The premium price lesson taught by craft beer

The craft beer explosion in the US over the last 5 to 10 years is a great lesson in premium price / premium product / premium services and customer ascension.

So what is the big lesson to learn from craft beer? Is it that you could make beer that only a certain percentage of the market will drink? Is it that you can put anything from talcum powder to motor oil in your wort as an ingredient and someone out there will want to drink it? Is it that you can charge for one pint what previously would have been a tolerable price for a six-pack?

But I don’t WANT an $80 diaper!

Those answers are all accurate at some level.

However, the biggest lesson is that in any market (including yours), there is a percentage of the market that’s willing to pay a premium price for a premium product. Products and services have had “Good, Better, Best” for years. Despite that, there are still many businesses out there that only offer a single product line with very little variation or options, premium services, or the opportunity to “ascend” to the next tier of product buyer.

These opportunities are not limited to automobiles, cigars, locally brewed beers, or any other thing. You can buy cheap toilet paper and you can buy fancy toilet paper. Speaking of, there are companies making a living selling diapers that cost $80 each.

While I don’t want to buy an $80 diaper, it’s clear that some portion of the diaper buying public does. That’s the trap that you can’t let yourself get caught in. It doesn’t matter that you and I aren’t interested in an $80 diaper. All that matters is that enough people are buying them. The same goes for a bottle of craft beer that might cost $12, $29, or much more. The challenge is finding a product that fits a market.

Premium price changes everything

In whatever you sell, there is almost certainly a premium price product or service opportunity – or both. You’ll never know where the price ceiling sits until you test it. We’ve all been offered an up-sell (want fries with that?), but this is different. Successful efforts typically result in a new tier of products and/or services. Sometimes, it reveals a completely different type of customer. It also allows ascension for some of the customers you have now.

Testing new product / service / price tiers could result in a new way of doing business for a subset of the people you serve. It may also reveal that there are additional price / product / service tiers between your existing regular and premium-priced options.

A successful “bar” that closes at 8:00 pm?

Montana micro-breweries are a fascinating example of finding an undiscovered tier in a market. They operate under a number of restrictions that impede their growth, including (recently raised) limits on the number of barrels they can brew each year.

Two additional restrictions that would ordinarily seem fatal to a traditional drinking establishment have instead created a new market tier.

First, Montana breweries with a taproom / tasting room may only serve 48 ounces (three pints) per patron per day. This might seem like a rather punitive restriction, but it doesn’t work out that way. First, most craft beers have a higher alcohol content than “regular” beer. As a result, three pints per visit is usually enough. Ever seen a bouncer in a brewery’s taproom? I haven’t. You’re more likely to see families and friends meeting together with their kids. Yes, in a taproom.

Second, Montana brewery tasting rooms cannot serve beer after 8:00 pm – at least not without getting a more costly / complex alcoholic beverage license. The traditional thought process would presume the 8:00 pm close dooms the tasting rooms. Instead, they’ve become gathering places after work, or before/after shopping and/or recreation. You’ll often see groups in a tasting room that you’d rarely see at a bar.

Without the typical late night hours of a bar, employees get home early enough to do some homework, put their kids to bed, or get a decent night’s sleep before their “real job”  (or college).  Likewise, these businesses avoid the occasional negative late night bar behavior that some places have to contend with.

While these limitations are restrictive, they’ve created a consumption tier that all but eliminates the negative behaviors sometimes associated with traditional bars.

The question is – what could be the premium-priced craft beer in your business?

What does your community’s welcome mat say?


Creative Commons License photo credit: archerwl

A state association of businesses has pushed legislation into our state house that would limit the on-premise retail sales volume of a related group of businesses.

Yes, we talked about this recently, but today let’s go beyond this one business, this one time.

That situation is just a symptom of a far bigger concern.

For an established business with good wholesale distribution in place, retail sales limitations wouldn’t be a big deal – except that those same businesses already have legislated production and sales volumes that limit their growth.

These production/sales limitations brilliantly restrict both growth and new businesses in that market.

One of our town’s newest businesses, started by a young family, is placed in jeopardy by this legislation just weeks before their doors open.

That doesn’t mean the “other guys” don’t have grievances to settle (such as a level compliance playing field), but those grievances aren’t going to be cured by artificially limiting sales numbers.

Even so, it shouldn’t be about one business group over the other – both have the right to do business. I know business owners and employees on both sides. I believe these two groups have much more to gain by cooperating.

While the specifics of issues like this will change from year to year, what concerns me most is the message these situations send.

What’s the message to young families and entrepreneurs?

Last week, we talked last week about what communities do to encourage young families and businesses to put down roots or return to the area. Governments and community economic development groups put a lot of effort into these programs. Meanwhile, legislative proposals that limit the growth of new small businesses fly directly in the face of that work.

My question to those in the State House is this: Does legislation that chooses one market over another send the message you want to send from your state, much less your community?

Do laws like that encourage young families to stay and invest in your community? Does the legislature realize that when a small business person sees this done to one business niche, they can’t help but wonder if it will be done to another niche in the next session?

The message we heard then

When we moved our family and our business here in the late 1990s, one of the reasons we chose Columbia Falls was the warm response we received from folks around town. When we said we were considering moving here, the typical response was something like “That’s great. We’d be happy to have you here.”

While schools, the Park and recreation opportunities were important, the overwhelming “this is the right place” feeling came from the welcoming nature of the people we met.

The message I heard back in the 90s was not “Be a no-holds-barred success at all costs.” It was “Build it here. Be a good corporate citizen, a good employer, a profitable example for others who want to build / relocate a business here, and an asset to your community. Become a member of the family.”

If things didn’t work out or legislation targeted my business, I could always move it out of state because it isn’t tied to a brick and mortar retail location. It’s a by-design luxury and a property of the kind of work we do.

Thing is, brick and mortar retailers, restaurants, microbreweries and most services businesses really don’t have that choice.

What’s the message now?

No matter what the state house is working on, they must be careful about the message being sent by legislation that artificially manipulates markets and favors one group over another. It’s a message that other business owners and entrepreneurs look for when they choose a home. Business is hard enough as it is without having to fight off competition from the state house.

This session’s controversy in your state house, whatever it might be, will likely be old news next session.

The real concern to have is this: What our legislators do sets out your state’s welcome mat.

Do you want it to say “Welcome to our state” or “Build it somewhere else”?

Butcher shops concerned about locally grown meat sales limits

Rude Cow!
Creative Commons License photo credit: foxypar4

The legislature is considering placing additional limits on the production or sale of locally grown meat, including the meat of wild animals.

Backing this legislation is the Corporate Grocers Association, which serves the interests of corporate grocery chains across America.

The proposed law also places strict annual limits on hunting and fishing since those activities impact the meat sales of CGA members. Catch and release fishing will not be affected since it does not affect meat sales.

CGA public relations officer M. A. DeUpnaam said “This legislation will protect our members and their employees from the predatory practices of micro-ranchers, predatory local hunters, people who selfishly decline to practice catch and release fishing, as well local butcher shops and meat processors who specialize in processing and selling locally raised meat products.

The action was taken at the request of a local CGA grocer after their newspaper reported that “425 whitetail deer, 64 mule deer and 58 elk” were harvested in his market area during the first three weeks of hunting season. After calculating how much that wild animal meat could cost his grocery in lost meat sales, he convinced the Association to step in.

History on CGA’s side

In prior sessions, the CGA has been successful in lobbying for protection of their members. Butcher shops and meat processors are limited to 10 retail sales hours per day and may sell no more than two pounds of meat per day to any single customer. Micro-ranches are allowed to raise no more animals than would produce 10,000 pounds of meat (for retail sale) annually.

If the 10,000 pound limit is exceeded during the calendar year, the business must shut down retail sales for the remainder of the calendar year and curtail production so that the limit isn’t exceeded the following year. Producers who exceed the 10,000 pound limit more than once will be required to cease retail sales permanently. Of course, they’re still allowed to sell their meat to wholesale buyers.

Of growing concern

CGA members are deeply concerned by the rapid growth of the microranch business, despite annual production limits placed on them. It’s not hard to see why: 100 new micro-ranches operating at maximum capacity in a single state would mean one million pounds of meat is available for purchase in that state – meat that wasn’t previously on the market. Add that to the previously ignored volume of wild animal meat produced and it’s no wonder the legislature is getting grilled by the CGA.

Microranchers and local butcher shops contend that they do not compete directly with CGA members because they produce a premium quality, high-priced product that the typical grocery shopper doesn’t buy at CGA member stores. CGA spokesperson DeUpnaam countered that assertion, saying “Every pound of meat sold by a local butcher shop, regardless of price or quality, is a pound of meat not sold by a CGA member. It’s a zero sum game and corrective action is necessary to return things to the way they were when our members established their businesses.”

Local produce and herb farms watching closely

Organic farms and local gardeners are monitoring this legislation closely, concerned that the legislature might decide to place limits on the sale of locally grown produce.

Community farmers markets are also watching and wondering about “corrective action” targeting their markets. Because they take a small cut of the sales made by a local butcher shop or gardener at their events, they too could become subject to the annual sales limits. While they have never lobbied a state legislature before, the organizers of 14 farmers markets in this area met last weekend to discuss sending a representative to the state house to monitor the situation, and if necessary, plead their case.

Fiction?

Yes, that’s a made up headline and story line – but it isn’t quite so fictional if you own a microbrewery or craft brewery business in Montana.

Update: After receiving substantial feedback from constituents, the committee in charge of fine tuning and releasing HB616 to the Montana House thought better of it and unanimously voted to table it. The committee also unanimously approved a study bill that is intended to get all parties involved in “fixing” Montana’s licensing laws in time to bring a palatable solution to the next legislature.

What isn’t Amazon going to change?

During Amazon Web Services’ (AWS) November re:Invent conference, there were a number of interesting talks.

Psst…Don’t run away, not-interested-in-technology folks, this is barely about tech if you look closely.

I got the most out of the sessions centered around the strategic design decisions that Amazon.com (an AWS customer) and other AWS customers were making.

These discussions were all about making a system resilient, scalable and capable of reacting quickly and transparently to changes in the business – while keeping costs as low as possible and tied directly to the business’ actual resource usage.

Naturally, their point was that AWS helps provide this ability to people who build systems.

AWS streamlines server infrastructure the same way LTL trucking streamlines freight shipping.

LTL clients get to use a high quality transportation system without investing a fleet of trucks, warehouses, dispatchers, mechanics and drivers that they may not need two weeks from now. Yet all of those resources and jobs are necessary to get freight from point a to point b. Shippers pay for what they use, meaning less waste, more efficiency, better job security and better asset use.

As I said, this isn’t about tech.

No one ever says

During a discussion on why AWS is always changing, Bezos summed it up simply: “No one ever says ‘Jeff, I love AWS but I wish it was more expensive.’ or ‘Jeff, I love AWS but I wish it was a little less reliable.’ or ‘Jeff, I love AWS but I wish you would improve it at a slower rate.’ ”

Is it any different for you? For the LTL trucking firm?

In a business where inexpensive, high quality delivery whose cost tied to usage is the focus, these changes simply don’t happen without high quality systems managing things.

Systems reduce inertia, eliminate obstacles and streamline processes so people can get the right work done faster at the same (or better) level of quality.

They aren’t about tech.

What’s the next hot thing?

When Bezos was asked about the difference between being an entrepreneur when he started Amazon (1995) and now, he said “the rate of change has increased substantially”.

He noted that people always ask him what the “next big thing” is and lamented “I almost never get asked ‘What’s not going to change in the next 10 years?’ “.

He likened businesses that address those long-standing needs to flywheels. They take time to spin up, but run smoothly and efficiently once at operating speed.

These days, solutions to these needs can be built anywhere. In a rural Montana community of 4000 people, Zinc Air has developed energy storage technology that makes dependable, scalable, portable power storage a reality.

Power availability in the developing world is a need of substantial scope as it is in places that would otherwise require months or years of infrastructure construction. It’s one more example of a need that isn’t changing anytime soon.

Is there a business there?

Not all that long ago, a substantial reason for chasing venture capital was the cost of server infrastructure. Using cloud computing like AWS, you pay for what you use as your business grows, rather than for massive infrastructure you may never use. A long-standing obstacle that impacted business development has been addressed.

Obstacles like those that LTL trucking, AWS and Zinc Air eliminate are the kind of change that Bezos was talking about when he spoke of businesses addressing long-standing inefficiencies, problems and barriers in things that won’t change over the next 10 years, rather than trying to figure out what the next big thing is.

Consider hunger. The short term solution is usually feeding people who can’t feed themselves. The long term solution is somehow enabling them to alter their economic situation so they no longer need help feeding themselves. Solving it might include some combination of jobs, medical care, child care, irrigation, clean well water, transportation, seed stock and better farming methods.

“The next big thing” might be your streamlined solution to just one small inefficiency in one area that makes hunger so difficult to extinguish. And it might be bigger than Amazon.

If you’re willing to be misunderstood for a long period of time, then you’re ready to start something new.” – Jeff Bezos, commenting on starting Amazon.

Lucy and the Aluminum Football

World's Favorite Sport
Creative Commons License photo credit: vramak

Lately, there has been a lot of talk in the news and around the Flathead Valley about the Bonneville Power Administration (BPA) offering a four year power supply deal to Columbia Falls Aluminum Company (CFAC).

The deal is subject to environmental review and other what-ifs, so it isn’t a done deal quite yet.

Given the economic struggles facing Columbia Falls, any news of new jobs is good news. Really good news, in fact.

The topic of CFAC concerns me – it always has. Folks who have lived in Columbia Falls far longer than I know the history of CFAC first hand. To summarize for everyone else: It opens. It lays off / closes. It changes hands. It opens. It lays off / closes. And so on.

Again, Lucy pulls it away
CFAC has at times been our employment Lucy (from the “Peanuts” comic strip). Just as Charlie Brown approaches to kick the football, Lucy pulls it away and Charlie goes flying through the air, screaming and lands flat on his back. Imagine having that done to your career and family -  several times.

No matter how good things are when CFAC is rocking, a shutdown ripples through the financial well-being of our fair town’s families and the businesses that serve them. The impact of the historical ups-and-downs of CFAC on those families is unimaginable.

To their credit, CFAC’s troubles haven’t always been bad news for the valley.

In at least one case, their troubles have generated substantial benefits. Several years back, CFAC paid their people to do what amounted to volunteer work for a number of groups that couldn’t have otherwise afforded the labor. Many organizations benefited big time from the hard work their employees provided back then – and continue to benefit from the work done back then.

Don’t be a commodity
It isn’t as if these troubles were created on purpose (feel free to argue about that in the comments).

While it may not have started that way in the 1950s, the CFAC of modern times is incredibly sensitive to the whims of commodity prices. Many businesses deal with commodity prices somehow affecting some part of their business. CFAC’s business has it as part of their raw materials supply, energy supply and their finished product. As things sit today, it’s a tough, tough business they’re in.

Imagine having someone else setting the prices of every major component of your business. Now imagine that the ingots you ship are not substantially different (speaking very generally here) from those shipped by a Chinese firm using labor that works for $10 a day, ore that’s mined locally by workers paid similarly, and so on.

Advice to everyone else – do whatever you can to avoid getting yourself into a commodity market. If you’re in one, work on your business model to get out of it.

In fact, that’s my advice to CFAC, though they didn’t ask. Let’s call it a wish for the betterment of Columbia Falls and the entire valley.

The Whole Valley
Wait a minute…the whole valley? Absolutely. It’s about airline seats, hotel rooms and rental cars. It’s about cafes and catering. It’s about grocery and clothing stores. It’s about car dealers and construction work. It’s about the schools that get property taxes from an active thriving business instead of the waiver-level taxes of a dead one.

My wish is that in four years no one cares what electricity costs CFAC. Not because they are gone, but because whatever they sell has so much value that people will pay whatever it takes to get it. It worries me deeply that in four years we’ll be right back where we are now.

What I’d like to see is for CFAC to add a ton of value to the aluminum they produce, *before* it hits the rails. I’m told CFAC had some of the best millwrights anywhere who could create “anything”.

I wonder
I wonder what CFAC could make that would allow them to sell a product that doesn’t get sold on commodity markets based on someone else’s price control. I wonder what they can manufacture with the skills and backgrounds of the people who worked there for the last 20-30-40 years.

I wonder what would happen to a community manufacturing valuable products for today’s economy, rather than commodities from my grandfather’s economy.

I wonder what would happen if Charlie got to kick the ball.

Making it personal at BusyMac

World's Favorite Sport

If you live in Northwest Montana, you know that one of the things we “cling to” is high school sports.

I live in Columbia Falls, a town of about 4500 people. Our arch rival is Whitefish, a town of about 6000 people.

While our towns are changing, Columbia Falls has historically been the blue collar industrial hub of Northwest Montana, with several lumber mills and a large aluminum plant (now closed). Whitefish, on the other hand, started off as a lumber and railroad town and transformed itself over the last 70 years into a ski resort town that has become known for the ski mountain, palatial lake homes – as well as the railroad depot.

Both towns are changing as the economy (and our country) has changed over the last 20 years. Today, both towns are homes to technology, public relations, marketing and/or internet-related firms with national and/or international markets.

But one thing hasn’t changed. The rivalry between the high school teams.

Making a connection

All of this sets up the story for an email I received yesterday.

Due to a setting in Google Calendar, I was having a problem with syncing Google calendars with calendar software on my Mac, which is called “BusyCal”.

I emailed the company and thanks to a handy option in the software they provide, some diagnostic info about my calendar was sent to their support staff.

A short time later, I received an email with instructions to check a few things.

The email closed with this comment:

It could also be that you are from Columbia Falls and we’ve designed the product to specifically notice that and cause issues. Moving to Whitefish will solve all your problems… (Whitefish, Class of ’83…)

Regards,

-Kirk
support@busymac.com

With this brief comment at the end of an already helpful email, Kirk has taken our connection from a brief, distant tech support relationship to a friendly rivalry.

It’s a great illustration of how simple it is to create a real connection with a client.

Business is Personal.

Think about how you and your staff can create personal connections with your clients.

UPDATE: 3 days after posting this column, the Columbia Falls Wildcats won their 4th state boys basketball title in 9 years. A month earlier, the Columbia Falls Wildcat Speech/Debate team won their 11th state title since 1991 and their 6th in a row. While it’s “only sports”, there are important lessons being learned in Columbia Falls about what it takes to succeed – even outside the classroom.

Moving to where the jobs are

Formation Flying
Creative Commons License photo credit: Koshyk

In today’s guest post from Forbes, an interactive map showing where people are moving to and from, county by county across the US.

Thanks to @BeckyMcCray for sharing it with me.

Taken For Granted

This photo wasn’t taken in Chernobyl or in some abandoned ghost town.

It’s in downtown Detroit, a few blocks from shining skyscrapers.

Every mayor and business owner in the US should look at photos like the one above and imagine what this place once was.

The meltdown of the US economy has many looks.

Is industry/business/culture in your area taken for granted? Have you thought about the risks your business, your local economy faces?

Here at home

In my area, the collapse of real estate cascaded into the construction trades and to those who supply the tradesmen with raw materials like lumber.

Those troubles spread to truckers, accountants and others. The interconnections were no longer subtle as the economic virus spread.

Regardless of cause, one market’s problem cascaded through numerous business sectors.

It’s easy to look back now and ask why construction and real estate folks didn’t work toward additional revenue streams in businesses that were a bit more state of the economy proof.

It’s also easy to ask the truckers, accountants and others from all walks of life if their customers were too concentrated in one line of work, leaving them too open to a single market’s collapse.

The Hard Question

The question you should be asking yourself is “What did you learn from that and what are you doing to prevent a reoccurrence?”

We talked last week about some inexpensive little things that can damage a reputation and cause the loss of a customer.

In comments I got from that story, folks asked if I spoke to the owner or the manager. My visit was not irrelevant to me, but what I did that night is irrelevant in the big picture because it ignores the way most people deal with bad customer experiences.

Unless the problem is dangerous, blatant or just over the top terrible, most people will pay their bill without saying a word.

They’ll just leave.

Starting a conflict with a business’ manager while their family is there isn’t on their agenda. It’s easier to just leave.

And never return.

Whether they come back or not, they’ll relay their experience to others. Studies have repeatedly shown that people will tell three to five others when they have a great experience and ten or more when they have a poor one.

Even if those numbers are off by a factor of two, how many customers can you afford to lose this week?

Guaranteed

There’s a small town in Pennsylvania that has been fighting for its life. It’s an old steel mill town called Braddock.

There’s no good reason for that town to be fighting for its life – except that it depended too much on a single business. The steel business.

There’s nothing wrong with the steel business or any other distressed industry until business owners, government officials and employees take the status quo for granted.

“No one” ever thought that the steel business would change.

Prior to Henry Ford, “no one” thought the car business would ever change. Robotics fixed that.

After robotics, surely the car business wouldn’t change AGAIN. But it did.

Programmers felt the same way, multiple times. The end of the (widespread) mainframe era, the dot com boom (and bust) years of the internet, the expansion of open source, the rise of India, and the iPhone. Change.

Then China and other countries started taking jobs from India, and so on.

Change is guaranteed.

What could change in your market and weaken – or destroy – your ability to retain your current market position?

And what are you doing to protect yourself if that happens?

Think back 10, 20 or 30 years…or even as recently as the boom times of 2006.

As GM goes

People once said “As GM goes, so goes the United States.”

Every business owner, every mayor, every county commissioner who takes the current situation for granted – no matter how good or bad – risks making a mistake that creates their own version of Detroit.

Look at these photos of Detroit. Beautiful, yet haunting.

Take nothing for granted.

Not a tax break. Not a government contract. Not a sweet 10 year deal. Not the supply of electricity, water, lumber, or programmers. Not a single customer.

And certainly not the next interaction you have with a customer.

Motivate them with pie

Historically, my Scout troop does ok on our annual popcorn sale fundraiser.

The guys have done well enough over the years that a number of them managed to pay for their campouts pretty much year after year.

One of them had earned enough to buy himself a super nice down sleeping bag good down to 40F below zero. He likes to hunt in the backcountry all winter, so it was a good purchase for him.

On and off, a few of the guys did really well, reaching the scholarship level, where a percentage of their sales is put in a scholarship fund by the popcorn company.

But, as our troop’s average age rises and falls, we see a falloff during the years when our troop’s average age is a bit older. Teenagers have jobs, sports and other things – plus they just aren’t into the door to door thing.

Benjamin failed

The last 2 years, we tried a special incentive to get the boys motivated each week.

Each of 3 weeks of the popcorn sale, we offered the top seller for that week a crisp Benjamin (Yes, a $100 bill) if their sales reached a minimum level.

Of those 6 opportunities, we gave away ONE $100 bill.

Our sales were ok, especially given the age of the troop, but when $100 bills dont motivate a teenager who has gasoline needs, we knew we missed the boat.

New blood, new carrot

This year, we had a new-to-the-troop mom in charge of organizing our popcorn sale.

In addition, we have a number of new guys, so we expected the total sales to rise.

Still, we wanted to motivate them so they’d be able to pay their Scouting-related expenses over the year without asking their families for money. Times are tight in our little town, so every little bit helps.

Our new popcorn chairperson had some fresh ideas. She had get out of doing dishes on a campout coupons for minimum weekly sales and a big carrot for total sales over a certain amount.

Pie didn’t

The carrot? Getting to throw a pie in my face.

I’m the Scoutmaster. Tossing a pie in my face is a big, fun treat for a boy. Of course, I dragged my Troop Committee Chair into it. I wasn’t gonna meet the pie(s) alone, after all.

TEN boys qualified to throw a pie. That’s ten boys who exceeded our average sales-per-boy goal by $200 or more.

Our troop’s total sales were up NINETY FOUR percent.

I have a number of boys who struggle to fund campout expenses, gear and what not. Pie motivated them to work to pay their own way, a lesson worth learning.

Now I get to face 10 pies next Tuesday, but it’s worth it knowing how many boys don’t have to worry about campout expenses (and then some) for at least a year.

Think harder.

So why did pie work and a $100 bill not work?

Ever try to sell a comb to a bald man? That’s what the $100 bill was.

A $100 bill isn’t real in the world of many 12-15 year olds. They had trouble grasping the idea of  (and getting fired up about) something they’d never owned (and some had never seen), so they didn’t feel any motivation for it.

But…a pie in the face of an adult authority figure? That’s golden.

And you?

What are you doing to motivate your staff? Your customers?

What motivates you isn’t necessarily (and most likely isn’t) what motivates your staff or your customers.

Your job is to set your mindset aside long enough to find out what’s important in theirs.