Sometimes you can learn a lot more about market demographics by hanging around college bars than you can by actually going to that Econ class. Sure, you’ll botch the exam and fail the course, but you might actually learn something. Of course, the ones who get good grades will be paid more out in the real world which will, perversely, assign more credibility to a higher paycheck rather than assigning a higher paycheck to more credibility. Did you follow that? Good.
One of the biggest fallacies to snake its way from school to the open market is demographics analysis and the strange notion that the loudest trend of a certain mono-variant category is indicative of every person to make up the segment. For example: People 18-35 prefer, say, vodka to gin. On the face of it, that shows that the money is in vodka. But is it? This doesn’t mean 98%, or even 51% of the target prefer vodka to gin. It could mean 34%, with smaller groups of 33% and 33% being completely ignored. So, obsessing over market metrics would likely cause you, and everyone else with the same data, to cater to the 34% - engaging in an expensive fight over 1% share while ignoring the less conventional and largely ignored segments that make up 66% of the market.
This seems like an oversimplified example to illustrate a point, and it is, to a degree. But consider for the weird fates of those two beer behemoths Miller and Budweiser. Between the two (and with Coors) they had the US beer market tied up from the end of prohibition to the turn of the century. Bud was the historically bigger player (but no longer), but despite this, every time Miller gained in market share, Bud would quietly tweak its formula to be more like Miller. Miller, following the same logic, would try to copy Bud’s latest adjustment. In essence, both beers were chasing the same flavor profile for 60 years.
It is not just the beer market: turn on your television the season after a break-out medical drama. All you see is medical dramas, or 'singles in the city' comedies, or insightful reality television about beaver trappers. The drift of the players in any market is to become more alike as they compete for domination. Smaller players assume that major ones have done their homework, as opposed to having the resources to court blind luck. Blind luck, however, is more fickle than the spreadsheet lets on.
Charles Darwin tells us that the more diverse an ecosystem, the more stable it is. Species didn’t evolve for direct competition, if that had been the case we’d all be cheetahs and sharks, and soon have nothing to eat than each other and the whole ecosystem would collapse. In fact, successful species evolve to avoid direct competition with each other, not go head to head.
Enter craft beer. Some of it is ridiculous, granted, but in the open market, that generally takes care of itself. The most popular craft beer style is IPA, which wasn’t even widely available 25 years ago. In 2016, US beer consumption was, more or less, static. Yet in the zero-sum pie, craft beer rose by 6.2% to 12.3% of beer by volume. That translates to an increase of 10% of dollar sales to nearly 22% of the US beer market.
A less whimsical example of the same dangers of chasing demographics as opposed to customers can be seen in the last presidential election where, in a free republic where almost anyone can run for president, some 65-75% of electorate hated both viable candidates.
That’s a lot of uncounted people looking for another alternative in beer, politics and beaver pelts. And they are there for the taking.
Originally appeared in Front Street.