Testing new product / service / price tiers could result in a new way of doing business.
By MARK RIFFEY for the Flathead Beacon
The craft beer explosion in the US over the last 5 to 10 years is a great lesson in premium price / premium product / premium services and customer ascension.
So what is the big lesson to learn from craft beer? Is it that you could make beer that only a certain percentage of the market will drink? Is it that you can put anything from talcum powder to motor oil in your wort as an ingredient and someone out there will want to drink it? Is it that you can charge for one pint what previously would have been a tolerable price for a six-pack?
But I don’t WANT an $80 diaper!
Those answers are all accurate at some level.
However, the biggest lesson is that in any market (including yours), there is a percentage of the market that’s willing to pay a premium price for a premium product. Products and services have had “Good, Better, Best” for years. Despite that, there are still many businesses out there that only offer a single product line with very little variation or options, premium services, or the opportunity to “ascend” to the next tier of product buyer.
These opportunities are not limited to automobiles, cigars, locally brewed beers, or any other thing. You can buy cheap toilet paper and you can buy fancy toilet paper. Speaking of, there are companies making a living selling diapers that cost $80 each.
While I don’t want to buy an $80 diaper, it’s clear that some portion of the diaper buying public does. That’s the trap that you can’t let yourself get caught in. It doesn’t matter that you and I aren’t interested in an $80 diaper. All that matters is that enough people are buying them. The same goes for a bottle of craft beer that might cost $12, $29, or much more. The challenge is finding a product that fits a market.
Premium price changes everything
In whatever you sell, there is almost certainly a premium price product or service opportunity – or both. You’ll never know where the price ceiling sits until you test it. We’ve all been offered an up-sell (want fries with that?), but this is different. Successful efforts typically result in a new tier of products and/or services. Sometimes, it reveals a completely different type of customer. It also allows ascension for some of the customers you have now.
Testing new product / service / price tiers could result in a new way of doing business for a subset of the people you serve. It may also reveal that there are additional price / product / service tiers between your existing regular and premium-priced options.
A successful “bar” that closes at 8:00 pm?
Montana micro-breweries are a fascinating example of finding an undiscovered tier in a market. They operate under a number of restrictions that impede their growth, including (recently raised) limits on the number of barrels they can brew each year.
Two additional restrictions that would ordinarily seem fatal to a traditional drinking establishment have instead created a new market tier.
First, Montana breweries with a taproom / tasting room may only serve 48 ounces (three pints) per patron per day. This might seem like a rather punitive restriction, but it doesn’t work out that way. First, most craft beers have a higher alcohol content than “regular” beer. As a result, three pints per visit is usually enough. Ever seen a bouncer in a brewery’s taproom? I haven’t. You’re more likely to see families and friends meeting together with their kids. Yes, in a taproom.
Second, Montana brewery tasting rooms cannot serve beer after 8:00 pm – at least not without getting a more costly / complex alcoholic beverage license. The traditional thought process would presume the 8:00 pm close dooms the tasting rooms. Instead, they’ve become gathering places after work, or before/after shopping and/or recreation. You’ll often see groups in a tasting room that you’d rarely see at a bar.
Without the typical late night hours of a bar, employees get home early enough to do some homework, put their kids to bed, or get a decent night’s sleep before their “real job” (or college). Likewise, these businesses avoid the occasional negative late night bar behavior that some places have to contend with.
While these limitations are restrictive, they’ve created a consumption tier that all but eliminates the negative behaviors sometimes associated with traditional bars.
The question is – what could be the premium-priced craft beer in your business?
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Want to learn more about Mark or ask him to write about a strategic, operations or marketing problem? See Mark’s site, contact him on LinkedIn or Twitter, or email him at mriffey@flatheadbeacon.com.