There are only a handful of perfect pairs in this world, but perhaps nothing goes better together than summertime and a cold beer (well, besides Beyoncé and Jay Z...for now). Some folks love the thick, handcrafted ales even when the weather gets hot, but for me, nothing beats a cheap cold one like Coors Light when the heat hits (mainly because of that fancy cold indicator on the can). Interestingly enough though, you may have noticed the prices of bottom shelf summer brews are actually rising at a meteoric rate compared to their “premium” and “super premium counterparts (i.e. expensive regional craft brews).
In fact, the price of cheap beer climbed 6.8% between October and April of 2013, which is long before summertime brought on the need for watery libations suitable for barbecues. The price increases aren’t necessarily anything to fret about, especially since enjoying a beer like Pabst Blue Ribbon is more of a lesson in toleration than savoring. Yet, the story becomes far more interesting when you look at why your watered-down, ice-cold PBR costs more: hipsters.
Yes, hipsters, a group of people engrossed in a subculture often known for ratty plaid shirts, indie music, and drinking cheap beer for trendy reasons, can’t get enough of the stuff and they’re driving up prices for the rest of us. To better understand why this fashionably ironic group of consumers is prompting bars in gentrified urban areas to jack up the price of PBR, let's first explore PBR’s pricing history and examine some actual data we collected and crunched around hipster valuation of cheap swill before guzzling down a few implications for your business.
A Brief Overview of PBR and the Methodology Behind Our Study
While some beverage companies are currently being sued for watering down their beers, PBR has seemingly built its reputation on the foundation of diluted brew. However, as the beer purists out there know, it wasn’t always this way. Prior to 1900, the Pabst product featured a “sharp texture and flowing sweetness” and won numerous awards (thus the blue ribbon). However, the current version of Pabst Blue Ribbon beer isn’t exactly synonymous with superb taste and quality, so what’s the deal? Why is the price of a can of PBR rising at a faster rate than an import like Heineken or a premium bottled White Whale? The answer lies in the emergence of a completely new customer segment.
A foundational concept of value based pricing is identifying the individual buyer personas that represent your customer base and aligning your pricing to them. We needed to test the validity of the idea that hipsters are responsible for driving the demand for cheap suds and the subsequent price hike. As it turns out, identifying hipster personas within the larger beer market can be a bit tricky. For one thing, hipsters absolutely hate being identified as hipsters. So how do you survey a group of people who refuse to self-identify?
Well, you trick them. In order to find an appropriate panel for our study, we asked potential respondents simple questions about their favorite type of music, clothing, and beer to determine if they possessed the characteristics hipsters have in common. Among the most popular traits: a love for indie rock and obscure bands, a vaguely eccentric fashion sense, and most importantly, a handlebar mustache that rivals the guy on the Pringles can (just kidding, but a sweet ‘stache would definitely have scored some bonus points).
In all seriousness though, we tested a suitable number of respondents from hipster hotspots in San Francisco, New York, and the Greater Boston area who scored high on our hipster index, measuring their willingness to pay for a standard can of PBR. Then we conducted the same price sensitivity test with a group of beer lovers from similar areas who also scored extremely low on the index. Here are the results for each of the tests:
Hipsters from San Francisco, NYC, & Greater Boston
Non-Hipsters SF, NYC, and Beantown
Just a quick note: IPP stands for Indifference Price Point, and is where half the respondents believe the item is expensive and half believe it inexpensive. The point is a phenomenal one to look at, because it serves as the middle point of the data, allowing you to compare across different campaigns and studies.
Simply put, the results are pretty wild. The data shows us hipsters are willing to shell out between $2 and $3 more for a can of PBR than their non-hipster counterparts. They also have a much wider range of acceptable prices, with a good portion of the population willing to pay up to $6 or $7. In sharp contrast, non-hipsters in rural areas are far more price sensitive, valuing a good ol’ can of PBR closer to $2 with a sharp drop off where a majority of the population thinks that even $2.20 is too expensive.
The Critical Implications of This Analysis
While sales of PBR were booming through the 1970s (with an all-time high of 18 million barrels of the stuff produced in 1977), the numbers precipitously dropped in the decades after. It’s easy to see why when you examine the company’s terrible advertising, but our pricing analysis uncovered some deeper insights into PBR’s resurging popularity and it has nothing to do with revamped promotion or the taste.
1. Value is paramount and demand shifts as a result
Although hyper-fashionable youngsters in urban areas would be mortified to be caught holding a can of PBR in the 90s, drinking blue-collar beer that wasn’t widely advertised (or enjoyed by anyone with taste buds for that matter) became the “cool” thing to do by 2010. The high value that hipsters place on PBR actually has little to do with flavor or quality - it’s about image. Demand increased because drinking “uncool” beer and supporting the underdog became cool. For Pabst, the rising value of the brand’s image translates to justifiable price increases amongst a crowd who is more than willing to pay for it, and the data above only reinforces this concept.
2. More price hikes could lead to PBR pricing themselves out of a niche market
Hipsters might be known for their irony, but Pabst marketers unironically identified the growing importance of a “hipster persona” as early as 2002. In addition to a strong distaste for traditional marketing (sorry, no sweet Pabst Superbowl ads will be gracing your flatscreen TV this year), promoters of PBR relied on word-of-mouth events to push the brew. A shockingly cheap price added to the notion that this wasn’t beer for the bourgeoisie. Even better.
However, while the price increases undoubtedly pad the profit margins of the company as well as the bars who sling the drink, continued hikes may threaten to undermine the brand image that Pabst helped develop with its grassroots marketing strategy. The optimal price band for the hipster market is much higher, but the range isn’t infinite. As prices of PBR begin to rival those of Bud Light, the tattooed hipsters with black frame glasses who brought the beer back from the brink might look for an even cheaper, less-popular substitute (especially when you consider that the average tip at a bar is a dollar per drink).
What can your business take away from the Pabst Blue Ribbon story?
The emergence of the hipster customer segment caused a rise in demand for cheap, low quality brews like Pabst, and those underdog brewers are capitalizing on these new customers by implementing price increases. It might not seem like raising the price of a can of PBR from $2 to $2.50 would have a huge impact on the company’s bottom line, but even a 1% increase in price can translate to an 11% increase in profit.
Pabst knows that brand image, not taste, is the main reason hipsters are buying the beer, and they also know that cool kids can generally pay a little more. However, the cheapness of the brew is part of the appeal, and if Pabst and the bars get drunk with power and price it outside of a certain range, it could decrease the value of that brand image. The point being, it’s important to be able to predict as accurately as possible how a change in prices will affect the demand for your offering in order to price for profit.
Different customer segments will inevitably value your product at different rates, and knowing the characteristics of your buyers will lead to an understanding of what each segment values about the product so you can price it at the highest amount they’re willing to pay. Whether the product is subpar suds or a software service, the customer’s perception of value is what guides a successful pricing strategy that maximizes revenue for your business.