Affordable Luxury: Understanding Premiumisation and Evolving Consumer Preferences

The concept of "Affordable Luxury" is critical in the Indian context. Unlike traditional luxury, which caters to an elite niche, affordable luxury bridges the gap between mass-market products and high-end luxury. It appeals to upwardly mobile consumers who seek quality and sophistication but are conscious of their spending. Brands in automotive, fashion, beauty, food, and FMCG industries have adapted to this trend by offering premium options that are accessible to India's growing middle-income groups. Take automotive industry as an example where the industry is now being dominated by sales of SUVs. In FY24, 60% of the total four-wheeler sales in India were that of SUV, compared to 10% in FY14, serving as a prime example of changing consumer preference to acquire high-end vehicles as they offer status and comfort. Another prime example is of the FMCG industry which has witnessed a revenue growth from US$ 49.0 billion in 2016 to US$ 121.8 billion in 2023. Millennials and Gen-Z consumers tend to prioritise convenience and superior quality over traditional products.

The Indian consumer landscape

India's consumer landscape is undergoing a remarkable transformation, driven by demographic changes, economic growth, and evolving aspirations. The shift toward premiumisation reflects deep socioeconomic trends as consumers transition from prioritising value-for-money to embracing quality, innovation, and aspirational products.

• The rising middle class and disposable income

The middle-class population in India is typically defined as households with an annual income between US$ 5,875 (Rs. Five lakh) and US$ 35,252 (Rs. Thirty lakh), characterised by discretionary spending and aspirations for better living standards. India’s middle class has emerged as a major economic force, propelling growth in consumption and shaping market trends. As per recent studies, India is expected to become the third-largest consumer economy globally by 2030, with consumer spending projected to reach US$ 6 trillion from US$ 2.4 trillion in 2022.

By FY47, India's middle class is expected to have nearly doubled to 61% of the country's total population, up from 31% in FY21. This is because the country is expected to become one of the world's largest markets due to ongoing economic reforms amid a political stable environment. The country is expected to witness a steady annual growth of 6% to 7% of GDP over the next 25 years. It is anticipated that the middle class will increase from 432 million in FY21 to 715 million (47%) in 2030–31 and further reaching 1.02 billion of India’s estimated 1.66 billion inhabitants by FY47.

India’s per capita disposable income has experienced remarkable growth, increasing from US$ 2.11 thousand in FY19 to an estimated US$ 2.69 thousand in FY24, and is projected to reach US$ 4.21 thousand by FY29. This growth is indicative of India’s rapid economic transformation, fuelled by rising job creation, increased workforce participation, and a growing urban population. The expanding middle class, which is expected to dominate consumption patterns, has emerged as a key driver of this upward trend. Improved rural income levels, driven by advancements in agricultural productivity and government welfare programs, have further bolstered this growth, reducing income disparity.

Moreover, the rise in disposable income has led to increased consumer spending across essential, discretionary, and luxury categories. Aspirational consumers are driving demand for premium products, enabling the growth of the automobile, electronics, and lifestyle goods industry. Simultaneously, real estate, financial services, and healthcare have also seen a boost as consumers prioritise better living standards and long-term financial security.

India's government policies, such as tax reforms, subsidies, and financial inclusion measures, have played a pivotal role in improving household income levels. Investments in infrastructure and digitalisation have created new economic opportunities, particularly in Tier II and III cities, bridging the gap between rural and urban India. This sustained rise in disposable income underscores India’s evolving economic landscape, paving the way for enhanced consumption patterns, broad economic participation, and robust GDP growth over the next decade. Moreover, dual-income households particularly in urban cities, further boosted spending power, creating demand for premium products that cater to modern lifestyles.

Opportunities in Premiumisation

Although premiumisation has room to expand, there are special chances for businesses to stand out from the competition thanks to the barriers in this market. Brands can develop long-lasting competitive advantages in the premium market and open unexplored markets by proactively tackling these challenges.

Given that a sizable section of the general population is still value-conscious, pricing sensitivity is one of the key issues. However, this also gives companies a chance to create tiered goods and creative pricing schemes. Businesses can reach aspirational customers who are eager to pay more but are wary of high price points by launching reasonably priced luxury goods or smaller premium versions. For example, FMCG companies have effectively launched "mini" versions of high-end goods, including gourmet snacks or smaller packages of luxury skincare, giving customers access to premium quality at an affordable starting point. To make high-end products accessible, firms also provide flexible payment options like EMI plans or BNPL schemes.

Another challenge that could be transformed into an opportunity is the competition from value-based products. To defend their higher price points, premium businesses might highlight exceptional quality, durability, and distinctive experiences. In this case, storytelling and branding are essential since customers look for goods that reflect their values, such as authenticity, sustainability, and workmanship. To differentiate themselves in a crowded market, high-end fashion, and home décor firms, for instance, can emphasise their use of artisanal production techniques or environmentally friendly materials.

Lastly, supply chain and logistics challenges in catering to premium segments, particularly in Tier II and III cities, highlight the need for investment in infrastructure and technology. Companies can obtain a first-mover advantage in these developing areas by implementing innovative last-mile delivery strategies, streamlining distribution networks, and collaborating with regional partners. Smart warehousing and AI-driven demand forecasting are two examples of digital solutions that can be used to guarantee that high-end goods are delivered to customers effectively while upholding quality requirements.

Road ahead

Rising wealth, urbanisation, and an aspirational consumer base is expected to drive India's premium consumption exponentially over the next ten years. According to projections, Tier II and Tier III cities will emerge as important growth areas, and categories including luxury real estate, high-end electronics, and premium FMCG will see significant rise. To maintain this momentum, international companies and Indian brands need to work together to strike a balance between exclusivity and affordability, adjust to regional tastes, and use technology to improve customer experiences. Co-branded products and shared retail locations are examples of strategic alliances that can accelerate expansion and penetration. More than just a business fad, premiumisation represents a cultural change in the way Indian customers view value, quality, and individuality. Understanding and adjusting to the shifting consumer behaviour will be essential as companies innovate to satisfy these shifting needs. Companies that put sustainability, genuineness, and customised experiences first will outperform their rivals. Finally, premiumisation reflects India's growing international prominence and presents chances for brands to meet the demands of its varied consumer base. The future of India's economy will be determined by altering consumer patterns in addition to growth.