Selling Craft Beers: 5 Tips for Countering Customers’ Price Ale-ments
By Joshua D. Hayes MA, Allisha A. Miller, David K. Hayes Ph.D
Restaurant managers face a variety of challenges when pricing their food and beverage products. This is especially the case when significant changes in customer preferences create heightened demand for specific new products. Nowhere is this challenge more apparent than in today's explosive growth in consumer demand for "craft beers."
But every silver lining has its cloud.
The same customer who would happily pay 200% more for a high quality wine when celebrating a special occasion may be wary about paying even 50% more for a craft beer. In fact, large numbers of customers are intrigued by craft beers but may have little or no familiarity with them. They want to try them, but may initially be hesitant to pay the higher prices these products command. As a result, the challenges surrounding the proper pricing and selling of craft beers is not related to the demand for the product, which is skyrocketing. Rather, the challenge is related to "reference" prices.
A reference price is simply the price perceived by customers to be the "normal" and "fair" price for a product or service. Buyers use a variety of information to establish their reference prices. This includes what they have paid for similar products in the past, the prices offered by other sellers for the same or similar products, and what they perceive as a price that provides good value for the money they will spend. Buyers then evaluate all other prices for the same item in comparison to their established reference price.
When a seller's proposed price varies significantly from a buyer's reference price, and the legitimacy of the higher product prices is not already established in the customer's mind, then the reasons for the higher price must be easily explained to customers. If an operation's selling staff cannot readily justify the higher price points, customers are unlikely to purchase the product.
It is important to recognize that, in the U.S. and the many other countries where demand for newly created craft beers is strong, these products can and should be sold at prices significantly higher than those of more traditional beer products produced and distributed by mega-breweries. Doing so allows operators to recover the higher cost of purchasing craft beer products. More importantly, it allows operators to enjoy the benefits of increased profits that should come from selling high demand products. It can also help create loyal patrons who return again and again to enjoy the unique experience of drinking a craft beer on tap or in a bottle.
But that can only be done if customers perceive prices to be just; a challenge indeed when craft beers can and should be sold at 50-200% higher prices than consumers are accustomed to paying for beer. This challenge can be better met as managers recognize that, while craft beers are not the same as mass-distributed beers, not all their customers will know that.
Knowledgeable beer-drinking customers, of course, immediately recognize the value of the delicious craft beers now available on the market. From them, little or no price resistance will be openly expressed. With customers who are less familiar with these new and unique products, however, an operation's selling staff may encounter initial price resistance expressed in some form of this statement:
"Gee, I'd really like to try it, but that seems kind of expensive for a beer!"
Experienced pricing managers understand that this is a normal reaction for a customer encountering a proposed selling price that is perceived as significantly higher than that customer's initial reference price.
What to do?
Here are five specific "truths" about craft beers that customer-centric operators can share with bartending and wait staff to give those essential team members the tools they need to overcome price resistance openly expressed by customers. Depending on your food service operation, one or more of these facts can be helpful in explaining to guests why a higher-priced crafted beer or ale product represents outstanding value.
1. Its supply is limited:
In most cases, buyers perceive higher value and willingly pay more for products that are in short supply. That's one reason the price of diamonds is high and the price of sand is low.
The available amount of a specific craft beer typically ranges from limited to extremely limited. For example, in the fall many craft breweries offer a selection of pumpkin beers and hard ciders. These concoctions, flavored with spicy hints of clove and nutmeg, are incredibly popular, and the demand for them is heightened by the knowledge that in a few short months these beers will not be available until next year! Even for brews that are offered all year, the quantity of beer produced is extremely limited in comparison to beers made by large-scale breweries. In the majority of cases craft breweries only distribute their products within 50 or 100 miles of where they were produced.
For many guests, a simple and truthful explanation regarding the limited availability of a specific craft beer will go a long way toward increasing those guests' perception of an appropriate reference price. Make sure servers know about the limited nature of the specific craft beer products they will be selling and that they should readily share this information with their customers.
2. It's specially made:
It's in the name.
Craft beers are crafted rather than mass-manufactured. There is an artisanal element of craft brewing that many customers appreciate. Craft brewers focus on the quality of their ingredients, like locally grown hops and seasonal fruits and nuts that give their craft brews distinct flavor and aromas. In contrast, many large "macro" breweries focus their time and creative energies on external marketing plans and internal cost-cutting campaigns.
In an age where more and more is relegated to mass production, there exists a large number of customers who can identify and appreciate quality over quantity. These are the same customers who understand the difference between Prime and Choice cuts of beef. The brewers of craft beer work hard, pouring their heart into each brew. This ensures a quality product.
Craft breweries are especially creative and expressive when brewing their beers. As a result, craft beers often have a compelling story and a motivation behind them. They may be named after the specific ingredients used in their production, local attractions, or even the brewer's dogs. Managers can find out what makes the specific craft beers listed on their menus unique and share that information with service staff.
Because of these distinct characteristics, servers who are made aware of each of the unique characteristics of an operation's craft beer offerings can emphasize those same characteristics to price-resistant customers. When they do, customers who appreciate creativity, taste experience, and quality in production techniques will be more than willing to pay higher prices for craft beers.
3. It's locally made:
With the recent recession in the U.S., increasing numbers of consumers recognize the importance of local industries on local economies. In many cases consumers will prefer to buy locally, and from those they know, rather than from product manufacturers perceived as being far away and disconnected from the local economy.
Many local breweries prefer to stay local. For example, Hill Farmstead, rated the best brewery in the world in 2013 by Ratebeer.com, has ample opportunity to expand outside its state, yet chooses only to distribute in Vermont. This kind of mindset among craft brewers is common, and the result is that each state has its own unique selection of craft beers. Customers drinking craft beers are almost always getting an exclusively local experience.
When a craft beer product offered for sale is produced within the local area, servers should be told precisely where the product has been brewed, the name of the brewery, and the brewery's size so they can openly share this information with their guests.
4. It's eco-friendly:
Managers who take the time to communicate directly with local micro-brewery operators will find that many are as committed to brewing in earth-friendly ways as they are to creating unique products. In addition, the high-quality ingredients used to produce craft beers and ales are usually locally sourced. As a result, purchasing a locally produced craft beer helps reduce the carbon footprint that would otherwise increase each time a shipment of hops or grains traveled across the country.
Many craft breweries even go a step further to reduce their carbon footprint by using their spent grains to feed animals, fertilize soil, create composts, and even power the brewery. For example, Sierra Nevada Brewing Company's spent grains, hops, and yeasts are used at local farms for cattle feed. Harpoon Brewery was awarded the Boston Green Business Award in 2012 for their efforts in sustainable brewing.
In fact, craft breweries of all sizes are creating niches for themselves by leading the industry in sustainability, the use of local ingredients, and eco-friendly, farm-to-foam practices as well as creative foam-to-farm initiatives! Other earth-friendly procedures include the use of biofuels, efficient lighting, and nontoxic cleaning products as well as a significant commitment to recycling.
5. Its ABV is higher:
Almost all craft beers have a greater alcohol by volume (ABV) content than that of "regular" beers. Certainly one reason customers drink any alcoholic beverage is that it includes alcohol. Some customers may not be aware that the ABV of mass-distributed beers is approximately 4-6%, while the ABV of craft beers is regularly around 6-8%. In some cases it is as high as 12% or more! As a result, customers are often actually getting the same "beer for their buck", but in one glass instead of two. While all operators should serve alcohol responsibly, pointing out the actual ABV levels of craft beers can help justify their higher prices to some customers.
It is our firm position that a properly calculated price for any hospitality product should do three things:
- Optimize the number of products sold
- Maximize the sale of profitable products
- Ensure customers feel they have received great value after the purchase
The best professional pricing managers in the hospitality industry understand the relationship between customer psychology and price. The very best of these also know that a thorough understanding of product features (whether they be amenities included in various guest room types, the individual components of a complex tour package, or a rare menu ingredient) is sometimes essential to overcoming customer price resistance.
Savvy operators also know that, for most customers, the higher the price of a product the greater the initially perceived product quality. In the case of today's craft beers and ales, however, managers must take steps to help their selling staffs articulate that these unique products really are "worth the extra money." When service staff members are well-prepared to respond to guests' price-related "ale-ments," by utilizing easy-to-remember and factual product information, the result will be increased sales and increased profits. Even more importantly, it will create highly satisfied guests who have enjoyed delicious craft beers once and, because they represent great value, will return to buy them again and again.
Note: This article originally published February 7, 2014 at www.hotel-online.com. Reuse by other media or news outlets or organizations is prohibited without permission. Personal use and sharing via social media tools is encouraged. All rights reserved by the authors.
About this Article | This article is based on information published in Revenue Management for the Hospitality Industry by David K. Hayes, Ph.D. and Allisha A. Miller. © 2011 John Wiley & Sons, Inc. All rights reserved. To purchase this book or obtain information about bulk sales, please contact firstname.lastname@example.org
Joshua D. Hayes, (MA Stanford; MA University of California, Davis) is a graduate instructor completing the Ph.D. program at the University of California, Davis and is a Panda Professionals consulting author in the areas of consumer behavior and operating data analysis.
David K. Hayes and Allisha A. Miller operate Panda Professionals Hospitality Management and Training (www.pandapros.com). PandaPros offers training programs on applying the power of customer-centric revenue management to radically increase revenue and expand profits. For information about training and coaching services provided by PandaPros, contact email@example.com