Differentiate vs Dilute
SCD Group is relocating its office. During this transition, Steve is revisiting (and/or updating) some former blogs.
The other day I spotted Tim Worstall’s column in Forbes titled Where Maker's Mark Went Wrong On Diluting The Bourbon: Not Enough Economics
As I read the piece, it made me think it was time for a freemium re-wind.
Here are the key elements of Tim’s column:
- The problem the company faced was that demand for the product exceeds the capacity to supply. Given the number of years it takes to make and mature the whiskey it is not a simple matter to increase supply.
- Price discrimination, market segmentation: the little bits of economics that you get taught in business school.
- And, you know thinking about it as a brand new supply and demand situation makes clear what they should have done: created a new brand name with less alcohol. You know: old Maker’s Mark at 90 proof with red wax on the bottle, and new Maker’s Mark at 84 proof with blue wax on the bottle. Then raise the price of the premium product, market the new product at a discounted price … and clean up with price discrimination. But nooooo …
- And as that quote from a professor at a Business School shows, this is what Maker’s Mark should have done. Product differentiate so as to price discriminate. You get the extra money from those willing to pay more and still keep the revenues from the price sensitive. As most large corporates do but as all too many family run companies do not.
Differentiation keys the freemium model for association membership.
Here are links to past blogs on association membership dues and freemium strategies:
I once worked for a large association that wasn’t able to overcome the big dues dilemma: The dues were too high to be a donation and too low to offer any real services of value to members. They were (and remain so 30 years later) caught in the deadly middle.
As you read these articles, ask whether your association is differentiating or diluting its member services. And, whether you would be better off looking at upgrading to a premium member category while truly examining the benefits of a “mass member strategy.” Are you caught in the middle?