Pricing for Perception

How do your perceptions influence the beers you buy? Think about the beers you feel are of the highest quality. What creates our perception of quality in a craft beer? Do we rely solely on the taste of the beer? Could it also be based on the ingredients used?  Does the brewing location influence your perception of quality?  How about labeling, packaging and nomenclature? Does this influence perception of quality? If this beer were introduced nearly twenty years ago like this,  would it have been as successful? How has your perception on the quality of canned beers changed? All of these factors certainly play a role in sculpting our perceptions, however, one other factor most influences how we feel about the quality of a product – price.

How much do you think the price of the beer influences consumer perception of quality? How do you perceive Keystone Light compared to Sam Adams Utopias? A bottle of Utopias cost more than a keg of Key Light. Of course, much more goes into the quality disparity between these two beers than just the price, but if you had never tasted or seen either, how would you perceive the quality based on their price points alone? Of course this is an extreme example, but let’s take a look at a scientific study on this phenomenon conducted at Caltech and Stanford University.

“According to researchers at the Stanford Graduate School of Business and the California Institute of Technology, if a person is told he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage…

The participants said they could taste five different wines, even though there were only three, and added that the wines identified as more expensive tasted better. The researchers found that an increase in the perceived price of a wine did lead to increased activity in the mOFC because of an associated increase in taste expectation.”

The researchers recruited 11 male Caltech graduate students who said they liked and occasionally drank red wine. The subjects were told that they would be trying five different Cabernet Sauvignons, identified by price, to study the effect of sampling time on flavor. In fact, only three wines were used—two were given twice. The first wine was identified by its real bottle price of $5 and by a fake $45 price tag. The second wine was marked with its actual $90 price and by a fictitious $10 tag. The third wine, which was used to distract the participants, was marked with its correct $35 price. A tasteless water was also given in between wine samples to rinse the subjects’ mouths. The wines were given in random order, and the students were asked to focus on flavor and how much they enjoyed each sample.

These test participants perceived greater quality in the EXACT SAME WINE when they were told it was a different bottle with a higher price!

Does giving wine a fake, inflated price change the contents of the bottle? Of course not. Does it make us perceive a better taste? According to this study, yes it does. Although the actual taste of the wine did not change, the perceptions in our brains can alter the way we taste the wine. Can we say that the results of this study would be any different with beer? I don’t think so.

In the craft beer industry we have the luxury of relative parity in price levels when compared to our wine drinking counterparts. Most craft beer six packs are within a $5 price range of $8 – $13. While there are a select few (and some absurdly expensive) exceptions to this rule, this is a much smaller window than the wine drinkers have. This pricing has kept a lot of the pretention and elitism that run amok in the wine industry out of craft brewing, yet it has still provided enough room for breweries to take advantage of higher prices to generate this perceived quality.

However, I want to make one thing clear – artificial inflation of a beer price alone will not lead to greater perceived quality. If this were the case, all breweries would keep raising their beer prices to generate false perception of quality until beer became unaffordable (the last thing I want). In order to work, raising prices has to be used in small amounts, only when appropriate, and must be used in conjunction with other perception enhancers. Let’s take a look at each of these:

Small Amounts

If a brewery decided it wanted to have greater quality perception for their current offerings and decided to raise the price of all their six packs from $8.50 to $12.50, they’ve just put themselves out of business. They might attract a handful of new consumers who’ve never heard of the brewery before but they have also successfully alienated their loyal customer base. Also, if every brewery engaged in this pricing with each of their beers, craft beer would become unaffordable to the average beer drinker and they’d start looking for substitute products.

Only When Appropriate

As mentioned in the last section, a brewery can’t increase the price of a current product and expect an increase in quality perception. So when is it appropriate to choose a higher price point?

When introducing a new beer.

Without a loyal fan base that expects a certain price, new products can be priced as a premium addition to the product line.

In Conjunction with Other Perception Enhancers

The pricing strategy must be used in conjunction with other elements that enhance consumer perception of quality. In other words, what makes this beer worth the price? Showing the consumer why the beer is worth the money doesn’t have to cost the brewery more money, but it does need to offer the consumer something different from the current offerings – a limited edition sixpack, a new name and logo that denotes specialty, or an eye catching bomber bottle. When rolled out together, pricing and image have a strong effect on consumer quality perception.

My goal isn’t to artificially drive up beer prices or to make sure every brewery has a premium offering. In fact, if every brewery is doing this, it is no longer unique. We have seen this in the wine industry and it is probably one of the reasons many of us aren’t wine connoisseurs. Instead, my goal is to better understand how our perceptions influence our choices when purchasing beer and pricing is a good starting point for this discussion.

Putting a Legendary Brewery in Good Hands

I know I’m only supposed to be writing about craft beer, and Pabst doesn’t exactly fit that definition, but the company really provides a great case study on word of mouth marketing so I don’t have a problem mentioning them here.

The Pabst Brewing Co. is for sale my friends, and two advertising agencies are attempting to crowdsource the purchase of this legendary brewing company’s brands. Currently they are taking pledges and once they have reached the asking price of $300,000,000, they’ll collect the money and buy the Pabst Brewing Co. Pledges can be made for as little as $5 and pledgees will reportedly receive a certificate of ownership and enough beer to match their pledge.

Currently, North American Breweries (makers of LaBatt, Dundee, Genesee) and the monolithic InBev are considered the current players in the market for Pabst. But if these ad agencies are successful in their bid, then we could see a dynamic shift by putting the Pabst brands in the hands of the community and not allowing them to become yet another component of a large brewing company’s portfolio.

I love the concept of community ownership of the Pabst Brewing Co. and it reminds me of another community owned enterprise from Wisconsin. I’m pledging $5 to the support of this cause and I encourage you to do the same – http://www.buyabeercompany.com/

Empowering the Consumer

(Note: I read about this idea on Springwise and thought it could apply well to a brewpub or beer restaurant as well.)

Recently, a London restaurant utilized social media to compile a new wine list. L’Anima, an upscale Italian eatery in the heart of the city, let their fans and loyal customers choose three wines that would be included on the permanent wine list at the restaurant. While a good idea in and of itself, the way in which L’Anima executed this made it remarkable. The restaurant hosted a panel where six wine experts tasted a variety of selections and made their choices of which wines they wanted to make the final list. Naturally, the experts could not agree on a selection for three wine categories so the final decision was left up to the public. Each expert explained why they wanted their wine to be chosen on a video which was then uploaded to the L’Anima website and the public voted.

This not only let their customers choose the wines they would ultimately be drinking (and thus purchase more) but also generated additional interest in the restaurant due to the event itself. The public enjoyed watching wine experts duke it out over which wines they thought were the best, and then it was the consumers’ opinions that counted in the end, giving them the final voice in the selection process. And the best part? The public was enticed to vote and spread the word about this promotion. Any customer who tweeted about the promotion was entered into a random drawing for a chance to win free wine and a tour of the restaurant.

This idea could easily be adapted to the brewpub or ‘barstaurant’ looking to create a new beer list. Bringing consumers into the selection process is a great way to get them involved and emotionally invested in a restaurant. In order to make this work for beer, the restaurant could bring in the brewmasters of small, local breweries and have them make their case to the consumer why their beer should be carried at the restaurant. Or, for the brewpub concept, this idea could be used in order to determine which pilot or small batch beer is the next to be added to the permanent beer list. By involving the public in the selection of the beers, a generally behind-the-scenes event becomes a large promotion for the restaurant. It’s exciting and allows the consumer to feel in control.

Brewery of the Month: Uncommon Brewers (Santa Cruz, CA)

Uncommon Brewers is based out of Santa Cruz; a city known for it’s progressive activism, social tolerance, and environmental awareness. These elements, plus its reputation as a surf mecca and college town have combined to impart a unique flavor on the city. Since Uncommon Brewers got their start in 2007, they have been creating some of the most innovative and uniquely flavored (and entirely organic) beers, indicative of the community they were conceived in. And with a name like Uncommon Brewers, would you expect anything less? They haven’t been around for long, but they are certainly making their mark on craft brewing. I caught up with Alec Stefansky, co-founder of Uncommon Brewers. The topics of discussion ranged from unique brewing styles to community involvement and the slow food movement.

If you’re unfamiliar with the Slow Food movement, it’s defined on its website as ‘a non-profit, eco-gastronomic member supported organization to counteract fast food and fast life, the disappearance of local food traditions, and people’s dwindling interest in the food they eat, where it comes from, how it tastes, and how our food choices affect the rest of the world.’ Alec works with the local slow food chapter and his stated goal is “to source as many of our ingredients as possible from local farms.” In doing so, Uncommon Brewers not only supports local farmers but they’re also getting their ingredients in the freshest and healthiest condition possible.

Uncommon is also one of the only organic breweries in the country. There are many organic beers out there, but according to Alec, what makes Uncommon unique is that every one of their beers is made solely from organic ingredients. “We are an entirely organic brewery, even down to the hops. There are many organic breweries that are not using organic hops because they’re not required to…as part of the process. Right now, just because beer says organic on it, it doesn’t necessarily mean all those ingredients are organic.”

Creating an all-organic beer line isn’t just beneficial from an environmental standpoint – it also makes sense given the market that Uncommon was founded in. According to Alec, “Santa Cruz county is one of these nexuses in the country and in the world where organic farming is really a way of life. We’re surrounded by internationally distributed organic farms that got their start in Santa Cruz.” People in and around Santa Cruz are acutely aware of organic products, and this is often a huge selling point for consumer products in the area. “From the business side of it… especially in those first sales meetings, it made it so I could go into a place and say ‘well you’ve never heard of us before, but I’ve got this great beer and by the way it’s organic.’ It was one more feather in the hat when we were first getting going. Now it’s an advantage against some of the other similar beers in the marketplace because people do care.”

As of now, Uncommon has four primary beers. Their flagship, Siamese Twin (a Thai spiced beer including lemongrass, kaffir lime, and coriander), Golden State Ale (a Golden Ale that features toasted poppy seeds), Baltic Porter (made with a blend of whole licorice root and star anise) and Rubidus Red. At the Great American Beer Festival I had a chance to try the Rubidus Red, and it’s one of the most interesting beers I’ve ever had. It’s brewed with candy cap mushrooms which impart a sweet, maple syrup like flavor to the beer, and I promise you, it’s unlike anything you’ve tried. Continuing in their tradition of bold-flavored beers, the newest beer coming out of Uncommon involves pork. Yes, you read that correctly, P-O-R-K. “We actually brewed the first commercial batch of our bacon brown ale. It’s a nut brown brewed with bacon”. May bacon lovers rejoice.

By creating innovative flavors and brewing entirely organic beer in a manner befitting of the slow food movement, Uncommon Brewers have created a product that translates well to their market in Santa Cruz and the greater Bay Area. Currently, you can only find their beer in select California markets, so if you live in or are visiting California, definitely pick some up. Uncommon Brewers was built on a heritage of commitment to quality, organic ingredients, and bold flavors. If they can stay true to this heritage as they grow, I could see this becoming a very successful brewery in time.

Going Beyond ‘Normal’

What has led to Dogfish Head winning a devoted, cult-like following and more awards than you can shake your fist at?

Dogfish Head has successfully differentiated themselves and built a strong, cohesive brand identity.

What is that identity? They have taken their beer to the edge. Strike that – not just to the edge – Dogfish Head has developed some @$!%ING CRAZY beers. A quick perusal of their beer list reveals beers made from millennia old recipes, off kilter ingredients such as beet sugar and green raisins, and a beer made in the largest handmade wooden brewing vessels built since prohibition. My personal favorite is Pangaea – a

beer made with ingredients from EVERY continent. The ingredient list includes crystallized ginger from Australia, European yeast, South American Quinoa, North American maize, Muscavado sugar from Africa, Basmati rice from Asia and water from ANTARCTICA.

Their motto says it all, ‘Off-centered ales, for off-centered people.’ Generally, products that appeal to fringe groups may enjoy wild success within that group (in this case, off-centered people). But how has Dogfish Head grown to be one of the largest craft breweries while seemingly appealing only to this fringe group?

Making every beer a ‘fringe’ beer.

I think this strategy is genius. Many breweries can boast a beer made from organic ingredients, or one with an absurdly high alcohol content or an off the wall flavor. But how many can claim something remarkable about each one of their beers? With so many breweries pushing the envelope on beer styles, Dogfish Head has differentiated themselves by pushing the envelope on their entire portfolio. Almost every beer they make has fringe appeal, but the key is that they appeal to different fringes.

A beer for extreme hop lovers? Check

A beer with a ridiculous amount of fruit? Check

A beer that has more in common with a fine port? Check

A beer for lovers of references to obscure movies about Jewish summer camps in the 1980’s? Check

This strategy has helped propel their growth despite the absence of a mainstream beer with universal taste appeal. By creating unique and memorable beers, Dogfish Head has broken through the fringe.

Home Town On Tap

Many breweries have developed close distribution relationships with bars and restaurants in their communities. In fact many of these purveyors get the privilege of carrying the newest or exclusive beers from these breweries. Some examples:

Deschutes and The Blacksmith Steakhouse in Bend, Oregon

New Belgium and Elliot’s Martini Bar in Fort Collins, Colorado

Brooklyn Brewery and Brooklyn Bowl in (you guessed it) Brooklyn, New York

The relationship between Brooklyn Brewery and the bowling alley is especially cool. Because they’re next door neighbors, the brewery has simply rolled kegs of their newest beers across the alley allowing Brooklyn Bowl to serve it before anyone else. How many bowling alleys can claim that? There is a great article on this relationship here.

This is just one more example of breweries integrating themselves into their communities. It’s a great way for the breweries to stay connected to the community they grew up in. The establishment that carries the unique beer will feel privileged to have the opportunity to do so, and will likely become a champion for the brewery, carrying and pushing other beers from that brewery’s product line.

I suspect that the people in these communities feel a greater sense of connection and loyalty to their home town brewery – they have an opportunity to try a beer that no one else can try without getting to their city first. It’s pretty amazing when breweries with distribution all over the country still look out for the independently owned bars and restaurants in their own communities, no?

Looking Behind the Label

A long standing point of differentiation among breweries has been the way they label and package their beers. This aspect is one of the most important influences on consumer perception and  labels are constantly battling for consumer attention and dollars. However, in a why-didn’t-I-think-of-that moment, a brewery out of Estonia has instantly made themselves more noticeable than any label ever could.

Viru looked behind the label and completely reshaped and redesigned the bottle their beer comes in. By giving the product remarkable design they have created a memorable brand without putting much into the actual labeling.

I’ve seen this concept before with high end vodka’s, but this is the first I’ve seen of it it in beer. Viru positions itself as a high end, trendy European beer, but is there a place for this kind of edginess in the craft beer market, or should we leave it to Vodka? What do you think?

Sharing the Love

Beer tasting as a hobby has grown up with the craft beer industry and it has become ubiquitous with a visit to a brewery. You can now also get taster trays at certain beer oriented restaurants. This concept has been taken a step further with people hosting beer tasting parties at their homes.

Breweries want to encourage these tasting parties – the whole idea here (from a brewery perspective) is to have consumers share the beer with their friends and family. This leads to a unique opportunity for breweries: Build beer tasting guides right into the packaging.

Breweries should include a step-by-step guide to tasting beer somewhere in the packaging. This could be as simple as including a small takeaway tasting guide in each pack. Additionally, include MULTIPLE notes/ratings pages with the usual categories (body, aroma, etc.)

This builds communication right into the product and encourages the consumer to share. Putting this aspect into the packaging makes sharing extremely easy for the consumer. Ideally this would be integrated into sampler packs such as New Belgium’s Folly Pack to allow the consumer to taste and share different types of beer.

If the brewery makes it easy for the customer to share, they will.