Tuesday, February 19, 2013
Just a bit off the mark
You make a product that's hot. So hot that you can't keep up with demand given current capacity. You have a choice, alter the product in an almost imperceptible way so you can stretch your supply or leave sales on the table. Maker's Mark choose the former and the outcry was as loud as it was predictable.
After sales increases of 14% in 2011 and 15% in 2012, last week it was announced the Beam Inc. super premium bourbon brand would lower the alcohol content of its product from 90 to 84 proof in order to have enough to meet the burgeoning demand. While they claim there was no discernable difference in taste, regular Maker's drinkers saw it as an attempt to "water down" the product. They shared their displeasure with the decision through Twitter, Facebook and email and within days Bill Samuels Jr., the Chairman Emeritus of Maker's Mark reversed the decision.
So why didn't Maker's do what other companies do when demand exceeds supply and just raise the price? Beam uses the popularity of Maker's as leverage to get distributors and retailers to carry its other brands like Basil Hayden's, Booker's, Bakers, Knob Creek, Laphroaig, Connemara, Ardmore, Effen, Sauza and more.
In essence they're saying, "You can't have our most desirable product, unless you carry a full line of our other products."
It's a good strategy until you kill the lead dog and the rest of the pack has no one to follow.
So what could Beam have done? It takes six years to make a batch of Makers at its current strength so they can't distill more and have it on the shelf tomorrow. In this era of social media and transparency making the change unannounced would have been a flat-out disaster.
In this case the best course would be to take the long view and build the business through a combination of activities. First, increase production capacity so in six years Maker's can meet the global demand. Second, select other bourbon or spirit brands from the portfolio and invest in them, creating additional leverage points with distributors. Given the fickle nature of trends in this business, that strategy also has the added benefit of providing options if and when consumer tastes change. While there's no guarantee of creating a blockbuster like Maker's out of the other brands, at least they wouldn't be devaluing any of them.
Ultimately the lesson here is: more sales aren't always good sales.