Commentary by Jonah Bloom

Bud Missing the Price Point in its Marketing to the Affluent

A-B Could Learn from Starbucks With Its $3.59 Cup of Joe

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The recent launch of Budweiser Select was partly designed to take advantage of the (very "last year") carb craze, but in name, image, packaging and taste claims it clearly also has some aspirations to premium status. So, you might think the marketing folks at Anheuser-Busch would see this as an opportunity to test a higher price point, right? Wrong. Bud Select is priced "at parity" with regular Bud.
Jonah Bloom, executive editor of Advertising Age.

Lost faith
It's a sad but familiar marketing tale. A-B is just one of a host of marketing powers that seem to have lost faith in their brand-building ability, preferring to pile it high and keep it cheap. In the obsessive quest for share, even the biggest names -- Miller, Kraft, General Mills and Coke -- have become so addicted to low prices that some of their great brands are now little more than commodities.

Now, with their core products maxed out in the mass market, they have to strain every muscle to get incremental sales. Worse still, their margins have been squeezed by these low-pricing policies -- some imposed by Wal-Mart -- making it tougher to find funds to invest in the innovation and brand-building needed to reverse the commoditization trend.

Investing in quality
They are in a deep, steep hole, and it would be foolish to suggest there's an easy route out. It will require real guts for these marketers to take the vital steps: reconstructing their core brands to add value for the consumer and reflecting those efforts in higher prices (even at the expense of share); and investing big bucks in higher quality, pricier products, (even if it means taking money from core products).

To steel their nerves, or force their hands, perhaps they should visit a Starbucks. The coffee giant is, boringly, often celebrated for its customer-centricity, but it takes guts, as well as a good customer experience, to charge $3.59 for a large latte.

The new quality seekers
Even more significantly for mass marketers, Starbucks' success speaks to the existence of millions of people willing to pay higher prices for a better product married to a better story. Starbucks has 33 million regulars, like me, who are not only willing to spend several dollars on a dose of caffeine, but also shell out $6.75 (before tax and soda) on a Chipotle Grill burrito, $12 on a vodka-based cocktail, or $150 on a pair of jeans. Millions of affluent consumers who seek quality not quantity -- they already feel they have too much stuff -- and will pay a premium for it.

Last year three guys from Accenture wrote a paper for The Harvard Business Review called "Selling to the Moneyed Masses." "A funny thing happened to income while marketers weren't looking," they said, "its distribution curve changed dramatically." Their fresh look at the stats found that the old landscape (most people clustered around the average income figure) has given way to a market in which tens of millions of households earn $65,000 to $180,000 -- well above the average. They say this creates new rules for mass marketers: out with avoiding the middle-market, in with new positions "above the best of the conventional offerings, below ultra-premium solutions."

Reaching the Starbucks masses
Of course there are marketers who are ahead of the curve. Last month in this space I talked about Lacoste's decision to sell its polo shirts at $79, not retailers' preferred price of $49; and there are a host of other pricing success stories, most notably the oft-quoted tale of Apple. But few of the traditional mass marketers have worked out how to reach the Starbucks masses.

The authors of "Moneyed Masses" single out P&G as the exception to that rule, with its Whitestrips, Spin Brush and Swiffer leading a charge to new price planes: "All launched billion-dollar industries in stagnant categories ... all have price-point multiples higher than their competitors." Therein lies the model for those with the guts to go to the drawing board: Rethink the category, and price like you rethought the category. "Parity" prices are not the answer.

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