Mainstream, Premium, Super Premium: Pricing Strategy Examples from Gevalia and McCormick

Mainstream, Premium, Super Premium: Pricing Strategy Examples from Gevalia and McCormick

Managing a brand in multiple price tiers requires careful portfolio positioning. These two case examples are brands that have clear market strategies for different price tiers. Gevalia challenged Starbucks by taking its direct-to-consumer super premium brand into the premium supermarket retail segment.  McCormick successfully offers both mainstream and premium products, essentially on the same shelf.

Gevalia Builds its “Super Premium” Brand in the US with a Premium DTC Heritage

For more than twenty years, Gevalia coffee was marketed in the US as a super premium DTC (direct-to-consumer) coffee, available through mail order.  The brand was known for its Swedish heritage (as the ‘coffee of kings’), for offering a free coffee maker, and vacuum-sealed “brick” packaging. As of 2011, Gevalia was a nearly $400 million worldwide-brand for Kraft. Its US market position was a niche, super premium business.

The Challenges of Leveraging the Gevalia Brand to Premium at Retail

In 2011, Kraft started marketing Gevalia as a direct competitor to Starbucks in the premium supermarket retail coffee market. Kraft offered the Maxwell House brand in the mainstream price tier, but the company had a portfolio gap in the premium price tier (after coming to the end of the Starbucks distribution agreement). The Gevalia brand was selected to fill the gap, and launch in retail as “Approachable Premium,” priced at $1.00 below Starbucks.

Mainstream, Premium, Super Premium: Pricing Strategy Examples from Gevalia and McCormickWith considerable work and investment, the brand’s product and packaging were completely redone for the supermarket retail channel, and the positioning used was “Rich, Never Bitter,” positioned against the perceived bitter taste of Starbucks.  Not surprisingly, Starbucks responded aggressively to this directly competitive launch by lowering its price and managed to take several large retail accounts away from Gevalia.  Kraft/Gevalia management determined to stay the course to maintain its price position, doing “what it takes.”

As of 2015, the brand enjoyed $235 million in US retail sales. While this represented a 32% increase from 2013’s sales, sales fell from 2014-5. In this highly challenging market, Kraft was able to migrate its brand across channels to fill a portfolio gap and build a competitive business.

How McCormick Successfully Leverages Its Brand Portfolio for Both Mainstream and Premium Markets

A second tiered-pricing example is McCormick.  McCormick successfully competes in both mainstream and premium price points, without undue cannibalization. The company has carefully thought through its consumer targeting and need state strategy, as well as the product and packaging distinctiveness required to offer these two successful lines.

Mainstream, Premium, Super Premium: Pricing Strategy Examples from Gevalia and McCormick

The core, mainstream McCormick brand targets Engaged, Confident Cooks and Committed Cooks for more everyday occasions.  Its products are offered in a plastic container with a paper label.

Mainstream, Premium, Super Premium: Pricing Strategy Examples from Gevalia and McCormickThe McCormick Gourmet sub-brand targets Upscale Engaged, Confident Cooks who put pride in cooking, buy gourmet and value high-quality ingredients. While they use these high-quality ingredients generally, the Make It Impressive occasion/need state is a key focus. The Gourmet line leverages McCormick’s global expertise in crop and regional differences to yield higher-quality spices. The Gourmet line is sold in a distinct, glass octagonal container with a clear film label for a contemporary, no-label look. Additionally, the Gourmet sub-brand was relaunched in 2015 with new varieties and packaging that offers flavor seal technology.

The results are impressive: both the mainstream and premium product are growing.  Mainstream McCormick has 2016 sales of more than $600 million in the US, grew approximately 2.5% in dollars vs. prior year, and is sold at $3.48 on average per unit. The Gourmet sub-brand has sales of over $100 million in 2016,  grew 3.3% vs. prior year and is sold at $5.25/unit.

These two case examples show how brands have addressed the challenges of multi-tier pricing, and the challenges in achieving results. Success comes from developing solid portfolio strategies and consistently applying them, while making tweaks based on market realities.

 

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    Michal Clements

    Michal is co-author of Tuning Into Mom and an experienced consultant. Michal develops winning growth strategies and detailed go to market plans for some of the world’s outstanding organizations including McDonald’s, Gatorade, Abbott, Barilla, Tylenol, Clorox, Key Bank, Eagle Ottawa, Quaker and the Baker Demonstration School.

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