaped implicitly.
Premium isn’t a price point. It’s a feeling. And in uncertain times, feelings matter more than ever.
Juliane Beard, Director of Research at Mindlab
This is the first part of a series by Mindlab’s Director of Research, Juliane Beard exploring premiumisation and its implications on market research. If you’d like to find out more about how Mindlab can help you uncover and the psychology of premium, please get in touch.
