Booze, Liquor and Spirits: Maintaining Brand Equity vs. Discounting

Our recent economic malaise has revived the debate over discounting goods and services in nearly every business sector. Arguments pro and con abound, but the crux of the matter is whether it's possible to re-establish a brand without diluting its premium status once a price is lowered either to increase market share, attract a new customer base or decrease excess inventory. It's difficult to generalize the findings but given that alcohol consumption has probably been a dominant source of self-medicating through the recession -- today's WSJ reports "the 2009 volume of spirits sold in the U.S. rose 1.4%, but the total revenue for spirits producers was essentially flat at $18.7 billion" -- recent sales figures from the spirits industry offer the basis for a sobering analysis of the debate.

From a supply chain perspective The Journal writes that "Discounting often begins with the producer offering a deal to a distributor, which then passes along the savings to a retailer. [where] Coupons and rebate offers have popped up in newspaper ads or alongside bottles on store shelves." And while “Several industry executives said they haven't seen price promotions and couponing to this extent in at least a decade. Some analysts worry that prolonged discounting could dent the images of some brands and make it hard to raise prices later."

While hardly a scientific analysis, the article reports earnings from two of the world's largest spirit producers and it appears that resisting discounting has produced a smaller drop in North America net sales -- "on an organic basis, which strips out acquisitions, divestitures and currency effects" -- than among those that have pursued discounting strategies. None-the-less, one discounter maintains "It will be easier to get consumers to pay more in better economic times ... if they do not leave the category."

Or sober up for that matter.

William Busch

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