Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How a Beer Brand Raised Prices and Sold More
Transcript
- Lucas: So in early 2024, Boston Beer Company, the parent of Samuel Adams, raised the price of a six-pack by about 12 percent. Most analysts watching the craft beer category expected a volume hit. Consumer spending on beer had been flattening, and private labels were gaining shelf space. Luna: And what actually happened? Lucas: Volume grew 3 percent in the two quarters following the increase. Their revenue per case jumped, and market share among craft drinkers actually expanded slightly. It was a textbook case of a price hike that strengthened the brand instead of weakening it. Luna: That defies the basic demand curve we all drew in Econ 101. Higher price, lower quantity demanded. So what broke the model here? Lucas: The key is what economists call the Veblen effect — when a higher price increases perceived prestige or quality, and actually boosts demand among certain segments. Samuel Adams sits at a particular spot in the market. It's not the cheapest craft beer — that's maybe a Pabst or a Rolling Rock. And it's not the most exclusive — that's something like a three-dollar-per-can local hazy IPA. It's the mass-premium craft beer. Luna: Right, it's the one you grab at the grocery store when you want something better than Bud Light but you're not trying to impress a beer snob. Lucas: Exactly. And that positioning creates an interesting pricing dynamic. When Boston Beer raised the price, it actually reinforced the 'premium' signal for that middle tier. Drinkers who were on the fence between Sam Adams and a cheaper option interpreted the higher price as a quality cue — 'this must be better if they can charge more.' And drinkers who might have traded up to a pricier local brew thought, 'well, Sam Adams is now almost as expensive as those, so maybe I'll stick with it.' Luna: So the price hike essentially tightened the brand's position in the market. It became a stronger anchor. Lucas: Right. And the company didn't just flip a switch. They tested it first. In late 2023, they raised the price on their seasonal variety pack — the Octoberfest and Winter Lager mix — by about 8 percent. Saw no volume decline. That gave them the confidence to roll it out across the core year-round line. Luna: So they used a lower-risk, limited-time product as a test bed. That's a smart experimental approach. Lucas: It is. And the data from that test revealed something about the demand curve. For a beer like Samuel Adams, the demand isn't a straight downward-sloping line. It's actually shaped a bit like an inverted U. Low prices attract bargain hunters who aren't loyal. But as price rises, the customer base shifts toward people who buy the brand for its identity, not just its affordability. Those customers are less price-sensitive. Luna: And they also tend to buy more frequently and talk about the brand more. So the price hike effectively filtered out the least loyal buyers and deepened the relationship with the core. Lucas: Exactly. And Boston Beer's CFO specifically mentioned in their 2024 Q2 call that they saw 'improved mix' — meaning the customers who stayed bought more of the higher-margin varieties, like the Boston Lager and the seasonal ales, rather than the cheaper utility packs. Luna: There's a risk here though. Raise it too much, and you cross into territory where the Veblen effect reverses. You're suddenly competing with a completely different set of options. Lucas: That's the threshold question. At what point does Sam Adams stop being the 'affordable premium' and start being 'overpriced mid-tier'? The 12 percent increase kept them below the tipping point. But if they had gone, say, 20 percent, they might have triggered substitution toward either cheaper crafts like Yuengling or toward the really premium local stuff. Luna: And that's the art — finding the price that maximizes revenue without pushing customers into a different mental category. Lucas: Now, this isn't a universal strategy. It works best when three conditions are met. First, the brand has clear differentiation — a recognizable name, a distinct taste profile, a story. Sam Adams has that. Second, the market has a clear tier structure. Third, the price increase is communicated in a way that feels like a natural reflection of rising costs, not a cash grab. Luna: Boston Beer framed it as inflation-driven input cost increases. That's honest. Malt and hops had gone up. But it also conveniently allowed them to reposition without seeming greedy. Lucas: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. It's a small gesture that keeps us independent. Now, the interesting question is whether this pricing strategy could work outside of beer. Luna: Yeah, I've been thinking about that. Could a SaaS company pull this off? Or a gym chain? Lucas: Let's take the SaaS example. Suppose you have a project management tool priced at $10 per user per month. Raise it to $12. If your product is seen as a commodity — interchangeable with Asana, Trello, Monday — you'll lose customers. But if you've built a brand that stands for something specific, say 'the tool for remote-first creative teams,' the higher price might actually signal that you're the premium solution for that niche. Luna: So the same inverted-U demand curve could apply. The key is whether the market perceives the product as having a unique identity that justifies a premium. Lucas: Exactly. And the test and learn approach Boston Beer used is replicable. You raise the price on a legacy tier or a limited feature set, measure churn and engagement, then decide whether to roll it out broadly. Luna: I'm wondering about the service industry though. A gym membership. If my current gym raises its monthly fee by 12 percent, I'm probably going to compare it to the other gyms in the area. There's less brand identity in a commodity like a treadmill. Lucas: But some gyms have strong brand identity — think of a boutique studio like SoulCycle or Barry's. They already charge a premium, and a price increase might actually reinforce the exclusivity. For a standard 24 Hour Fitness though, you're right. The Veblen effect would likely be minimal. The differentiation just isn't there. Luna: So the lesson is: before you raise prices, figure out if your brand sits in that sweet spot where price is a signal, not just a cost. Lucas: And test it on a small scale first. Boston Beer's seasonal variety pack experiment cost them almost nothing to run, and it gave them the confidence to make a move that added millions in revenue. That's the kind of discipline most companies skip. Luna: Alright, so next time I'm at the liquor store and see Sam Adams at $11 a six-pack, I'll know exactly why. Lucas: And whether it's worth it. For now, thanks for listening.