H McKee Stewart Jr

Musings on Business, Finance, and Economcs.

Business 101–It’s Cheaper to Learn from the Mistakes of Others.

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Let’s say that you have a well known, well respected product, with untold thousands of loyal customers. Domestic demand is strong; you are rapidly growing share in foreign markets. Demand is so strong, in fact, that you are having a difficult time keeping your product stocked.

What to do? Light a cigar, put your feet up on the desk, and contemplate your bonus?  Follow that up with a price increase, and then put out a press release suggesting shortages to create a buying frenzy? Introduce smaller packaging sizes at the your current price points, effectively raising prices again? Have another cigar, and then do what you can to ramp up production to take advantage of the higher prices?

All classic, basic economics (demand up, short run supply fixed, prices … increase).  Straight from the shoulder, tried and true, falling off a log responses. Anybody can figure this out.

Right? Right?

Apparently not at Maker’s Mark.  Apparently, faced with this “problem”, management went into panic mode. That appears to be the only explanation for what they decided to do:

Blast their brand’s position in the market.

I can just picture the boardroom scene now: Confusion. Chaos. Huddled groups scribbling on flip charts about the threat.  Panic…. Time is passing….. What to do, what to do, what to do????

Suddenly, light breaks over the group lead by Dewey Cheatem, 3rd associate assistant to the Chief Sustainability Officer: “Let’s Trash the Product!!!”*.

CEO: “It’s just crazy enough to work!”.

This probably won’t be as catastrophic as the Edsel or New Coke, but the crippling potential is there.  Whiskey is one of those extremely sensitive to perceived status items. Essentially, once you get beyond the market for “Old Gym Sock”, it’s a Veblen good.  Which means that a premium pricing strategy is required.  Taking that price increase by cutting quality corners – and bragging about it publically – is what we used to call a “no-no”.  The bad press alone will take millions off of the value of the brand.

It doesn’t matter if there is “no difference” in taste (even in the alternative universe where Spock has a goatee, this is an unlikely outcome).  What matters is that Maker’s Mark has announced to the world that they are a company the cuts corners, not a company concerned with putting out the best product they can. 

Interesting to note that the genius behind this move – Rob Samuels – is a the grandson of the founder.  Maker’s Mark, however, is owned by Jim Beam, who apparently never caught on to the notion that the third generation is often a liability in the family business.  Honestly, what were the thinking? Send this guy out on tour talking up Gramp’s recipe, or get him on a reality show with Paris Hilton and Honey Boo Boo,  but don’t let him anywhere near a decision.

* Actually, the flip chart read “incentivize our synergies to strategically deleverage our quality position while maintaining a market posture of vertical backwards integration”.  Let me know if you need other ‘businessese’ translated.

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Written by hmstewartjr

12 February 2013 at 8:15 PM

Posted in Uncategorized

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