Yesterday I came across a new word that I can’t unsee: premiumisation. I read it in an article about Coca Cola, which is planning to move into the world of dairy with a new milk-with-bells-on called Fairlife. “It’s basically the premiumisation of milk” said company exec Sandy Douglas. It’s “a milk that’s premiumised and tastes better and we’ll charge twice as much for it as the milk we’re used to buying”.
I’d not seen the word before, but I know exactly what it refers to. It’s been a trend in the grocery world over the last decade. You take something ordinary, make a fancier version in prettier packaging, and charge more for it.
Look no further than the crisp aisle of your supermarket. Ten or fifteen years ago a crisp was a crisp, and they came in a range of flavours and we all knew our favourites. The most exotic it got was prawn cocktail. Then some smart marketers starting cutting the potato ever so slightly thicker, took it out of primary coloured packaging and started using white, black and darker shades of blue and maroon instead. The names of the flavours got longer and fancier – sea salt and cracked black pepper anyone?
Essentially, premiumisation is about adding the feel of specialness. The product may not cost any more to produce than the standard version, but you can charge more for it because it smacks of luxury. People are prepared to pay extra because it makes them feel like they’re treating themselves.
In a few years time, the milk aisle may be similarly diverse, stacked with premium versions in glass bottles perhaps, or promising superior taste or added health benefits. It’ll still be made by the cows of course, as it has been for thousands of years, but the magic of marketing will allow companies to charge more for it.
And it is magic. Sandy Douglas claimed that Coca Cola’s investment in the dairy sector would make it “rain money” for the company and its shareholders, and if raining money isn’t magic, I don’t know what is. In premiumisation we see the full glory of consumerism. If you can spot hitherto unidentified demand, and find new ways of giving people what they didn’t even know they wanted, riches will follow. And who am I to criticise? I like a caramelised red onion and balsamic vinegar crisp as much as the next man.
Well, I was thinking about premiumisation, and then I read an article about progress on a vaccine for Ebola. The good news is that we are getting there, as fast as we can. The bad news is that the science for such a vaccine has been around for a while and nobody had taken it through to a final product.
Why? because the economics didn’t make sense. As Sarah Kliff puts it in her interview with a senior ebola researcher, “pharmaceutical companies have little incentive to pour research and development dollars into curing a disease that surfaces sporadically in low-income, African countries.”
Isn’t that one of the great tragedies of capitalism? Consumers in the US have everything they could possibly want, but companies dedicate themselves to creating new products that nobody has ever asked for in order to coax more money out of them. And on the other side of the world, desperately poor people die horribly because there’s no money in creating a vaccine. In pursuit of shareholder value, the big corporations are duty bound to go where the money is. To the narrow logic of capitalism, Coca Cola’s new milk is more important than a cure for ebola – or at least until very recently. Now that rich countries are scared enough, everyone’s hurrying to finish the science.
The poor will always be invisible to a system that only measures value in financial terms. If we value human lives for what they are, not just their spending power, then capitalism can look strikingly inhuman sometimes. That’s not an argument for the end of capitalism, nor against free markets. It’s just that they are not enough. There are things free markets can do, and things they cannot do. They are useful tools, but not the only ones.
The Earthbound Report 
I really don’t mind so much in the crisp aisle you know, with crisps of all prices essentially being a “nice to have”. And I can understand the desire of milk producers to find a way to gain back some of the money they seem to have lost thanks to our desire for cheaper milk.
But it’s the brashness of the quote “a milk that’s premiumised and tastes better and we’ll charge twice as much for it as the milk we’re used to buying” that sent shivers down my spine.
Its the utter flagrant greed of the groscery retailer to put an exorbitant price onto the goods that’s actual cost a tiny fraction of what is being charged. Profiteering. A crisp is a crisp as is said-to pay for example £ 2.19 for a packet of Kettle Chips/Crisps is not acceptable, but if they can get away with it they will. As a pensioner on a very tight budget, and there are many thousands of us, prices like that are just not considered-only Bankers can afford those prices !
Wont be the milk producers making money from this it will be coka cola, lets hope it goes the same was as the bottled tap water they tried to flog went
Its largely true but not entirely true about Ebola, the vaccines have only been developed because of US concerns over bioterrorism, although I think some of those doing the work had wider concerns. Its again largely true that most drugs developed by Western pharmaceutical companies are lifestyle orientated to with weight, sex etc. However there is one major exception, that is antibiotics. Both rich and poor world need new ones urgently but there is no money in it so almost none are under development. One suggestion over developing world diseases is that Western Governments would guarantee to buy the first 2 million doses say through their aid budgets.
So we find incentives matter. If West Africa was wealthy then the drug companies would be falling over each other to develop Ebola vaccines. So let’s try and make West Africa wealthy.
In the aabsence of that then the rich world could guarantee a return for a company that made a vaccine. Vaccines cost huge amounts to develop. Someone has to pay for and its unfair to kick drug companies who are unwilling to lose shareholders money on something we should be prepared to pay for ourselves if we think it is so important.
As to the milk. Given we hear about how terrible it is milk farmers only get commodity prices and how we should value milk more, then if Coke create a market for premium milk the others will eenter the market and prices for good milk will rise. Or consumers will not be bothered and farmers can lump it.
But that’s circular reasoning. Curing ebola, or more common diseases like malaria, would do wonders for the wealth of West Africa.
I’m not kicking the drug companies. They are shareholder corporations and they are what they are. My point is just that the market on its own can’t do anything about a problem like this. It needs an intervention from somewhere. We need to work together, beyond the profit motive alone, to get that vaccine done. As it happens, it’s being finished now because the West is terrified and wants to stockpile an emergency supply, and therefore a market arises.
As for the milk, Coke’s foray into dairy does include some plans for sustainability, which I’m all for, but there’s no guarantee it will mean higher prices for farmers. A £120 pair of trainers and a £5 unbranded pair are both likely to be made in sweatshop conditions. All the money is in the branding and the marketing – which I think you’ll find is something to do with the ‘transactional economy’.
Not getting the transactional economy again. Those branding and marketing steps add value. So they are worthwhile. How do I know they add value? Because people voluntary pay the extra. They could buy the cheaper trainers but they choose not. The value of something is what people are prepared to pay (price discovery is what markets are really good at). Anything else is subjective and almost certainly wrong.
I do notice that while you know that the market economy outperforms all others you yern for something else and take every opportunity try to show where it needs to be regulated or constrained. Now my view is that given the huge benefit it has created the presumption should be against meddling and only then when you have examined the supposed problem in depth and evaluated the alternatives. Hence my comment about observer s often being wrong.
Do you even read my posts? Let me repeat my final paragraph:
The poor will always be invisible to a system that only measures value in financial terms. If we value human lives for what they are, not just their spending power, then capitalism can look strikingly inhuman sometimes. That’s not an argument for the end of capitalism, nor against free markets. It’s just that they are not enough. There are things free markets can do, and things they cannot do. They are useful tools, but not the only ones.
So how else do you measure value except financially?
Markets are the best tool we have for raising the poor out of poverty. Their success speaks for itself (10 fold increase in wealth of the average human over the last 200 years). It makes sense for the presumption to be towards them and the burden of proof on those who want regulation or another system. Yet you keep up your mantra – they are just tools and others are available; then show you don’t have the depth of understanding to evaluate the negative effects of those alternatives.
Ebola didn’t keep West Africa poor. Neither did free markets and capitalism. Terrible government policies are much more to blame for that. That a soft drink company isn’t trying to cure Ebola is a vacuous comparison.
Which is more valuable DevonChap – a fancy new brand of milk, or a cure for ebola?
You suggest we have to choose? We don’t. That is why your comparison is vacuous.
No, I’m not suggesting we have to choose. It’s a simple question: which is more valuable?
A cure for Ebola will probably make more money since I doubt people in Britain will pay more for milk.
Of course the reason we have the pharmaceutical industries that can make a cure for Ebola, and afford to give aid to pay for it is the tool of free markets. Without them we wouldn’t be discussing if fancy milk is move valuable than an Ebola cure since that would be an unimaginable fantasy.
Capitalism might seem not to value everyone equally but then so do governments and most people. Why single out capitalism? There is the Not the Nine O’clock News sketch reporting on a plane crash listing the nationality of the dead in order of importance – British, Americans, Europeans and the rest. True today as 30 years ago. Indeed eternally true.
It might make money now, but until the West got scared about Ebola this year, it wasn’t viable and the milk was more valuable. Where there’s no money to be made, the market can’t deliver. And that’s the point: markets can work out the financial value of things, not their importance.
Not sure why you’re discussing a world without markets in your second paragraph. I’m not. Yes, markets are a tool, but they’re a vital one and I don’t need any convincing about their importance. Where we go wrong is in thinking they can do everything.
Most of the times “markets go wrong”is when other things like government or regulation go wrong too. Yet the blame is placed on the markets with the implication that government should do more, when it failed too.
And you are still left with subjective measures of what is important. Easy to say an Ebola cure is important but much harder with most other things given that resources are always limited.
The market economy is the main reason our planet is being screwed up. More more more does no good for the planet. Stop looking for short term gains and start thinking about the children, grandchildren, great grandchildren …. of the future, and i dont just meen your children either but all children