Judging by my LinkedIn feed, the decision by the UK’s largest pub chain, Stonegate, to introduce differential pricing across its range of venues during peak periods, has set marketing tongues wagging. I suppose it has garnered so much attention arriving as it does at the intersection of two subjects dear to many a marketing department’s heart – booze and brands.
There will have undoubtedly been a huge amount of work behind such a commercial decision, which is laden with a high brand risk. One can only imagine that it was regulatory requirements which led Stonegate to frame the decision in what feels such a negative light. Highlighting cheaper prices for daytime drinkers would understandably have led to a backlash for encouraging irresponsible drinking, so Stonegate has been forced to announce its decision for what it really is: a price rise for peak time punters.
When evaluating a decision such as this, there are typically three key elements to be considered – price elasticity, the market context and the strength of the brand (or in this case brands). On the elasticity point, Stonegate may well be sailing with a favourable wind. With contactless payments dominating in the post-Covid hospitality environment, their research undoubtedly indicates that consumers are potentially less aware of the price per pint and therefore less sensitive to small changes.
However, when it comes to the market context, the picture feels very different. Differential pricing models are typically successful in situations where demand out-strips supply or where there is a specific time window for purchase. As an individual who has travelled across Europe to follow his football team, I’m only too aware of how flight prices can increase by a multiple of 10 within minutes of the balls being drawn in the Champions League draw. Similarly, as any of us who with school age children can testify, flight and hire car prices magically triple from the middle of July until early September.
However, the pub trade feels like a very different environment. Living in St Albans (the city which claims the most pubs per square mile in the country), I may well be biased but the hospitality sector doesn’t feel like it is currently suffering from a lack of supply. If you’ll excuse the beer-based pun, it’s at this point that you can’t beat a good old-fashioned Porter.
Porter’s 5 Forces model has been much maligned over the years but, as I’ve written previously, for all its flaws, it can still be a useful framework when considering decisions. Indeed, some further thought on just a couple of Porter’s forces starts to raise some more challenging questions. Consumers have a wealth of potential substitutes available - perceived high pub prices have already led to the rise of ‘pre-drinking’ across a range of demographics before heading out. (Gin in a tin anyone?!) Pub competition is already intense, and there is very little about Stonegate brands that mark them as distinctive with the generic range of beer and spirit brands already on offer.
In this market environment, the power of the brand is key - what is it about the Stonegate experience on offer which will keep people coming back even when prices increase at peak times? At this point I’m sure there are a whole host of Professor Byron Sharp-inspired readers screaming ‘What about physical availability?!’ However, there cannot be many locations where a Stonegate pub is the only joint in town or the only one with a late licence. It’s completely within the drinkers’ gift to decide where they want to spend their Friday night and, as many casual dining establishments have found to their peril, the hospitality sector is one where customers can be notoriously fickle.
The assumption must be that habitual drinking habits will outweigh any price-based disloyalty. However, brands shouldn't underestimate the lengths consumers will go to in order to avoid what they see as opportunistic pricing. To return to my football analogy, the creativity some fans will adopt to avoid hiked flight prices knows seemingly no ends (written by someone who flew to Moscow via Geneva!)
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I’m sure the Stonegate team had done their maths, believing they can cope with a drop in footfall and still drive revenue growth. Yet, to return to Professor Sharp, there’s very few brands that manage to grow through reduced penetration. The National Lottery may well be the exception to the rule but the scale of the price change (from £1 to £2 in 2013) far outweighs anything on the cards here.
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On the one hand, you have to feel for Stonegate. The hospitality sector has suffered a turbulent few years, with rising costs across the board from utilities to staff. This is undoubtedly a brave commercial decision to try to maintain their margins. Yet on the other, given the category dynamics, the risks for Stonegate are significant. Is this a market and an economic climate that can sustain pushing up prices on the pint?!