While many people rely on the average item price within a category, segment, or even package size to monitor trends, we believe average item price only tells part of the story and leaves out critical information that can help brands better perform and increase their market share. In this report, we will examine the unit volume distribution across various price bands over time, which is now possible in our new Pricing Band Analysis dashboard in Insights Premium for all Insights Premium markets. We use this information to understand not only broad pricing trends, but also pricing trends of sub-segments of products. Markets are segmented into Value, Core, and Premium priced products. With this segmentation, we can examine emerging sub-segments within categories, whether brands are competing for the same customers within markets, and more.
Good, Better, Best (GBB) pricing is a strategy, sometimes referred to as a price ladder, that suggests offering many different products at different price points, rather than finding the one “single best price” for your products. There are many different types of consumers, each looking to purchase products for all sorts of occasions. By offering products at varying levels of quality and price, companies are able to satisfy the demand of the largest portion of consumers and thus bring in higher revenues. This pricing strategy is often employed by large companies, particularly those with a portfolio of different brands or the ability to tailor their products.
Companies use Good, Better, Best pricing in order to maximize the number of customers they appeal to and have access to more total demand for their products. By offering a range of different brands, or even products, companies are able to meet the varying demands of consumers and ensure that their products are in consideration for all types of consumers. In this report, we explore the emergence of GBB pricing in the cannabis industry and how brands are using this strategy to dominate their markets.
Here we look at three brands in the Molson-Coors portfolio: Keystone Light, Coors Light, and Blue Moon. These three brands of domestic beer give Molson-Coors the ability to offer a Good, Better, and Best price option.
Keystone Light, priced at $0.06/oz., is the cheapest option. This beer offers the most competitive price to consumers. Products in the “Good” pricing category often only coming larger package sizes to further reduce the equivalized price (here, price per Oz).
Coors Light, priced at $0.09/oz., is 50% more expensive than Keystone Light. This beer, while still fairly economical, offers a better flavor and body, thus providing a higher quality product in exchange for the higher price.
Blue Moon, priced at $0.15/Oz, is 50% more expensive than Coors Light. This beer offers the best quality of the three and is priced as such. By offering these three different beers, Molson-Coors is able to serve three different customers in the domestic beer marketplace without compromising their products ’quality or over/under pricing a product to meet consumer needs. Additionally, Molson-Coors can follow customers through their life stages. Keystone Light is a common beer for college students, Coors Light for young professionals, and Blue Moon for those that find themselves enjoying craft beers and will pay more for better quality.
Now that we’ve explored the GBB strategy in the beverages industry, let’s look at how the GBB strategy is emerging in the Alberta Flower market. Above, we see the market for 3.5g packages of Flower in AB showed only two price points last year. We see a Core (Better) priced product centered around $35/package and a smaller distribution of Premium (Best) priced products above the $45 mark. The market was missing a Value segment during this time.
In October 2020, we see the Value segment has emerged with 25% of unit volume for 3.5g packages of Flower to products priced under $25/package. This segment hardly existed last year with only 1% of unit volume. We also start to see a dead zone between the Value and Core segments in the $26-$29 price range. These dead zones often appear in between segments as the price difference becomes too small to sway consumers.
Here we have chosen a five band hierarchy of price to continue our examination of the market for eighths of Flower in AB so that we can explore market share and brand dominance in each of these five spaces. A Premium provider of Flower may not be competing with a Value provider and because of this, we think it is critical to examine each of these markets individually.
In the following slides, we will examine some of these segments and brands that appear to be dominating in each space to better understand the market. More specifically, we will examine brands like Pure Sun farms, which is currently the top brand for 3.5 gram Flower in AB and primarily dominates in the Ultra-Value segment, a new segment that emerged this past year. In this case, we can view Pure Sun farms as a market maker because they likely identified whitespace in the market and developed a product to fill that space to meet consumer demand. Other major brands such as Spinach and QWEST are not the top 3.5 gram Flower brands, but they each dominate a portion of the market (Spinach in Core, and QWEST in Premium). Finally, we will look at major LPs like Canopy and Aphria, which offer products in multiple segments to better capture larger portions of consumer demand.
The cutoff points are subjective. If you prefer to split the market into other sizes or see other pricing bands, our new Pricing Distribution tool in Insights Premium was built specifically with this exercise in mind.
This is the same data we have been examining through the report but represented in a slightly different view. Looking at market share of each price bucket, the Core($28-$35) and Premium ($35-$45) declined considerably in the last year from 74% of the market in 2019 to 51% in October 2020. The Value segment ($25-$28), which was only 3% of sales in 2019 and 11% in October 2020, may not be fully formed and could shift further to the lower end of the pricing band as the new Ultra-Value segment (<$25) appears to be rapidly growing and likely a space where brands will continue to innovate. This Ultra-Value segment will put continued pressure on the Value segment and could lead the Value segment to collapse entirely. Alternatively, brands in the Core segment may recognize the growth in less expensive segments and decide to reduce their price to compete in this new space. As the Ultra-Value segment appears to be dominated by Pure Sun farms, this segment could see competition heat up in coming months. We recommend any brand competing in the Core and Value segments to re-evaluate the pricing market on a bi-weekly basis to ensure they do not miss a rapid shift in prices.
Looking at the Premium segment ($45+), we see the market has been shrinking over the last year. However, a few bright spots remain in this space. For example, brands priced over $50 dollars held their market share at about 5% in both 2019 and 2020. This could mean we see a shift in Ultra-Premium over the next few months as brands re-evaluate their strategy and decide to drop into the Premium space, or increase their quality and begin competing in the higher end of this Ultra-Premium segment.
Here, we look at Canopy’s major Flower brands in AB. We see their Twd. brand offers an Ultra-Value priced product at just under $24. This product captures 15% of Canopy’s total 3.5 gram sales volume. Next, we see Tweed, a Core priced product at $32, which captures over 1/3rd of Canopy’s Flower 3.5gram sales. Finally, we see their three Premium priced brands at or above $43, which capture about 50% of their total Flower 3.5gram sales.
If Canopy offered only one of these products, they would have trouble reaching enough consumers. For example, if they had attempted to find the “best single price", they likely would have chosen the $32 priced product. This decision would have caused them to miss out on the high margin consumers in the Premium segment and the Value consumers, which usually offer high volume and the chance to win consumers early on, when they are new to the market or are budget constrained. In contrast, if Canopy offered all three price points within the same brand, it would be difficult to communicate the additional quality of the Premium brands, which could have led to erosion in the Premium prices they could fetch for their higher priced products. This is an example of GBB pricing at work.
Having a GBB pricing strategy isn’t all upside. A major consideration before attempting this pricing strategy is your competitive landscape. By offering products in three pricing tiers, Canopy must now compete with a large set of brands instead of just a few brands in one segment. Maintaining market share in each segment is difficult and we can see that Canopy has many different competitors to watch. While Canopy owns a top 10 player in three major segments, they lack market dominance in anyone segment. Cronos, which operates only a single Flower brand, Spinach, dominates in the mid-priced segment. Pure Sun farms and QWEST each dominate the under$25 and the over $45, respectively. It seems that brands concentrating on a single consumer segment appear to be winning their spaces. Aphria, which operates Good Supply, RIFF, Broken Coast, and Solei (not listed above), has better dominance in the under $25 and the $28-$35 segments.
Segmenting products by price tier gives us another way to consider market share and rank within the market. In the prior slide, we saw Good Supply, Spinach, and QWEST each dominating Value, Core, and Premium segments, respectively. Looking again at our distribution, we see five distinct segments of price as noted in the visualization above. By using these segments we can better understand which brands are competing for consumer wallet share.
Pure Sun farms, though it is the largest brand in 3.5gram Flower, is likely not competing with QWEST or Flower for consumer wallet as these brands offer vastly different products. Consider the previous beer example, people often will not substitute Keystone for Blue Moon and vice versa. This segmentation of the market gives us a better idea of brands that are positioned well and brands that will likely face more competition. Most of Pure Sun farms’ growth can be attributed to the emergence of the new Ultra-Value segment. In order to continue to grow their brand, they will need to recruit customers to this segment. This could mean attempting to convert consumers of more Premium products to purchase the Ultra-Value products, or convert consumers from the illicit market into the regulated channel by offering prices that are comparable to illicit market purchases.
To compete in this market, brands need to re-evaluate their price strategies often. Above, we look at the average item price of top brands in the Core segment. Take note of Namaste, which underwent a rapid price decline in spring 2020. Canaca, which experienced a decline in market share through the winter and spring (from 10%in October 2019 to 2% in summer 2020), recently decreased their price from an average of $32 to an average of $28. This decline in price was coupled with an increase in market share, raising them to about 5% in October 2020. Namaste saw share erosion through the winter, from 5% in October 2019 to 1% in February 2020. This price decline resulted in a reversal of trends, with Namaste enjoying a 4.6% market share in October 2020.
Both of these brands, which were previously competing in the Core space, now have products priced at $27. This could be troublesome for Spinach, which has declined average prices only 6%, and RIFF, where prices are relatively flat, if consumers view Namaste or Canaca as substitutes. All competitors in the Core space should keep diligent watch over their competitor’s prices or risk missing a fast pricing trend switch, which could leave their brand playing defense in the months to come.
Next, we examine the Chocolate market in Colorado where we will see evidence of Good, Better, Best pricing. However, unlike Canada, we will find that brands only have a product in one segment. In this market, the pricing is serving to keep a competitive advantage in the space as consumers of one chocolate brand are not likely to switch to another due to price differentials. This leaves the Chocolate space in CO ripe for competition as each segment contains only a single competitor. Further, if brands are looking to become more competitive, they may soon begin to consider offering a product in a different pricing segment. What would the impact to Koala Bars be if Coda created a line of value chocolates? If 1906 lowered their prices, would Coda be in store for a difficult winter? These questions are worth considering as we plan for the upcoming year.
Looking at sales of 100mg Chocolates in Colorado in October 2020, it appears there are likely four different price tiers as noted above by the colors. The Value priced segment contains sales of products that are under $14.50. The Core segment contains products priced between $14.50 and $17.50. The Premium segment contains products priced between $17.50 and $19. The Ultra-Premium segment contains products that cost over $19, with most products in this segment often retailing for over $25.This distribution looks similar to the distribution we saw in AB Flower. We also see the market has shifted considerably since October 2019, when the Core segment was not as pronounced and the Value segment was smaller.
Here we see the same graph as before, but focusing on the five major players in the 100mg Chocolate space. There is a single brand dominating each space with Koala Bars leading in Value, Incredibles in Core, Coda Signature in Premium, and 1906 in Ultra-Premium. This presents an interesting market dynamic as we see that brands tend to have a moat around their consumer space. In the edges, we see competition. For example in the $14-$14.50 bucket, Koala Bars and Incredibles each get about50% market share. However as we move above $14.50, that share goes almost completely to Incredibles. This likely means that when Incredibles are priced at or around$14.50, consumers may switch from Koala Bars to Incredibles because they are willing to pay the slight increase in price for the higher quality product.
Here we see three separate brands, each owning a price segment. In Colorado, Koala Bars, Incredibles, 1906, and Coda are four of the largest brands with nearly 2/3rds of the unit volume to one of these brands. Koala Bars owns the Value segment, getting over 75% of unit volume in that segment. Next, we see the Core segment is dominated by Incredibles and the Premium segment dominated by Coda. The Ultra-Premium segment is dominated by 1906. These brands, while not owned by the same company, demonstrate GBB pricing in the market. It is likely difficult for Koala Bars to recruit customers from Coda and vice-versa, since the products are priced so differently. In this market, it appears companies have carved out their niche and we are less likely to find cross-purchasing among consumers. This market also leaves brands vulnerable to a competitor innovating and offering a new product in their domain, which would risk market share loss. For example, Coda could decide to make a new product line of Value Chocolate to attract some of the revenue from Koala Bars.
Good, Better, Best pricing exists in nearly all consumer goods markets and cannabis is no exception. As markets mature, we see brands innovate to offer consumers products at a wide range of price points to suit any need.
Those looking to enter new markets should carefully examine the trends in markets with robust adult-use sales. All markets demonstrate the same pattern of exorbitantly high prices as demand outpaces supply. This is followed by a collapse in prices as brands rush to compete. And finally, the market settles to a predictable place with products across a variety of price points.
Operators in established markets should also take note in the rapid shift in trends. We saw in this report the success of brands in AB that noticed the missing Value segment. Good Supply has made this new segment of <$25 eighths in AB a large and lucrative segment. Being aware of market opportunities is critical to winning market share in the long run. However, new product innovation by the competition isn’t the only concern. Looking at the CO data in this report, imagine if Incredible slow their average item price to $14. This $1.50 decline in price could be enough to convert consumers of Koala Bars into Incredibles as they may be willing to pay the slight increase in order to enjoy a higher quality product.
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