China Insights

Innovation powers brand's ability to command price premium

Martin Guo

Editor-in-Chief, Kantar China Insights

Brands 08.04.2018 / 18:00

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Innovation leads to Difference, one of the three components of Brand Power. Consumers are more likely to pay a premium price for Different brands.

In China market today, “consumption upgrading” is a buzzword, which means Chinese consumers are no longer focusing only on cheap prices, they are now more willing to pay a premium for products/services whose prices they view as justified: it might be better quality, or quicker delivery, or better brands, or smarter functions, or a combination of various factors.

Behind this change is the fact that more Chinese are wealthier and optimistic about the future. Over the past 10 years, the Consumer Confidence Index hovered just above 100 on an index where 100 is average. But, over the past two years, because of strong economic growth and low unemployment, the Consumer Confidence Index rose sharply, reaching around 125.

EN Chinese Consumer Confidence Index

Consequently, Chinese consumers are less price-sensitive in categories where they have a lot of purchasing experience, such as insurance, technology, cars, hotels, healthcare, retail, and apparel. In these categories, the proportion of price sensitive consumers dropped more than 5 percentage points. They exhibit price sensitivity when they enter potentially premium categories, such as luxury and real estate, for the first time.

EN Price Less Sensitive 

As consumers become less sensitive for prices, brands have a great opportunity to command a price premium during this “consumption upgrading” phase. In our BrandZ™ research, Premium Index measures the ability of a brand to justify a price premium, relative to the category average, based only on consumer perception absent advertising or other activation factors. An average score is 100; 110 or above is strong; 95 or below is weak.

Based on a comparison of the same 199 brands in 2014 and 2018, we noticed that brand ownership now has less influence over a brand’s premium index.

In 2014, state-owned enterprises (SOEs) and multi-national companies (MNCs) were more likely to command a premium. Today, brand ownership is not a factor for consumers paying premium prices.

In 2014, SOE’s premium index was highest among the three at 122; followed by MNCs at 115. Chinese market-driven brands were the lowest at 106.

In 2018, the three performed closely in this aspect: MNCs dropped the most to 100, while market-driven brands were at 103 and SOE managed to stay the highest by leading a mere 1 point at 104.

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Then what can mandate a brand's power to command a premium?

BrandZ research comprehensively evaluates a brand’s Brand Power, including its Premium sub-index, through three components: Difference (a brand being different from its competitors), Meaningful (meeting consumer needs in relevant ways), and Salience (coming easily to mind).

In 2014, Meaningful was the most significant driver of Premium, contributing 50% toward the consumer inclination to pay a premium, relative to Difference and Salience, which together contributed 50%. Today, Meaningful is still important, but Chinese consumers have moved on: Difference has grown to almost 50% and Meaningful has declined.

EN Contribution To Premium

The central reason for this change in attitude is that Chinese consumers now enjoy greater choice and expect brands that meet their needs.

Brand implication

The greater openness of Chinese consumers to pay more does not guarantee that they will. Chinese consumers are not only more optimistic, they are more sophisticated. They respond to brands that earn their attention, meeting their needs in relevant ways with products and services that are innovative and Different. To command a Premium, brands need to match these favourable market conditions with decisive actions, which requires offering distinctive products and communicating the Difference clearly. The opportunity to earn a Premium is available to all brands, across categories and regardless of whether they are SOEs, market-driven, or MNCs.

Source: Kantar Millward Brown

Editor's notes

* The BrandZ™ Top 100 Most Valuable Chinese Brands 2018 report, charts and video are available here. The mobile app can be downloaded via or search for BrandZ in the iTunes or Google Play app stores.

* To reach the author, or to know more information, data and analysis of brand consultancy in China and other parts of the world, please contact us.

* Please subscribe to our newsletter to receive news alerts.



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