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Monday, April 26, 2010

Good Question: Why Do We Spend More for Bombers?

I left town late Friday morning and missed a fascinating discussion about beer pricing. Bill at It's Pub Night starts off the discussion with a data point:
But there's a related pricing issue that doesn't make any sense at all: the disparity between the retail prices of 22-ounce bombers and 12-ounce bottles sold in 6- or 12-packs.... For each of the above beers, I took the lowest big-bottle price and compared its SPE to that of the lowest small-bottle price. That highlights another aspect of the bomber trickery: bomber prices are marked down less frequently than 6-packs or 12-packs, which are on sale almost every single day at big groceries.
In his careful way, Bill also details the price disparities on several types of beer where six-pack and bombers are both for sale in a grocery store. So: 22-ounce bombers are more expensive than six-packs on a per-ounce basis.

Our resident beeronomist, Patrick Emerson, takes the data point and explains it.
The answer, to economists, is well known and goes by the term 'price discrimination,' or more specifically in this case 'second-degree price discrimination.' Price discrimination in general is the ability to charge different customers different prices for the same good based on their ability to pay. You charge more to people who value the good more and less to those that don't....

This is classic third degree price discrimination and can be applied to Bill's 22 ounce bottles as well. There are low demanders for these beers who want just a wee bit to taste and high demander who will drink much more. By pricing the 22 ounce bottle so much higher you charge a premium to the low demanders and you give a discount to the high demanders by offering them a volume discount in six packs (and generally even better deals with 12 packs).
While I think Patrick's explanation is probably sufficient for economists (practitioners of the dismal science), I wonder if it leaves something out. One is always reluctant to use personal experience as a proxy for human behavior, but, owing to the rather fluid standards of this blog, I'll make an exception. When I walk into a store looking for a new beer, I have several complementary and competing criteria floating around unexamined in my mind. I want a beer that will offer me: value, novelty, quality and quantity.

I look at the new beers and I see if there's anything I haven't tried. Mostly, breweries are now introducing their new beers in 22s before they commit to putting them out in sixers. (The expense to launch a new line of sixers is greater than bottling up a single run of 22s.) Most of the variety exists on the 22s side, so that's where my impulse for novelty guides me. Pretty much only quality beers are offered in 22s. Cut-rate or faux micros almost never make it into 22s. So far I'm two for two. Now comes the issue of pricing. If a 22 is five dollars or less, its absolute cost is lower than a sixer. This pleases my unsophisticated lizard brain, which isn't adept at making per-ounce calculations on the fly. I'm just thinking that I'll spend more for a 22 than a sixer. Which takes us to the final criterion: quantity. A bomber seems like a fair amount of beer. Again, my unsophisticated mind isn't adept at thinking of volumes clearly. It's a big bottle, it will satisfy my impulse, and it even seems like a value--more beer than a pour in a pub, at about the same price. Off I go with my bomber, thinking I've gotten a pretty good deal.

This doesn't apply to bombers priced north of $5 (I always balk at $6 Pelican, and I observe myself and wonder why that dollar makes such a difference). And when I see a particularly cheap sixer of beer I admire, I'm willing to forgo novelty. So the criteria sometimes do change my decisions.

I suspect this is in line with Patrick's theory, but I'd be interested to hear if economists have gotten into that fine-grained study of motivations.
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8 comments:

Patrick Emerson said...

In a sense this follows: you might be a low demander for a new beer (seasonal for example) that is in a 22oz bottle, because you don't know how much you will like it and thus do not want to buy a lot, but a high demander for beer in general. Or the beer might be a pretty big one (high alcohol) and you don't want as much. In either case the economics suggests pricing this higher.

But as always, the caveat: I don't suggest these are necessarily conscious decisions on the part of brewer owners - generally business people use their experience to guide them. What economics does is examine the patterns that are left over after these experienced based decisions are made and tries to make sense of them by uncovering the hidden market mechanisms at work.

Generik420 said...

$5 bombers would be awesome.. I typically see bombers sell for north of $8 and regularly in the teens here in Indiana. The cheapest bomber I can think of is Stone Arrogant Bastard at roughly $5. Ruination jumps up to $7-8. Vertical Epics are closer to $10. Most new Three Floyd's bombers are between $12-17. I have realized that at a certain price, no matter how good the beer is, I am disappointed. For me, that's around $12 for a bomber. It's is exceedingly rare that I will even cross $10 anymore.

Eddie Loves You said...

Haha I always hesitate at the $6 Pelican too!

Jason said...

It is the novelty factor for me. I am willing to pay a little bit more for a new or interesting beer, which more often than not come in bombers. If it is around $5 I usually don't hesitate. Once it goes over $7 it has to be a compelling beer or one that I have tried before and really like but don't get a chance to have often (for example, from a brewery outside of Portland). $10 and over, it better be damn good.

I find it interesting that I don't often buy the same bomber more than once, unless it is really really good. For example, I bought a bomber of Alameda El Torero IPA last week at Beermongers. I enjoyed it but it wasn't amazing. I would buy a six pack of it for $7-8 but wouldn't buy another bomber at $4.15.

Bill Night said...

Jeff: You say that "The expense to launch a new line of sixers is greater than bottling up a single run of 22s.". Thanks to Patrick, we know that has to do with the "cube-square" rule: container volumes increase faster than package surface area.

The paradox is that this lower cost is not passed on to consumers. In related beverage categories -- pop, wine, liquor -- it is.

So my conclusion is that this is a temporary inversion. Once enough of the clientele catches on to the situation, either beer bombers will become more economical than six-packs, or more specialty beers will be sold as individual 12-ounce (or 7-ounce) bottles.

Jeff Alworth said...

Patrick, those who know (like you) me know me to be a low demander, in all ways. But I did understand your point about the difference between an economist explaining what was happening and a brewery understanding why they made the decisions they did. Theory and practice and all that.

Generik: holy crap! Your comment is a serious wake-up call. I sometimes forget I live in Oregon. FWIW, here's our situation. Thanks to the genius of a guy who runs a 22-ounce mobile bottling truck, we have loads of breweries producing 22s. (Even some of the big breweries with 12-ounce lines use his truck.) This means we regularly have some dozens of 22s, most of them seasonal, on sale at grocery stores around town. Five bucks seems to be a major line. Mostly they're below that or up near $10. It's a serious psychological line for me.

Bill, I'm not sure we're talking about the same thing. To create a new 12-ounce product requires a lot of money. Not only do you have packaging costs, but you have to consider how you're going to get the beer on shelves. So 22s offer a much cheaper entry point for new beers. In terms of per-unit cost, I have no idea which is cheaper. My guess is that the bigs produce their regular sixers at pennies on the dollar compared to their bombers--particularly when they're using Green Bottling. But overall, the cost of introducing new packaged beer to the market is a lot less.

I'll need Patrick to tell me what that means.

Anonymous said...

I think for some the higher ABV in many special 22-oz beers is a persuader. You can get a stronger beer which will make you feel nice and happy in bomber, so you spend a bit more. I'm not into the stroner beers, so I don't want to spend the extra bucks.

I won't spend more than $5 any more. It's just a mental barrier and I feel the brewery is getting "greedy", or if it's a super limited run, that it just won't be special enough to justify the higher price.

I'm seeing Captured by Porches more often now for around $5.50, but I can reuse the pop-top bottle for homebrewing, so I will buy those. For you Portlanders who haven't tried a Captured by Porches rye beer, I strongly recommend.

Jack R. said...

One of my favorite beers, Baron's - Pilsner, is only available in boomers at my market. So, I purchase a couple each time I shop.

At the same time, I pick up a 6er of Bayern - Pilsner.

Interestingly, I notice the price of the 6er has declined ~5% in the past year. A consequence of the recession, I suss.

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