Revolution  Brewing’s  Natural  Double  IPA:  Increasing  Market  Share  &  Consumer  Value  

                                           

Teri  Grossheim    

October  9,  2014    

MKT  534  –  Analytical  Tools  for  Marketers    

Fall  2014  

 

 

Executive  Summary       This  report  provides  information  regarding  conjoint  analysis  techniques  and  their  application  in  the  craft  beer  industry,  with  a  focus  on  beer  features  for  Revolution  Brewing.  Revolution  Brewing  marketing  personnel  requested  these  services  from  TG  Consulting  when  one  of  their  products,  Natural  Double  IPA,  experienced  a  decrease  in  craft  beer  market  share.  TG  Consulting  uses  qualitative  data,  surveying,  and  proven  analytical  methodologies  to  make  assumptions  and  suggestions  throughout  this  report.  Conjoint  analysis  was  chosen  for  this  study  since  it  is  a  data-­‐driven  consumer  insight  tool  that  shows  the  relative  value  that  consumers  assign  to  various  features  and  levels  of  a  product.  The  analysis  has  demonstrated  that  certain  features,  as  well  as  levels,  are  more  important  than  others  to  craft  beer  consumers.  Regarding  Revolution’s  Natural  Double  IPA,  the  analysis  has  identified  certain  changes  that  can  be  made  to  improve  market  share.  Findings  of  this  study  show  that  with  changes  in  International  Bitterness  Units  (IBU)  and  organic  content,  Revolution  can  increase  market  share  and  consumer  value  of  the  Natural  Double  IPA.      Conjoint  Analysis  Methodology         TG  Consulting  leveraged  conjoint  analysis  for  the  study,  since  it  is  a  proven  analytical  tool  for  figuring  out  appropriate  responses  to  competitors’  products  and  correct  pricing  for  a  line  extension.  This  study  acknowledges  that  every  beer  possesses  a  set  of  features  and  as  a  result,  discerning  consumers  are  sensitive  to  a  singular  change  in  level  and/or  features.  TG  Consulting’s  familiarity  of  the  craft  beer  industry  allowed  for  identification  of  core  product  features.  Focus  groups,  managers’  input,  and  competitive  analysis  were  used  to  determine  relevant  features  and  levels.  Profiles  were  created  after  a  survey  of  the  competitive  market,  including  craft  beers  from  competitors’  breweries  with  similar  features.  Large-­‐sample  surveys  were  issued  to  gain  feedback  on  profiles  for  the  analysis.    This  report  serves  as  an  analysis  of  the  survey  results  and  their  application  to  craft  beer  products,  namely  Revolution’s  Natural  Double  IPA.    Current  State    

TG  Consulting  began  by  reviewing  the  craft  beer  competitive  market  to  identify  core  product  features,  which  are  a  set  of  non-­‐differentiating  features  that  do  not  vary  across  competitors,  to  be  included  in  the  study.  A  few  non-­‐differentiating  features  for  craft  beer  include  distribution  channel,  brewery  location,  and  popularity.  Package  size,  alcohol  by  volume  (ABV)  rating,  and  color  (European  Brewery  Convention  or  EBC),  calories,  organic  content,  international  bitterness  unit  (IBU),  and  price  were  identified  as  relevant  features,  which  resulted  from  input  by  focus  groups,  managers,  and  competitive  analysis.  Three  levels  within  each  feature  were  also  identified  and  used  in  the  study.  The  study  used  these  seven  features  and  three  levels  to  determine  the  relative  value  that  craft  beer  consumers  assign  to  

 

 

them1.  Features  that  are  valuable  to  craft  beer  consumers  should  be  evaluated  and  considered  when  making  product  changes.  

Various  craft  beer  profiles  were  created  using  seven  features  and  three  levels.  18  profiles  were  created  and  used  for  the  survey2.  Since  there  are  more  than  10  profiles,  survey  participants  were  asked  to  rate  the  profiles,  based  on  conjoint  analysis  best  practices.  The  set  of  levels  and  features  used  in  the  study  are  adequate  for  profile  creation3.  A  certain  analysis  technique  (OED)4  was  used  to  create  the  profiles,  which  determines  not  only  how  many  profiles  to  show  to  consumers,  but  also  which  ones.  In  order  to  associate  quantitative  value  to  something  qualitative  such  as  consumer  response  to  a  given  product,  code  values  were  assigned  to  the  each  level  so  each  could  be  treated  as  a  variable.  These  code  values  allowed  for  correlation  of  the  study  results,  which  enabled  the  statistical  analysis  that  serves  as  the  foundation  of  this  study.  The  analysis  also  showed  that  the  correlation  was  meaningful,  demonstrating  statistical  validity5.  Once  the  profiles  were  created  and  validated  with  statistical  information,  the  profiles  were  sent  to  1500  craft  beer  consumers  in  the  Midwestern  US  over  a  two-­‐month  period6.  The  survey  responses  were  then  analyzed  and  interpreted  using  statistical  correlation7.  

The  resulting  data  provided  information  regarding  consumer  response  to  the  profiles.  For  instance,  the  data  shows  the  most  important  craft  beer  feature  is  price,  and  the  least  important  feature  is  calories8.  While  alcohol  by  volume  (ABV),  price  per  serving,  and  package  size  were  important  features  to  the  surveyed  consumers,  color  (EBC),  bitterness  (IBU),  and  organic  content  percentage  were  less  important  features9.  The  profile  with  the  best  value  was  a  $4,  22  oz.  Bomber  beer  with  200  calories,  80  EBU,  50%  organic  content,  100  IBU,  and  2%  ABV.  The  profile  with  the  worst  value  was  a  $12,  12oz.  can  beer  with  100  calories,  33  EBC,  0%  organic  content,  5  IBU,  and  12%  ABV10.  Revolution’s  Natural  Double  IPA  shares  the  same  color  (EBC)  and  package  size  as  the  best  value  beer  profile  and  does  not  share  any  features  with  the  worst  beer  profile.  The  Natural  Double  IPA  also  has  the  smallest  relative  market  share,  which  included  three  competitors’  craft  beers  identified  in  a  competitive  analysis11.  TG  Consulting  has  a  few  recommendations  for  Revolution  Brewing  that  leverages  Natural  Double  IPA’s  strengths  to  gain  market  share  and  increase  value  amongst  consumers.      

                                                                                                               1  Appendix:  Conjoint  Analysis  Bar  Graph  2  Appendix:  Profile  Sample  3  Adjusted  R  Square  =  0.43607  4  Appendix:  Code  Sheet  &  Orthogonal  Array  5  Significance  F<0.005  (0.000359638584113993)  6  Appendix:  Profile  Sample  7  Appendix:  Orthogonal  Array  &  Regression  Analysis  8  Feature  Importance:  Average  Serving  Price  (29.98%),  Calories  (5.77%)  9  Appendix:  Feature  Importance  Graph  10  Optimal  TPU  (3.667),  Worst  TPU  (0.857)  11  Appendix:  Market  Share  –  Product  1,  21.40%,  

 

 

Recommendations       Based  on  the  analysis,  TG  Consulting  believes  Revolution  Brewing  could  make  a  few  changes  to  improve  market  share  and  consumer  value  for  the  Natural  Double  IPA.  First,  the  analysis  shows  there  are  relationships  in  certain  categories  such  as  calories,  color  (EBC),  organic  content,  bitterness  (IBU),  and  package  size,  that  translate  to  consumers  being  somewhat  insensitive  to  these  features12.  On  the  other  hand,  the  analysis  demonstrates  consumers  are  sensitive  to  price  and  alcohol  by  volume  (ABV)13.  As  a  result,  TG  Consulting  recommends  changes  to  insensitive  features  such  as  organic  content  and  bitterness  (IBU).  The  suggestions  in  this  report  have  the  potential  to  increase  the  Natural  Double  IPA’s  market  share  by  3.5%14.  The  analysis  also  found  more  compelling  changes  could  be  made  to  increase  market  share,  but  would  have  cost  and  operational  implications.  

 Natural  Double  IPA  shares  the  most  valuable  color  and  package  size  levels  in  the  analysis,  which  is  positive  because  consumers  place  high  value  on  color  (EBC)  and  package  size,  15.  Regarding  calories,  Natural  Double  IPA  300-­‐calorie  level  was  valued  somewhat  highly  compared  to  other  feature  levels,  TG  Consulting  recommends  leaving  this  alone,  since  more  prominent  gains  can  occur  in  other  areas16.    Natural  Double  IPA’s  100%  organic  content,  while  it  does  have  value,  the  analysis  demonstrated  that  50%  organic  content  had  the  most  value  out  of  the  three  organic  content  levels17.  Since  the  analysis  shows  that  consumers  are  somewhat  insensitive  to  the  organic  content,  TG  Consulting  recommends  a  change  from  100%  to  50%  organic  content18.  Since  Revolution  has  built  brand  recognition  with  Natural  Double  IPA  being  100%  organic,  a  reduction  of  this  feature  would  still  support  the  brand  name  and  familiarity.  Certain  changes  in  the  brewing  process  might  need  to  occur  to  accommodate,  which  might  reduce  cost  due  to  lesser  organic  content,  since  organic  materials  tend  to  be  more  expensive  than  non-­‐organic.     Another  change  TG  Consulting  would  suggest  is  altering  bitterness  from  100  IBU  to  50  IBU,  since  the  analysis  shows  consumers  place  more  value  on  50  IBU  than  100  IBU  and  0  IBU19.  There  are  trade  offs  at  all  levels  between  IBU  and  organic  content,  which  are  also  considered  to  be  insensitive  features,  so  both  these  areas  are  great  places  to  make  changes  without  much  hesitation  from  consumers20.  Regarding  package  size,  it’s  suggested  that  Revolution  keep  the  12  oz.  bottle  for  the  Natural  Double  IPA,  since  this  level  possessed  the  most  value  among  both  the  12  oz.  can  and  22  oz.  “Bomber”  bottle.    

                                                                                                               12  Appendix:  Non-­‐Linear  Relationships  13  Appendix:  Linear  Relationships  14  24.85%-­‐21.4%=  3.45%    15  80  EBC,  12  oz.  bottle  16  300  Calories  (0.190),  200  Calories  (0.238)  =  Difference  (0.048)  17  100%  (0.190),  50%  (0.357),  0%  (0.095)  18  100%  Organic  (0.190),  50%  Organic  (0.357)  =  Difference  (0.167),  Appendix:  Market  Share  19  100  IBU  (0.190),  50  IBU  (0.450),  0  IBU  (0.119)  |  Difference  between  100  IBU  &  50  IBU  =  0.260    20    IBU  &  Organic  Content  non-­‐linear  relationship,  all  levels  within  0.1  of  each  other.  Appendix:  Trade  offs  and  Linearities  

 

 

  Alcohol  by  volume  and  price  are  important  features  and  as  a  result,  the  analysis  found  changes  in  these  areas  should  be  done  with  care.    As  previously  mentioned,  the  analysis  found  consumers  are  sensitive  to  these  features21.  While  certain  large  gains  could  be  accounted  for  with  a  drop  in  price,  this  is  typically  not  best  practice  when  gaining  market  share  with  a  certain  product22.    Both  the  alcohol  by  volume  (ABV)  and  price  per  serving  values  possessed  by  Natural  Double  IPA  reflect  moderate  value,  which  is  a  trade  off  that  provides  a  balance  within  the  product  for  consumers23.  In  all,  TG  Consulting  suggest  making  changes  to  features  such  as  organic  content  and  IBU,  but  do  not  alter  price  and  alcohol  by  volume  (ABV).     The  suggested  changes  would  not  only  increase  market  share,  they  would  also  meet  the  barrier  to  entry  requirements  for  the  market24.  While  the  suggested  changes  do  not  equate  to  the  optimal  product  feature  mix  uncovered  in  the  analysis,  the  changes  should  increase  market  share  and  still  be  competitive  in  the  market.  In  addition,  the  changes  should  bring  Revolution’s  Natural  Double  IPA  from  a  4th  place  ranking  in  a  competitive  analysis  to  3rd  place25.  In  order  to  overtake  competitors,  Revolution  would  have  to  consider  dropping  the  price  to  $4  per  serving  or  bringing  the  ABV  down  from  8%  to  2%26.  Since  consumers  are  sensitive  to  these  changes,  and  they  have  implication  to  cost  and  operations,  TG  Consulting  would  suggest  further  marketing  research  to  determine  if  altering  these  areas  is  best  for  Revolution’s  business.       TG  Consulting  believes  with  a  few  minor  changes,  Revolution’s  Natural  Double  IPA  could  marginally  gain  market  share  and  increase  consumer  value.  In  order  to  make  significant  gains,  Revolution  would  have  to  evaluate  considerable  changes  that  may  result  in  certain  impacts  to  the  business.  TG  Consulting  suggests  Revolution  Brewing  should  take  the  findings  in  this  report  and  review  internally  to  decide  if  this  is  the  right  direction.        

                                                                                                               21  Appendix:  Trade  Offs  &  Linearity  22  $4  per  serving  (0.976)  -­‐  $8  per  serving  (0.476)  =  0.5  23  $8  per  serving  (0.476)  -­‐  8%  ABV  (0.452)  =  0.024  (within  0.1)  24  New  product  TPU  (2.524)  >  Intercept  (1.000)  25  New  Product  Market  Share  (24.85%),  4th  place  competitor  (23.79%)  26  $4  per  serving  (0.967)  +  2%  ABV  (1.000)  =  increase  TPU  by  1.967  

 

 

                                         

Appendix  

!!Conjoint Analysis Bar Graph

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Non-linearity!Linearity

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Trade Offs & Linearities - Customer Value Structure

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Revolution Natural Double IPA (Product 1)

Market Share & Simulation

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Calculations

1. Would definitely never consider purchasing2. Would most likely never consider purchasing3. Would probably never consider purchasing

Begin Rating Here 4. Indifferent towards purchasing5. Would probably consider purchasing6. Would most likely consider purchasing7. Would definitely consider purchasing

Beer 1 ### Beer 2 ### Beer 3 ###Price Per One Unit Price Per One Unit $12 Price Per One Unit $4 Price Per One Unit $8ABV % ABV % 2% ABV % 12% ABV % 5%EBC (Color) EBC (Color) 4 (Pale Lager) EBC (Color) 33 (Amber Ale) EBC (Color) 80 (Imperial Stout)IBU (Bitterness) IBU (Bitterness) 5 (American Lager) IBU (Bitterness) 50 (IPA) IBU (Bitterness) 100 (BarleyWine)Size/packaging Size/packaging 12 oz Can Size/packaging 22 oz. Bomber Size/packaging 12 oz BottleOrganic Content Organic Content 100% Organic Content 0% Organic Content 50%Calories/serving Calories/serving 300 Calories/serving 300 Calories/serving 300

6 1 7 5Beer 4 ### Beer 5 ### Beer 6 ### Beer 7 ###Price Per One Unit $12 Price Per One Unit $4 Price Per One Unit $8 Price Per One Unit $12ABV % 2% ABV % 12% ABV % 5% ABV % 12%EBC (Color) 33 (Amber Ale) EBC (Color) 80 (Imperial Stout) EBC (Color) 4 (Pale Lager) EBC (Color) 4 (Pale Lager)IBU (Bitterness) 100 (BarleyWine) IBU (Bitterness) 5 (American Lager) IBU (Bitterness) 50 (IPA) IBU (Bitterness) 100 (BarleyWine)Size/packaging 22 oz. Bomber Size/packaging 12 oz Bottle Size/packaging 12 oz Can Size/packaging 12 oz BottleOrganic Content 50% Organic Content 100% Organic Content 0% Organic Content 0%Calories/serving 300 Calories/serving 300 Calories/serving 300 Calories/serving 100

3 5 3 5Beer 8 ### Beer 9 ### Beer 10 12 Beer 11 13Price Per One Unit $4 Price Per One Unit $8 Price Per One Unit $12 Price Per One Unit $4ABV % 5% ABV % 2% ABV % 5% ABV % 2%EBC (Color) 33 (Amber Ale) EBC (Color) 80 (Imperial Stout) EBC (Color) 80 (Imperial Stout) EBC (Color) 4 (Pale Lager)IBU (Bitterness) 5 (American Lager) IBU (Bitterness) 50 (IPA) IBU (Bitterness) 5 (American Lager) IBU (Bitterness) 50 (IPA)Size/packaging 12 oz Can Size/packaging 22 oz. Bomber Size/packaging 22 oz. Bomber Size/packaging 12 oz BottleOrganic Content 50% Organic Content 100% Organic Content 0% Organic Content 50%Calories/serving 100 Calories/serving 100 Calories/serving 100 Calories/serving 100

2 3 2 4Beer 12 14 Beer 13 15 Beer 14 16 Beer 15 17Price Per One Unit $8 Price Per One Unit $12 Price Per One Unit $4 Price Per One Unit $8ABV % 12% ABV % 12% ABV % 5% ABV % 2%EBC (Color) 33 (Amber Ale) EBC (Color) 80 (Imperial Stout) EBC (Color) 4 (Pale Lager) EBC (Color) 33 (Amber Ale)IBU (Bitterness) 100 (BarleyWine) IBU (Bitterness) 50 (IPA) IBU (Bitterness) 100 (BarleyWine) IBU (Bitterness) 5 (American Lager)Size/packaging 12 oz Can Size/packaging 12 oz Can Size/packaging 22 oz. Bomber Size/packaging 12 oz BottleOrganic Content 100% Organic Content 50% Organic Content 100% Organic Content 0%Calories/serving 100 Calories/serving 200 Calories/serving 200 Calories/serving 200

7 6 5 3Beer 16 18 Beer 17 19 Beer 18 20Price Per One Unit $12 Price Per One Unit $4 Price Per One Unit $8ABV % 5% ABV % 2% ABV % 12%EBC (Color) 33 (Amber Ale) EBC (Color) 80 (Imperial Stout) EBC (Color) 4 (Pale Lager)IBU (Bitterness) 50 (IPA) IBU (Bitterness) 100 (BarleyWine) IBU (Bitterness) 5 (American Lager) Please continue to the next pageSize/packaging 12 oz Bottle Size/packaging 12 oz Can Size/packaging 22 oz. Bomber to complete the survey.Organic Content 100% Organic Content 0% Organic Content 50%Calories/serving 200 Calories/serving 200 Calories/serving 200

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Profile Sample

Code Sheet

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Orthogonal Array

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Regression Analysis

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Intercept

Optimal Product

Intercept - Market Barrier to Entry