Destroying a beer's legacy...

Good to know.

 

I agree with much of what you say but am seeking only a narrow focus on the use of the single term "artifical." Artifical typical means "man-made." What I am still am missing is how a shortage can be man made when the supply is physically limited by the world. If I can only physically produce two barrels of beer and no more, what is the deliberate action on my part that makes it artificial rather than real? We both already grok the motivation and all there rest of that stuff for capitalizing on scarcity.

 

I'm agreeing with someone else focused on cross brewery consistency (AB can do it, so can SN), ask him.

 

I’m not sure the bolded is a fair assumption of Founders’ motives in pricing, and actually I’d argue it’s almost certainly wrong. They likely did not price CBS at say, $100 a bottle because: 1) they’d look like total douchebags and get shit on online for being money grubbing jerks; and 2) what the market might bear once for a limited and premium product, it will not necessarily bear continuously, hence diminishing returns and not a good long term pricing strategy.

I think one lesson of the craft beer explosion is that consumers are fickle and always looking for the next great thing. Pricing yourself at the top of the market just makes you that much more susceptible to folks bailing when the next beer comes along. The fact that KBS still sells is largely a function of its relatively reasonable price. If it were twice the price, I guarantee it would be a bigger shelf turd than it is already. The only breweries that have successfully maintained premium prices over the long term have also paired that high price with a sales model that makes the beer difficult to obtain and thus seemingly rare and special, year after year, e.g. club-only or ticketed releases. I would bet that if Toppling Goliath sent even 5,000 bottles of KBBS out to distro every year for a hundred bucks, it would rot on shelves after one or two releases and people would talk about how it isn’t as good as it used to be.

 

In an economic sense, shortages exist only where demand exceeds supply, and the main situation in which that will occur is if the price, for whatever reason, is kept low. It's "artificial" because the price naturally would rise to the market-clearing rate but needs intentionally to be suppressed to remain at shortage levels. In other words, Founders kept its prices on those products low knowing full well it was sacrificing short-term revenue and inducing shortages, and it did so strategically for marketing purposes. The alternative to the shortage being artificial is that Founders is run by a bunch of incompetent dolts to whom it never occurred that they could make more short-term revenue on KBS and CBS by raising the price. In fact, low pricing to induce superficially impressive excess demand (a.k.a., a shortage) very much is a tried and true marketing strategy intentionally employed by craft breweries along with many other businesses.

I already mentioned the defensive aspect of the strategy, to avoid bad word of mouth among the self-righteously economically ignorant who might throw around terms like "total douchebags" and "money grubbing jerks." But that doesn't mean that there wasn't also a proactive strategy at play to utilize the buzz around the product to build brand recognition and goodwill. Indeed, I've said I think the artificial scarcity/shortage pricing strategy benefited Founders in the long term. It's very likely that, without the shortage, far fewer consumers ever would've cared about those products in the first place. The lack of supply (and intimately related door-buster prices) actually generated the bulk of the demand.

 

Looking solely at a supply and demand curve your theories hold water. Pricing in the commercial world isn't simply graphing this out and landing on a number. Demand is likely more influenced by the brewery releasing the beer only once per year. This creates artificial scarcity more than the pricing. Countering that, the demand for stouts are also affected by seasonality. So pricing and production planning are more complex that just looking at immediate demand.

As it is a yearly release you also have to consider how pricing will affect customer retention. Barrel aged beers will only sell well if they have perceived value. Generally higher priced products have a higher perceived value. In a commodity market lowering prices generally increases demand. In a non commodity market such as BA beers when you begin to lower your price due to lower demand or higher supply that has a negative affect on the perception of your product. So you have two issues, one; will setting a beer at a higher price mean that you won't have yearly repeat customers, and two; will lowering the price of your beer in the future have a negative affect on perceived value? Those both affect long term sales. A consumer might buy your beer at $50 year one but year two they might not be willing to splurge again no matter how good it was. Maybe at $25 they purchase it every year which is the case for many people with CBS.

You can also look at risk, the beer market is fickle. The cost to produce a BA beer is high and its a big investment (time, barrels, space, opportunity cost, etc.). So if you aren't selling most of what you produced in a fairly quick manner you could risk seeing a loss. Bigger breweries can afford to not make that investment back quickly, smaller ones can't. Without looking back at statistics I'm not sure how big Founders was when it started making those beers, today the risk would be lower for them for sure. Lots of smaller breweries have had barrel societies or pre-buys or whatever else they called them. I've known a few that were well known enough to sell these beers but not big enough to make the investment in these more expensive beers. By having customers pay up front they were able to take the risk in making these beers and knowing they would make their money back. I just don't think the pricing decision was as simple as you make it out to be.

 

I'm curious if you bothered reading Founder's side of the racism accusation (https://foundersbrewing.com/latest-news/2019/founders-company-statement/) or does an accusation=guilt?

 

I generally agree with the content of this post and consider it consistent with my own. Trying to protect long-term brand perception by avoiding price cuts, for instance, is an aspect of maintaining hype. I also agree that seasonal releases tend to be an example of artificial-scarcity-based marketing in action; better buy now or you won't get a chance until next year, and the firm gets a shot of publicity on a predictable annual basis.

I think the risk management aspect that you raise could've prevented Founders from seeking the actual market-clearing price, but KBS and CBS were priced so far below that level until recently that Founders very easily could've raised the price a small to moderate amount with minimal risk of unsold product that it might've been forced to repurchase (depending on contracts with distributors). So I think that at most could explain the upper portion of the gap between demand and supply.

As I've written, I don't think Founders was wrong to price the way it did. I just think it was intentional with long-term strategy in mind, with Founders well aware that the result would be shortages and less-than-maximized short-term revenue. I think it's naive to suggest that breweries don't consider the hype from queuing and truck-chasing as a positive in their marketing strategies (not that this post denied that phenomenon).

 

Hopefully you can further educate me on this in the realm of Founders beers like KBS.

As I understand it for KBS 2019 the brewery sold their product in a "quick manner" to their direct customers (i.e., Wholesale Distributors). So within the context of 2019 there is zero risk of seeing a loss, right?

Is there something else going on here that I am not seeing for this moment?

Cheers!

 

Sorry, this was not meant in the context of Founders in 2019. Perhaps it wasn't even relevant to Founders when they started distributing KBS or CBS. It was more generic to smaller breweries when they first start selling BA stouts and the difficulties of pricing them. If you aren't positive you will make back the large initial investment in a BA beer it can be a difficulty.

 

I have read their statement. It looks like an attempt at "good PR" to me.

 

I'm curious... why are you inclined to believe the accuser and write off the brewery's response as "PR"?

 

Indeed... While recognizing that asking price is not the same as selling price, I saw KBBS on the black market with a $1,200.00 per bottle price.

 

As are the plaintiff's lawyer-approved statements. The point is; if you want to punish Founder's because someone claims they have a culture of racism fine & dandy, but shouldn't you at least wait and see if the accusations are true?

 

The black market is not an indicator of true demand. Demand can only be based on the people who are able to purchase it where it is legally distributed. This includes people who are local as well as people who are willing and able to travel to where its sold when its sold. The black market opens demand up effectively across time and space. Time in that if they price it at $1200 per bottle you may take 3 months to sell it rather than sell it in one day. Space in that you are now selling to potentially a world wide market as opposed to anyone within reasonable traveling distance. You have priced out your loyal local customers who have demand but not the means to spend $1200 on a bottle of beer.

This is another important point to consider, a brewery can't really consider the black market in its pricing. KBBS as I understand it did increase its price in order to try to decrease purchases solely for black market selling not because they felt the beer had an intrinsic value of $100 per bottle.

 

That's a real factor the first time a brewery puts a certain kind of beer on the market. When they had lines out the door and sold out in 45 minutes the last time, the owners can be pretty confident that, in the short term, they can safely raise the price for their next similar release. Of course how much remains an open question. Yet often the price increases not at all or a nominal amount, even as the lines get larger. Mysterious, unless you recognize it as an intentional marketing ploy.

I agree that the black market opens up distribution geographically and overestimates practical legal demand in that sense. However, it underestimates practical demand in the sense that many consumers choose not to participate in the black market because it's illegal. Given the wide practices of shipping via beer trading and moling, I have little doubt that Toppling Goliath could command far, far more than $100 per bottle for KBBS in the short term, with some of those $1,200 purchasers from afar using locally established connections to obtain the beer in the primary market on their behalf. The first time it tried, however, a multi-page complaint thread surely would spring up on these forums, and people would turn on the beer as overpriced and overrated,* thus potentially threatening Toppling Goliath's future ability to command high prices for the beer and detracting from its strong brand and reputation.

* I do believe ratings for these beers are intimately tied in with the hype around them and only weakly correlated to how much they would be enjoyed in a blind tasting.

 

Note that I was responding to a comment about much higher pricing on the illegal (i.e. black) market.

 

I'm sorry, that's crazy. But if folks want something that badly what the hell do I know?

 

No, not crazy. I suggest that you've never been an obsessed collector with more money than time. One such person organized a thread on here a while back. Several such posted in that short lived thread. They made no bones about buying such beers or about the fact that they had enough discretionary income that time (probably work time) was more valuable that paying $1200 for a beer they wanted to try.

 

OK then, the obsession is crazy.