Price, price, baby...
Kane Stanford delves into the forgotten ‘P’ of marketing...
Tell your parents that you’re in marketing and they most likely think that you make the ads on TV for your brand. You may well do. But as world-renowned marketing professor Mark Ritson says, advertising is (or should be, at least), only 8% of what marketers do. Pricing is often the afterthought, the last and least sexy of the Four Ps of Marketing, but really the most important. (With the others being ‘product’, ‘place’, and ‘promotion’.)
As a commercial marketer, Warren Buffet’s quote always sits front and centre of my mind: “The single most important decision in evaluating a business is pricing power,” he said. “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10%, then you’ve got a terrible business.”
“Pricing matters. And sometimes a
new product’s life can start there.”
A high price helps you manage the P&L a whole lot easier than a low price. Similarly, a 10% discount can easily equate to a 50% drop in net profit. So, pricing matters. And sometimes a new product’s life can start there. Here are two of my favourite examples:
Grey Goose
Having already reinvented Jägermeister for frat boys around America, the late, great businessman Sidney Frank set his sights on vodka in 1997, which was having a moment in the US. The story goes that he started with a price. He wanted to be twice the price of the leading premium vodka, Absolut. No one else was twice the price of Absolut, there was no ‘super premium’ vodka, so it was a real statement. Simply being twice as expensive would make people stop and pay attention – a marketer’s dream. But to justify that price, it needed to be as fancy as possible.
Luckily, Sidney knew a thing or two about being fancy. (He travelled with his own orchestra who would disembark from his private jet ahead of him so they could play him off the plane.) He chose to base the brand in France and convinced generational cognac guru François Thibault to be the brains, nose, palate, and face of the new brand.
Sidney had long had the name ‘Grey Goose’ in his mind, and finally had a place to use it. Now he needed fancy customers to be seen drinking it. So Grey Goose aligned itself with the lifestyle of 90s hip hop, which was in full swing, and became one of the most mentioned alcohol brands in rap music over the following decades.
Sidney created a new category in Super Premium Vodka, charged a crazy amount for his product and justified that price by creating a very powerful (aka valuable) brand. Seven years later he sold Grey Goose to Bacardi for USD$2b. That’s also a pretty good price.
Bigfoot
Closer to home, in the mid-2000s I was managing the bourbon portfolio (mainly Woodstock and Cody’s) at Independent Liquor. DB had launched its new bourbon RTD, Barrel 51, directly targeting our biggest SKU (12pk bottles) and with a price point of $18 they were a couple of bucks under ours at $20.
They were making a big impact; retailers were excited to finally see some real competition and our sales reps were freaking out. It was an interesting dilemma: DB had been making zero dollars from bourbon RTDs until this point, so any bourbon profit was good bourbon profit, but this SKU was worth millions of dollars of gross profit to Independent, so a 10% discount was going to have huge impact on our P&L.
So, I got a brief from Independent’s innovation/marketing guru, Richard Casey to create a new, lower cost bourbon RTD brand. We created BigFoot, which was around $10 for a 1.25L plastic bottle of bourbon RTD. And thanks to the bulk format and cheap COGS there was enough fat in the P&L to do some discounting and beat the Barrel 51 price.
Price was the problem and price was the solution – but with another brand – and it worked a treat. While Barrel 51 still grew and found its place in the market we slowed it down and, more importantly, could protect the price point of our biggest brand, Woodstock, and give the reps a price fighter with BigFoot.
Don’t sleep on price, marketers. It’s the one part of your value chain that your consumer sees. It’s at the top of your P&L for a reason.
Kane Stanford has worked for 13+ years in liquor marketing in New Zealand at Independent Liquor, Bacardi and now Besos Margarita, where he is GM. He is also Head Strategy Judge at the 2 Degrees Auckland Chamber Business Awards. Kane has nominated himself for several marketing awards, but never won.
