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Fan-Friendly Food Pricing

5/28/2016

by David Hagenbuch, Founder of Mindful Marketing

What do you like most about going to professional sporting events? Maybe it’s the extraordinary players, the exciting competition, or the electrifying atmosphere. If you’re like most people, it’s probably not the food, given how much you typically need to pay for a rather meager meal.

For instance, the most popular concession at Major League Baseball (MLB) ballparks is the hot dog, which 63% of fans consume and which totals well over 20 million dogs sold per year. Usually such high sales volume translates into low prices for consumers—when companies sell a great deal of something their costs per unit decline, which allows them to pass savings onto customers. For some reason, however, this basic economic principle doesn’t playout for most ballpark concessions.

Out of 31 MLB teams surveyed in 2016, 24 (77.4%) sold hot dogs for $4 or more each, and 13 (41.9%) priced them at $5 or more. The costliest franks were found in New York and Miami, where both the Mets and Marlins sold their dogs for $6.00 each.

These are basically the same hot dogs that we can purchase in a grocery store for around $4 for a pack of eight, or .50 each. Granted, that pricing doesn’t include a bun or condiments, or the cost of cooking and serving the frank. Still, it’s easy to imagine that the markup on hot dogs is very high.

One study of sports stadium pricing found that the profit margin for hot dogs was 62- 81%. While very sizable, that markup was not as high as that of another stadium staple, popcorn (88-92%). Furthermore, drinks almost always maintain margins of 90% or higher.

Research conducted in 2012 calculated how much it would cost a family of four to attend a game in several of the major sports leagues. The results were a series of Fan Cost Indices (FCI). Here’s what a family of four would pay, on average, for little more than a snack—four hotdogs, four soft drinks, and two beers:
- MLB: $43.56
- NBA: $47.72
- NHL: $48.30
- NFL: $52.20

One could argue that fans aren’t obligated to buy this food; however, many stadiums don’t allow outside food, so if fans get hungry or thirsty during the course of 3-4 hours, they have no choice but to buy food and drink inside. This combination of coercion and very high prices fits the definition of price gouging: “pricing above the market price when no alternative retailer is available.”

Given the wide-spread practice of franchises overcharging fans for concessions, it’s refreshing that one firm has resolved to keep food prices reasonable. With help from the city of Atlanta, the AMB Group is building a new home for the NFL’s Falcons and Major League Soccer’s United that is due to open in 2017. At a price tag of $1.5 billion, Mercedes-Benz Stadium will have state-of-the art amenities, including a camera-shutter-like retractable roof and a 360 degree, 58-foot-high, halo video screen.

While one might expect everything sold inside a venue built for $1.5 billion and named Mercedes-Benz to command a premium price, the AMB Group has very intentionally decided to make its meals the lowest priced ones among major team sports. For instance, for just $2 each fans will be able to buy things like hot dogs, pretzels, Dasani bottled water, and regular Coca-Colas. Or, for just $3 they can choose from items like nachos, waffle fries, pizza slices, and peanuts. These prices include tax, and the Coca-Cola even comes with fee/unlimited refills. The bottom-line is that a family of four will be able to enjoy an actual meal for about $27.

How can the AMB Group offer food pricing that’s so much lower than that of other major sports venues? Has the new stadium conceded to taking a loss on concessions? According to AMB Group CEO Stephen Cannon, the arena has adopted a different business model most. Rather than selling the food and drink rights to a concessionaire, the AMB Group has contracted with a company that will function as a service provider, earning a flat fee for providing the stadium’s concessions.

The expected outcomes of retaining more concession-control are not only lower prices but also higher quality and an overall better fan experience. Satisfied fans, then, will likely buy more food, so what the stadium misses in profit per unit, it should make up in volume. Those increased sales will be facilitated by 670 concession points throughout the arena, which represents “65 percent more availability” than the Atlanta Falcons have in their current home, the Georgia Dome.

Charging less for stadium food while enhancing fan satisfaction and profitability will increase stakeholder value and support societal values like fairness and respect. In short, the AMB Group’s fan-friendly pricing is a recipe for culinary success that's also a great example of “Mindful Marketing.”

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Artificial Concern

5/21/2016

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by David Hagenbuch, Founder of Mindful Marketing

“Red 40, Yellow 6, Blue 1, Yellow 5, Blue 2”—That sounds like a quarterback calling a play at the line of scrimmage, but it’s actually a list of some of the ingredients found in a bowl of Post Food’s Fruity Pebbles cereal.

Artificial flavors and colors are nothing new. For hundreds of years food makers have been putting additives into food, ranging from soft drinks to sausages. Just like graphic artists use photo-editing software to alter the reality of what we see, food scientists use artificial ingredients to change the reality of what we taste.

One of the most blatant examples of such alteration involves jelly beans. For instance, how can a tiny ball of sugar taste and even look like buttered popcorn? Jelly Belly makes it happen with a carefully crafted combination of natural and artificial ingredients that include carnauba wax and Yellow 5.

Carnauba wax, an organic compound that comes from the leaves of a palm grown in Brazil, is used to coat many candies to keep them from melting. It’s also found in a variety of household products including car wax. Yellow 5, also called tartrazine, is a widely used synthetic dye that can be found in everything from potato chips to pet food. Apparently the creative concoction works, given that buttered popcorn has become one of Jelly Belly’s most popular beans.

It’s one thing to eat some candy once in a while that contains artificial ingredients. It’s another thing to include additives as a regular part of one’s daily food intake, which takes us back to breakfast cereals. Many people eat cereal, even the same cereal, every day. Furthermore, many breakfast cereals contain artificial colors and flavors; although, that trend may be changing.

Last summer the world’s largest producer of breakfast cereal, Kellogg’s, promised to eliminate all artificial flavors and colors from its cereals and snack bars by the end of 2018. Its largest competitor, General Mills, willed one better. By the end of 2015, the company had already purged artificial colors and flavors from 75% of its cereals, and it had a plan to remove the remainder by the end of 2017.

Cereal makers aren’t the only ones deciding to go more natural. The Huffington Post reported that ten other prominent food companies have resolved to remove artificial colors and flavors by the end of 2018, or sooner. Joining Kellogg’s in that action are companies that include Chipotle, Subway, Taco Bell, Pizza Hut, and Kraft.

Some may be wondering whether these initiatives really matter. Are artificial flavors and colors truly things that should concern consumers, or do efforts to eliminate them represent little more than a positioning ploy—companies hoping to gain goodwill via perceptions that they are more socially conscious than their competitors?

There is evidence to suggest that concerns about artificial ingredients are justified. For instance, in 1906 the U.S. government began investigating the safety of 80 food dyes, and by 1938 only 15 synthetic colors remained that were considered safe enough to be legal. Fast forward to the present, and only seven dyes remain on the Food and Drug Administration’s (FDAs) approved list for use in the U.S. One of those dyes, Yellow 5, is illegal in much of Europe and “is currently undergoing further testing for links to hyperactivity, anxiety, migraines and cancer. You may recall from above that Yellow 5 is the same dye used to color Jelly Belly’s buttered popcorn beans.

Such findings are in keeping with those of researcher Ben Feingold, who in the 1970’s found a positive relationship between children’s consumption of artificial flavors and colors and hyperactivity. In addition, a 24-study meta-analysis conducted in 2012 found that artificial food additives tend to exacerbate symptoms of ADHD for many children. Furthermore, some food dyes have been associated with hypersensitivity in both children and adults.

So, artificial food flavors and colors may be detrimental to us physically and behaviorally, but as with many things in life, demand is king: Some companies won’t adapt their products unless they’re convinced that consumers really prefer those without additives. Well, consumer sentiment seems to be shifting in favor of natural, as “surveys find majorities of respondents saying that artificial chemical additives negatively influence their buying decisions.” More specifically, in its own research, Nestle USA, part of world’s largest food company, has found that people prefer candy without artificial flavors and colors. Those results have led the division to strike such ingredients from its chocolate confections.

Of course, consumers are also notoriously fickle. Sometimes we say we want something different, but then we don’t buy it. Kraft’s recent experience, however, suggests that consumers may truly be willing to change, at least if they don’t realize what’s happening. Last December the company discretely reformulated the recipe of its iconic Mac & Cheese, removing all artificial preservatives, flavors, and colors. In their place, the firm added “natural spices like paprika, annatto and turmeric.” The amazing thing is that almost no one noticed until Kraft revealed its revision, 50 million boxes and several months later.

The bottom line is that eliminating artificial colors and flavors from food seems to be in the best interest of both companies and consumers, enhancing stakeholder value and encouraging society values, such as stewardship and respect. Subtracting additives, therefore, equals another instance of “Mindful Marketing.”

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Poor Taste in Patriotism

5/14/2016

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by David Hagenbuch, Founder of Mindful Marketing

O beautiful for spacious skies,
For amber barley waves,
For golden fountain majesties
Above the hop-filled plains!

America! America! InBev brews for thee,
To fill thy stein with liquor fine
From sea to wining sea!

If this adaptation of “American the Beautiful” sounds like sacrilege, you may have similar misgivings about the latest rebranding of the world’s largest brewery. AB InBev, the parent of major beers like Bud Light, Corona, and Beck’s, has decided to temporarily tweak the label of its signature brand. Between May 23 and the November elections, the company plans to replace the name “Budweiser” on its iconic cans and bottles with the word “America.”

Why the significant switch? According to USA Today, “With Americans participating in the Olympics and a presidential election in full swing, the company believes it’s the perfect time to salute the United States with the new cans.”

This isn’t the first time the giant brewer has sought to position its product using patriotism. Past Budweiser cans have featured American flags and the Statue of Liberty. In addition to the current name change, the new cans also will include lyrics from The Star Spangled Banner and lines from the Pledge of Allegiance.

Given its practice of patriotic promotion, it’s fair to ask to whether Budweiser is truly trying to distill national pride, or if it just realizes that an easy way to turn a buck is to “throw some America on it.” Of course, the real motives of individuals and organizations are difficult to determine, but here are four reasons why we should be skeptical of Budweiser branding its brew “America.”

1. Foreign Ownership: Budweiser is no longer an American owned company. In July 2008, Belgium-based InBev bought Anheuser-Busch for $52 billion, creating AB InBev. The company’s global headquarters is located in Leuven, Belgium. True, Anheuser-Busch has a long history in the U.S., but things are different now that title has transferred to the other side of the Atlantic. One might wonder how Europeans would feel if the Coca-Cola Company captioned its cans “Belgium,” “Germany,” or “France.”

2. Youth Appeal? Patriotism is for everyone; it has no age restrictions. Alcohol, on the other hand, cannot be legally consumed by Americans under age 21, other than for some specific state exceptions. So, while we may want to nurture our children’s nationalism, we can’t encourage them to grab a can of “America” even if they’re old enough to vote for the next president. Unfortunately, however, novelty packaging like Budweiser’s or Snickers changing its candy bar wrappers to words like rebellious, spacey, and grouchy, probably appeal more to younger consumers.

3. “Pour” Associations: Sure, when consumed in moderation, beer can be connected with positive social experiences, like watching the big game with friends. There’s also the dark reality, though, that alcohol is a drug and that it is “the most commonly used addictive substance in the United States.” Furthermore, the outcomes of alcohol abuse include such rampant problems as disease, violence, and drunk driving, which Budweiser spokesperson Helen Mirren, “a notoriously frank and uncensored British lady,” ironically and caustically criticized during the most recent Super Bowl. So, perhaps the tagline for the patriotism-based promotion should be, “Budweiser, as American as Alcoholism.”

4. Respectable or Spectacle? Ultimately, the question comes back to whether Budweiser’s rebranding represents national veneration or denigration. The reasons listed above already seem to lean to the latter. Moreover, it’s hard to take seriously the intentions of a firm that has featured the former governor of California as a ping-pong-playing caricature of himself in a Bud Light ad with the slogan “Up for Whatever Happens Next.” Yes, it’s nice when we can laugh with and perhaps even at our leaders, but what impact does such irreverence have on people’s overall perceptions of politicians and the political process? Speaking of spectacles, it may be telling that Donald Trump has taken credit for the beer’s name change, suggesting that Budweiser was influenced by his own appeal to “Make America Great Again.”

America owes its success in large part to countless companies that satisfy consumers' needs and provide meaningful employment. Some of those businesses have co-branded themselves with the name of their country (e.g. American Airlines, the American Broadcasting Company (ABC), and American Express). These firms’ use of national identify was first very practical—the name represented their location. More importantly, however, their use seemed to be born out of reverence and a long-term commitment, not a flippant short-term promotion.

One of the greatest things about America is that it affords individuals and organizations opportunities to do things they couldn’t do anywhere else. That freedom also should inspire genuine respect for the name of the country where such opportunities abound. Unfortunately, Budweiser's rebranding doesn't demonstrate that respect and is unlikely to result in any significant increase in stakeholder value. For these reasons, beer cans labeled "America" represent a complete case of "Mindless Marketing."

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What are Retailers Up To?

5/7/2016

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by David Hagenbuch, Founder of Mindful Marketing

We are all guilty at times of verbal vagueness. A friend shares something weird he did and we say, “That’s interesting.” A family member asks our opinion of a new recipe she made and we respond, “It’s very unique.”

It’s not surprising, therefore, that many businesses include ambiguity in their promotion. The difference, though, is that this communication is more premeditated and it impacts large numbers of people in significant ways, which is why we need to examine it!

Although there are countless ways in which deception via vagueness can occur, one of the approaches I’m seeing more and more involves the words “Up To.” In fact, even as I was writing the last sentence, a new example entered my inbox! It was an email from Target, telling me that I can “Save up to 60%” on clearance items.

Unfortunately Target is far from the only company employing obscurity as a promotional tactic. A quick scan of emails I received over just the past few days revealed many similar examples:

American Airlines AAdvantage Program: “Save up to 35% on miles for our 35th anniversary”
Bed Bath & Beyond: “Shark Manufacturer’s Savings Event. Up To $70 Off”
Best Buy: “Apple Watch – Save Up To $100”
Dick’s Sporting Goods: “Save up to 50% Off. On Select Items. Online Only”
Home Depot: “Save Up to 50% OFF – Spring Power”
Kohl’s: “Clearance Event. Save Up To 70%”
Lowe’s: “Up To 20% OFF Select Grills”
Office Depot: “Save Up To $200 on select Xerox printers”

Based on my own experience, one of the worst “Up To” offenders is Home Depot. Last week the home improvement giant sent me four emails containing the following ploys: “Up to 50% Off Patio”; “Up to 24 Months Special Financing on your First Storewide Purchase”; “Up to 44% Off Outdoor Power”; “Up to 30% OFF with Appliance Special Buys”; “Up To 10% OFF Kitchenaid Grills.”

But, isn’t retail's offer to save us some money a good thing? It is. The problem with these “Up To” examples, however, is that we don’t know how much we'll actually save. “Up to 70%” could turn out to be a discount of 70%, but it might only mean 5% or 10%, which for most items is not that big of a deal.

When we read these ads, shouldn’t we realize that we won’t necessarily receive the maximum amount? Yes, in a strict rational sense we do draw that conclusion. However, these ads tap into psychological behavior that makes us want to believe we’ll receive the biggest discount.

There’s actually a name for this phenomenon: It’s called unrealistic optimism. Examined in the Journal of Personality and Social Psychology (1980), the theory suggests that when people are presented with the possibility of positive outcomes, they’ll naturally rate their own chances of experiencing the outcomes higher than their peers’ chances. In contrast, if the predicted consequences are negative, people tend to believe others will more likely to experience them.

So, perennial pessimists aside, most people are hardwired to expect best case scenarios for themselves. “Up To” ads play into that unrealistic optimism. Sure, every product won’t be 70% off, but we rationalize that what we’re looking for will be. We take the bait and open the email, visit the website, or drive to the store, etc. As we realize we’re not going to land the deal we had hoped for, each portion of time and effort spent becomes a sunk cost that makes us increasingly unlikely to back out, even if we end up paying more than we planned, or we don’t get exactly what we wanted.

The deception of “Up To” ads is very simple, yet they’re effective because they leverage an advanced understanding of both psychology and economics. Even though consumers are to some extent deceived, if they receive something worthwhile they may still exit the exchange satisfied, albeit not as happy as they had hoped to be. Meanwhile, businesses that make sales tend to be pleased, so “Up To” ads can create stakeholder value, which probably explains why we keep seeing more of them.

Subtle deception, however, is still deception. It might be minor in comparison to other dishonesty, but this intentional elusiveness also erodes the foundation of trust upon which strong societies are built. For these reasons, retailers’ use of “Up To” advertising is an unambiguous example of “Single-Minded Marketing.”

Subscribe to Mindful Matters blog.
Learn more about the Mindful Matrix and Mindful Meter.
Check out Mindful Marketing Ads and Vote your Mind!

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Fan-Friendly Food Pricing

Artificial Concern

Poor Taste in Patriotism

What are Retailers Up To?

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